Federal Register/Vol. 65, No. 15/Monday, January 24, 2000/Rules and Regulations

Federal Register / Vol. 65, No. 15 / Monday, January 24, 2000 / Rules and Regulations 3589 2. Adding the following entry in Paperwork Reduction Act regulations related to section 367(b) that numerical order to the table to read as The collections of information were not addressed in the 1998 follows: contained in these final regulations have regulations. After consideration of the 1977 § 602.101 OMB Control numbers. been reviewed and approved by the Office of Management and Budget in regulations and their updates and * * * * * amendments, the 1991 proposed (b) * * * accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under regulations and their updates and control number 1545±1271. Responses amendments, the 1998 regulations, and CFR part or section where Current OMB all comments received with respect to identified and described control No. to these collections of information are mandatory. such regulations, the IRS and Treasury An agency may not conduct or adopt §§ 1.367(b)±1 through 1.367(b)±6 *****sponsor, and a person is not required to as final regulations under section 1.367(b)±3T .......................... 1545±1666 respond to, a collection of information 367(b). *****unless the collection of information Overview displays a valid control number. The estimated average annual A. General Policies of Section 367(b) John M. Dalrymple, reporting burden in these final Section 367(b) governs corporate Acting Deputy Commissioner of Internal regulations is 4 hours. restructurings under sections 332, 351, Revenue. Comments concerning the accuracy of 354, 355, 356, and 361 (except to the Approved: December 22, 1999. this burden estimate and suggestions for extent described in section 367(a)(1)) in Jonathan Talisman, reducing this burden should be sent to which the status of a foreign corporation Acting Assistant Secretary of the Treasury. the Internal Revenue Service, Attn: IRS as a ``corporation'' is necessary for [FR Doc. 00±1379 Filed 1±21±00; 8:45 am] Reports Clearance Officer, OP:FS:FP, application of the relevant Washington, DC 20224, and to the nonrecognition provisions. Section BILLING CODE 4830±01±U Office of Management and Budget, Attn: 367(b) provides that a foreign Desk Officer for the Department of the corporation that is a party to one of the DEPARTMENT OF THE TREASURY Treasury, Office of Information and enumerated nonrecognition transactions Regulatory Affairs, Washington, DC shall be respected as a corporation, and Internal Revenue Service 20503. thereby the parties involved in the Books or records relating to these transaction shall obtain the benefits of 26 CFR Parts 1, 7, and 602 collections of information must be the applicable nonrecognition exchange retained as long as their contents may provisions and their related provisions [TD 8862] become material in the administration (such as section 381) (together, the RIN 1545±AI32 of any internal revenue law. Subchapter C provisions), except to the Generally, tax returns and tax return extent provided in regulations. Stock Transfer Rules information are confidential, as required The principal purpose of section AGENCY: Internal Revenue Service (IRS), by 26 U.S.C. 6103. 367(b) is to prevent the avoidance of Treasury. U.S. tax that can arise when the Background Subchapter C provisions apply to ACTION: Final and temporary On December 27, 1977, the IRS and transactions involving foreign regulations. Treasury issued proposed and corporations. The potential for tax SUMMARY: This document contains final temporary regulations under section avoidance arises because of differences regulations addressing the application 367(b) of the Internal Revenue Code between the manner in which the of nonrecognition exchange provisions (Code). Subsequent guidance updated United States taxes foreign corporations in Subchapter C of the Internal Revenue and amended the 1977 temporary and their shareholders and the manner Code to transactions that involve one or regulations (the 1977 regulations) in which the United States taxes more foreign corporations. These several times over the next 14 years. On domestic corporations and their U.S. regulations provide guidance for August 26, 1991, the IRS and Treasury shareholders. taxpayers engaging in those transactions issued proposed regulations The Subchapter C provisions in order to determine the extent to §§ 1.367(b)±1 through 1.367(b)±6 (the generally have been drafted to apply to which income shall be included and 1991 proposed regulations). Comments domestic corporations and U.S. appropriate corresponding adjustments to the 1991 proposed regulations were shareholders, and thus do not fully take shall be made. received, and a public hearing was held into account the cross-border aspects of on November 22, 1991. In June of 1998, U.S. taxation (such as deferral, foreign DATES: Effective Date. These regulations the IRS and Treasury issued final tax credits, and section 1248). Section are effective as of February 23, 2000. Applicability Dates. These regulations regulations under sections 367(a) and 367(b) was enacted to help ensure that apply to section 367(b) exchanges that (b) (the 1998 regulations). The 1998 international tax considerations in the occur on or after February 23, 2000. regulations addressed transactions Code are adequately addressed when However, taxpayers may choose to under section 367(b) only to the extent the Subchapter C provisions apply to an apply these regulations to section 367(b) the transactions are also subject to the exchange involving a foreign exchanges that occur before February stock transfer rules of section 367(a). corporation. Because determining the 23, 2000, as specified in § 1.367(b)± Thus, the 1977 regulations have proper interaction of the Code's 6(a)(2). remained in effect to the extent not international and Subchapter C superseded by the 1998 regulations. The provisions is ``necessarily highly FOR FURTHER INFORMATION CONTACT: preamble to the 1998 regulations stated technical,'' Congress granted the Mark D. Harris, (202) 622±3860 (not a that the IRS and Treasury would issue Secretary broad regulatory authority to toll-free number). guidance at a later date to address the provide the ``necessary or appropriate'' SUPPLEMENTARY INFORMATION: portions of the 1991 proposed rules, rather than enacting a complex VerDate 04<JAN>2000 12:17 Jan 21, 2000 Jkt 190000 PO 00000 Frm 00007 Fmt 4700 Sfmt 4700 E:\FR\FM\24JAR1.SGM pfrm03 PsN: 24JAR1 3590 Federal Register / Vol. 65, No. 15 / Monday, January 24, 2000 / Rules and Regulations statutory regime. H.R. Rep. No. 658, foreign to domestic corporations. This 367(b) policy of determining the 94th Cong., 1st Sess. 241 (1975). consideration has interrelated appropriate carryover of corporate-level Accordingly, as the preamble to the shareholder-level and corporate-level attributes in inbound nonrecognition 1991 proposed regulations stated, the components. At the shareholder level, transactions. Thus, the final regulations section 367(b) regulations require the section 367(b) regulations are retain the 1991 proposed regulations' adjustments or inclusions in order to concerned with the proper taxation of definition of all earnings and profits prevent the material distortion of previously deferred earnings and amount. The final regulations also income that can occur when the profits. At the corporate level, the generally retain (subject to a new de Subchapter C provisions apply to an section 367(b) regulations are concerned minimis exception) the taxation of all exchange involving a foreign with both the extent and manner in exchanging U.S. shareholders in corporation. The 1991 proposed which tax attributes carry over in light inbound nonrecognition transactions. regulations simplified the 1977 of the variations between the Code's In finalizing these regulations, the IRS regulations and were generally favorably taxation of foreign and domestic and Treasury considered whether future received by taxpayers. The final corporations. section 367(b) regulations should limit regulations adopt the 1991 proposed The section 367(b) regulations have the extent to which tax attributes carry regulations with modifications. The historically focused on the carryover of over from foreign to domestic modifications are based on further earnings and profits and bases of assets, corporations. Such a limitation would considerations of fairness, simplicity, simultaneously addressing the more directly implement the section and administrability. shareholder and corporate level 367(b) policy related to the carryover of The final regulations also incorporate concerns by accounting for any attributes and, as a result, reduce the the section 367(b) rules contained in the necessary adjustments through an class of U.S. persons required to have an 1998 regulations. The 1998 regulations income inclusion by the U.S. income inclusion in connection with an finalized portions of the 1991 proposed shareholders of the foreign acquired inbound nonrecognition transaction. regulations to the extent necessary to corporation (and without limiting the Such a limitation would also enable the address the overlap between section extent to which the domestic acquiring section 367(b) regulations to address the 367(b) and the section 367(a) stock corporation succeeds to the attributes). carryover of attributes attributable to a transfer rules. Because the scope of the The 1991 proposed regulations required non-U.S. person's holding period. The final regulations is broader than that a U.S. shareholder of the foreign

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