[Federal Register Volume 59, Number 239 (Wednesday, December 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30586]


[[Page Unknown]]

[Federal Register: December 14, 1994]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8573]
RIN 1545-AQ06

 

Information Returns Required of United States Persons With 
Respect To Certain Foreign Corporations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final Income Tax Regulations relating 
to information returns required of United States persons with respect 
to annual accounting periods of certain foreign corporations. These 
regulations clarify certain requirements of the Income Tax Regulations 
relating to Form 5471 and affect controlled foreign corporations and 
their United States shareholders.

EFFECTIVE DATE: January 13, 1995.

FOR FURTHER INFORMATION CONTACT: Carl Cooper, 202-622-3840, not a toll 
free number.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act (44 U.S.C. 3504(h)) 
under control number 1545-1317. Estimates of the reporting burden in 
these final regulations will be reflected in the burden of Form 5471.
    Comments concerning the accuracy of this burden estimate and 
suggestions for reducing this burden should be sent to the Internal 
Revenue Service, Attn: IRS Reports Clearance Officer, PC:FP, 
Washington, DC 20224, and to the Office of Management and Budget, 
Attention: Desk Officer for the Department of the Treasury, Office of 
Information and Regulatory Affairs, Washington, DC 20503.

Background

    On July 7, 1992, the IRS published a notice of proposed rulemaking 
in the Federal Register (57 FR 29851) proposing amendments to the 
Income Tax Regulations (26 CFR part 1) under sections 6035, 6038, and 
6046 of the Internal Revenue Code of 1986 (Code). These amendments were 
proposed to clarify the requirements of Secs. 1.6035-1, 1.6038-2, and 
1.6046-1 of the Income Tax Regulations relating to Form 5471. Written 
comments responding to the notice were received. No public hearing was 
requested and, therefore, no public hearing was held. Some commentators 
suggested that the amendment to Sec. 1.6038-2(h) would impose a greater 
burden with respect to ongoing compliance and conversion of data 
gathering routines than present requirements; however, the majority of 
the responses to this amendment have been favorable. After 
consideration of these comments, the Service has determined that the 
overall burden is alleviated. Thus, having considered all comments 
regarding the proposed amendments, those amendments are adopted (with 
certain effective date changes) by this Treasury decision.
    The changes to paragraph (h) (and corresponding changes in 
Sec. 1.6046-1(g)) are effective for taxable years ending after December 
31, 1994, but only for returns filed after December 31, 1995.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in EO 12866. Therefore, a 
regulatory assessment is not required. It has also been determined that 
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) 
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to 
these regulations, and, therefore, a Regulatory Flexibility Analysis is 
not required. Pursuant to section 7805(f) of the Internal Revenue Code, 
the notice of the proposed rulemaking preceding these regulations was 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Drafting Information

    The principal author of these regulations is Carl Cooper of the 
Office of Associate Chief Counsel (International), IRS. However, 
personnel from other offices of the IRS and Treasury Department 
participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority for part 1 continues to read in part as 
follows:

    Authority: 26 U.S.C. 7805 * * *


Sec. 1.6035  [Amended]

    Par. 2. Section 1.6035-1, paragraph (a)(1) is amended by adding a 
sentence at the end to read as follows:


Sec. 1.6035-1  Returns of U.S. officers, directors and 10-percent 
shareholders of foreign personal holding companies for taxable years 
beginning after September 3, 1982.

    (a) * * *
    (1) * * * In the case of a foreign personal holding company which 
is a specified foreign corporation (as defined in section 898), the 
taxable year of such corporation shall be treated as its annual 
accounting period.
* * * * *


Sec. 1.6038  [Amended]

    Par. 3. Section 1.6038-2 is amended as follows:
    1. Paragraph (d)(5) is added following paragraph (d)(4) and 
immediately before the concluding text.
    2. Paragraph (e) is amended by removing the third sentence and 
adding two new sentences in its place.
    3. Paragraph (f)(10)(iii) is amended by removing the word ``and'' 
immediately following the semicolon and paragraph (f)(10)(iv) is 
amended by removing the colon and adding a semicolon in its place.
    4. Paragraph (f)(10)(v) is added.
    5. Paragraph (g) is amended as follows:
    a. The introductory text of paragraph (g) is amended by replacing 
the colon with a period and adding a second sentence at the end.
    b. The concluding text of paragraph (g) is amended by removing the 
words ``form and''.
    6. Paragraph (h) is revised.
    7. The additions and revisions read as follows:


Sec. 1.6038-2  Information returns required of United States persons 
with respect to annual accounting periods of certain foreign 
corporations beginning after December 31, 1962.

* * * * *
    (d) * * *
    (5) For taxable years ending after December 31, 1987, with respect 
to a corporation organized under the laws of American Samoa, the term 
does not include an individual who is a bona fide resident of American 
Samoa, provided--
    (i) 80 percent or more of the gross income of the corporation for 
the 3-year period ending at the close of the taxable year (or for such 
part of such period as such corporation or any predecessor has been in 
existence) was derived from sources within American Samoa or was 
effectively connected with the conduct of a trade or business in 
American Samoa; and
    (ii) 50 percent or more of the gross income of such corporation for 
such period (or part) was derived from the conduct of an active trade 
or business within American Samoa.
* * * * *
    (e) * * * In the case of a specified foreign corporation (as 
defined in section 898), the taxable year of such corporation shall be 
treated as its annual accounting period. The term annual accounting 
period may refer to a period of less than one year, where, for example, 
the foreign income, war profits, and excess profits taxes are 
determined on the basis of an accounting period of less than one year 
as described in section 902 (c) (5). * * *
    (f) * * *
    (10) * * *
    (v) For Forms 5471 filed for taxable years ending after December 
15, 1990, such earnings and profits information as the form shall 
prescribe, including post-1986 undistributed earnings described in 
section 902(c)(1), pre-1987 amounts, total earnings and profits, and 
previously taxed earnings and profits described in section 959(c); and
* * * * *
    (g) Financial statements. * * * Forms 5471 filed after September 
30, 1991, shall contain this information in such form or manner as the 
form shall prescribe with respect to each foreign corporation:
* * * * *
    (h) Method of reporting. Except as provided in this paragraph (h), 
all amounts furnished under paragraphs (f) and (g) of this section 
shall be expressed in United States dollars with a statement of the 
exchange rates used. The following rules shall apply for taxable years 
ending after December 31, 1994, with respect to returns filed after 
December 31, 1995. All amounts furnished under paragraph (g) of this 
section shall be expressed in United States dollars computed and 
translated in conformity with United States generally accepted 
accounting principles. Amounts furnished under paragraph (g)(1) of this 
section shall also be furnished in the foreign corporation's functional 
currency as required on the form. Earnings and profits amounts 
furnished under paragraphs (f)(10) (i), (iii), (iv), and (v) of this 
section shall be expressed in the foreign corporation's functional 
currency except to the extent the form requires specific items to be 
translated into United States dollars. Tax amounts furnished under 
paragraph (f)(10)(ii) of this section shall be furnished in the foreign 
currency in which the taxes are payable and in United States dollars 
translated in accordance with section 986(a). All amounts furnished 
under paragraph (f)(11) of this section shall be expressed in U.S. 
dollars translated from functional currency at the weighted average 
exchange rate for the year as defined in Sec. 1.989(b)-1. The foreign 
corporation's functional currency is determined under section 985. All 
statements submitted on or with the return required under this section 
shall be rendered in the English language.
* * * * *


Sec. 1.6046-1  [Amended]

    Par. 4. Section 1.6046-1 is amended as follows:
    1. Paragraph (b)(10) introductory text is amended by removing the 
language ``A copy of the following statements'' and adding ``The 
following information'' in its place; and by removing the language 
``form and''.
    2. Paragraph (f)(5) is added.
    3. Paragraph (g) is amended by adding three sentences at the end.
    4. The additions and revisions read as follows:


Sec. 1.6046-1  Returns as to organization or reorganization of foreign 
corporations and as to acquisitions of their stock, on or after January 
1, 1963.

* * * * *
    (f) * * *
    (5) Accounting period and taxable year. In the case of a specified 
foreign corporation (as defined in section 898), the taxable year of 
such corporation shall be treated as its annual accounting period.
    (g) * * * For taxable years ending after December 31, 1994, with 
respect to returns filed after December 31, 1995, all amounts furnished 
under paragraph (c) of this section shall be expressed in United States 
dollars computed and translated in conformity with United States 
generally accepted accounting principles. Amounts furnished under 
paragraph (c)(3)(i) of this section shall also be furnished in the 
foreign corporation's functional currency as required on the form. 
Information described in paragraphs (b)(10) and (c)(3) of this section 
shall be submitted in such form or manner as the form shall prescribe.
* * * * *

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 6. The authority for part 602 continues to read as follows:

    Authority: 26 U.S.C. 7805.

    Par. 7. Section 602.101, paragraph (c) is amended by removing the 
existing entries for 1.6038-2 and 1.6046-1 from the table and adding 
the following entries to the table in numerical order to read as 
follows:


Sec. 602.101  OMB Control numbers.

* * * * *
    (c) * * *

------------------------------------------------------------------------
                                                             Current OMB
     CFR part or section where identified and described      control No.
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                                  *****                                 
1.6038-2...................................................    1545-0704
                                                               1545-0805
                                                               1545-1317
                                  *****                                 
1.6046-1...................................................    1545-0704
                                                               1545-0794
                                                               1545-1317
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Margaret Milner Richardson,
Commissioner of Internal Revenue.

    Approved: November 10, 1994.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-30586 Filed 12-13-94; 8:45 am]
BILLING CODE 4830-01-U