March 23, 2020 / Rules and Regulations 16245
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Federal Register / Vol. 85, No. 56 / Monday, March 23, 2020 / Rules and Regulations 16245 Pine River, MN, Pine River Rgnl, NDB RWY Applicability dates: For dates of section 901(m) are not implicated in 34, Amdt 2A applicability, see §§ 1.704– such a situation because if the same Staples, MN, Staples Muni, NDB RWY 14, 1(b)(1)(ii)(b)(4), 1.901(m)–1(b), group takes into account the gains on Amdt 3C 1.901(m)–2(f), 1.901(m)–3(d), 1.901(m)– the RFAs up front and then, in the Tarkio, MO, Gould Peterson Muni, Takeoff future recognizes offsetting cost Minimums and Obstacle DP, Amdt 1 4(g), 1.901(m)–5(i), 1.901(m)–6(d), Trenton, MO, Trenton Muni, NDB RWY 18, 1.901(m)–7(g), and 1.901(m)–8(e). recovery items on those assets, over Amdt 7D, CANCELLED FOR FURTHER INFORMATION CONTACT: time, the U.S. income tax base is Trenton, MO, Trenton Muni, NDB RWY 36, Jeffrey L. Parry at (202) 317–6936 (not unchanged. Amdt 10B, CANCELLED a toll-free number). The Treasury Department and IRS Tioga, ND, Tioga Muni, RNAV (GPS) RWY SUPPLEMENTARY INFORMATION: agree that an exemption would be 12, Orig-B appropriate in certain cases, but have Toledo, OH, Toledo Executive, Takeoff Background determined that the comment’s Minimums and Obstacle DP, Amdt 3 On December 7, 2016, both a notice of suggestion is overbroad. As proposed by Gregory, SD, Gregory Muni—Flynn Fld, proposed rulemaking by cross-reference the comment, the exemption would RNAV (GPS) RWY 13, Orig-C apply to U.S. members of an affiliated Pierre, SD, Pierre Rgnl, ILS OR LOC RWY 31, in part to temporary regulations (REG– Amdt 13 129128–14) (2016 proposed regulations) group that do not file a consolidated Gilmer, TX, Fox Stephens Field-Gilmer under sections 901(m) and 704 of the return and to related controlled foreign Muni, VOR/DME–A, Amdt 1A, Code and temporary regulations (TD corporations. This leaves open the CANCELLED 9800) under section 901(m) were possibility of manipulation of foreign Houston, TX, William P Hobby, Takeoff published in the Federal Register at 81 tax credits. For example, in the case of Minimums and Obstacle DP, Amdt 7 FR 88562 and 81 FR 88103. The affiliated but non-consolidated U.S. Mount Pleasant, TX, Mount Pleasant Rgnl, temporary and proposed regulations entities, the entity recognizing the U.S. VOR/DME–A, Orig-A, CANCELLED gain on the assets up front may be an Sulphur Springs, TX, Sulphur Springs Muni, include the rules described in Notice 2014–44 (2014–32 I.R.B. 270 (August 4, entity that is exempt from tax under RNAV (GPS) RWY 1, Amdt 1C section 501 while the entity recognizing Terrell, TX, Terrell Muni, NDB RWY 17, 2014)) and Notice 2014–45 (2014–34 Amdt 4, CANCELLED I.R.B. 388 (August 18, 2014). the offsetting cost recovery items may be Ogden, UT, Ogden-Hinckley, ILS OR LOC A public hearing was not requested, in a position to take advantage of the RWY 3, Amdt 5A and none was held. However, the excess foreign taxes related to the basis Newport News, VA, Newport News/ Department of the Treasury (Treasury difference. Williamsburg Intl, ILS OR LOC RWY 7, Department) and the IRS received The Treasury Department and IRS Amdt 35 written comments in response to the have determined that the exemption Marshfield, WI, Marshfield Muni, SDF RWY notice of proposed rulemaking. After should apply only if a domestic section 34, Amdt 7, CANCELLED consideration of all the comments, the 901(m) payor or a member of its [FR Doc. 2020–05870 Filed 3–20–20; 8:45 am] 2016 proposed regulations under consolidated group recognized the gains or losses or took into account a BILLING CODE 4910–13–P section 901(m) are adopted as revised by distributive share of the gains or losses this Treasury decision. The revisions are recognized by a partnership for U.S. tax discussed in this preamble. This purposes as part of the original CAA. DEPARTMENT OF THE TREASURY Treasury decision also adopts the 2016 Accordingly, the definition of aggregate proposed regulations under section 704 basis difference is modified to take into Internal Revenue Service without revision. The regulations account allocated basis difference adopted by this Treasury decision are adjustments determined based on gain 26 CFR Part 1 referred to herein as the ‘‘final or loss recognized with respect to an regulations.’’ Defined terms used in this [TD 9895] RFA as a result of a CAA. See preamble but not defined herein have RIN 1545–BM36 § 1.901(m)–1(a)(1), (6), (48), and (49). the meaning provided in the final For example, if one domestic regulations. Covered Asset Acquisitions corporation, USS1, sold a foreign Summary of Comments and disregarded entity (FDE) that held an AGENCY: Internal Revenue Service (IRS), Explanation of Revisions asset to another member of its Treasury. consolidated group, USS2, the ACTION: Final regulations and removal of 1. Scope of Covered Asset Acquisitions transaction is a CAA, because it is an temporary regulations. (CAAs) asset sale for U.S. income tax purposes Proposed § 1.901(m)–2(b) identifies and an acquisition of stock of the FDE SUMMARY: This document contains final six categories of transactions that for foreign tax purposes. As a result, the Income Tax Regulations under section constitute CAAs, three of which are asset is an RFA owned by USS2 subject 901(m) of the Internal Revenue Code specified in the statute and three of to section 901(m). However, any (Code) with respect to transactions that which are additional categories of aggregate basis difference USS2 generally are treated as asset transactions that are identified as CAAs determines with respect to the RFA will acquisitions for U.S. income tax pursuant to the authority granted under be adjusted to take into account the gain purposes and either are treated as stock section 901(m)(2)(D). recognized for U.S. income tax purposes acquisitions or are disregarded for One comment requested that an by USS1 on the original sale, provided foreign income tax purposes. These exemption to section 901(m) be USS1 and USS2 are still members of the regulations are necessary to provide provided for CAAs in which all or same consolidated group in the year the guidance on applying section 901(m). substantially all of the gains and losses allocated basis difference is determined. These regulations affect taxpayers with respect to the relevant foreign Another comment suggested that the claiming foreign tax credits. assets (RFAs) are recognized by final category of transactions, which DATES: members of the U.S.-parented group that includes any asset acquisition for U.S. Effective date: These regulations are includes the section 901(m) payor. The and foreign income tax purposes that effective on March 23, 2020. comment suggested that the policies of results in an increase in the U.S. basis VerDate Sep<11>2014 16:09 Mar 20, 2020 Jkt 250001 PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 E:\FR\FM\23MRR1.SGM 23MRR1 jbell on DSKJLSW7X2PROD with RULES 16246 Federal Register / Vol. 85, No. 56 / Monday, March 23, 2020 / Rules and Regulations without a corresponding increase in the difference carryover rule is necessary to and (g)(3) of proposed § 1.901(m)–4 foreign basis, be replaced with one or prevent the avoidance of the purpose of provide that taxpayers may apply the more specifically defined transactions. section 901(m), particularly in the case foreign basis election retroactively to The comment recommended that new of timing differences. For example, CAAs that have occurred on or after CAAs be limited to specific transactions assume a section 901(m) payor that is January 1, 2011, provided that the that are likely to achieve the same also a foreign payor has a foreign taxable taxpayer applies all of the rest of the hyping of foreign tax credits as the three year ending on March 31 and a U.S. rules in the 2016 proposed regulations categories of CAAs specified in the taxable year ending on December 31. retroactively, with a few limited statute and that typically involve Assume further that the section 901(m) exceptions. intensive U.S. tax planning. The payor recognizes foreign gain on the One comment suggested that though comment also suggested that if the disposition of an RFA on November 30, this consistency requirement is Treasury Department and IRS found a in U.S. tax year 1. For U.S. income tax appropriate for tax years that remain list of specific transactions to be too purposes, because the disposition open, the requirement is unfair if some limited, they could add an anti-abuse occurs in U.S. tax year 1, the section tax years of the taxpayer or its affiliates rule that would treat any transaction as 901(m) payor will have allocated basis are already closed. The comment a CAA if it was structured with a difference in U.S. tax year 1, requiring recommended the consistency principal purpose of avoiding the a calculation of a disqualified tax requirement be modified to permit specific categories of transactions set amount. For foreign income tax taxpayers to apply the foreign basis forth in the revised list of transactions. purposes, the foreign tax on the gain is election as long as they apply the rules The Treasury Department and IRS do not imposed until the end of the foreign in the 2016 proposed regulations not agree that the final category of taxable year, which is March 31, in U.S.