[Federal Register Volume 60, Number 232 (Monday, December 4, 1995)]
[Rules and Regulations]
[Pages 62024-62026]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28802]



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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8618]
RIN 1545-AM15


Definition of a Controlled Foreign Corporation, Foreign Base 
Company Income and Foreign Personal Holding Company Income of a 
Controlled Foreign Corporation; Correction

AGENCY: Internal Revenue Service, Treasury.

ACTION: Correction to final regulations.

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SUMMARY: This document contains corrections to final regulations (TD 
8618) which were published in the Federal Register, Thursday, September 
7, 1995 (60 FR 46500), governing the definition of a controlled foreign 
corporation and the definitions of foreign base company income and 
foreign personal holding company income of a controlled foreign 
corporation.

EFFECTIVE DATE: September 7, 1995.

FOR FURTHER INFORMATION CONTACT: Valerie Mark, (202) 622-3840 (not a 
toll-free call).

SUPPLEMENTARY INFORMATION:

Background

    The final regulations that are the subject of these corrections 
amend the Income Tax Regulations (26 CFR Part 1) under sections 954(b), 
954(c) and 957(a) of the Internal Revenue Code.

Need for Correction

    As published, the final regulations (TD 8618) contain errors which 
may prove to be misleading and are in need of clarification.

Correction of Publication

    Accordingly, the publication of the final regulations (TD 8618), 
which was the subject of FR Doc. 95-21838, is corrected as follows:
    1. On page 46501, column 3, in the preamble under the paragraph 
heading ``Section 1.954-1: Foreign Base Company Income'', paragraph 1 
in the column, the sixth line from the bottom of the paragraph, the 
language ``904(f)(5). Commentators stated that'' is corrected to read 
``904(f)(5). Commenters stated that''.
    2. On page 46503, column 2, in the preamble under the paragraph 
heading ``Section 1.954-2: Foreign Personal Holding Company Income'', 
the first full paragraph in the column, line 6, the language 
``transactions entered on or after March 7,'' is corrected to read 
``transactions entered into on or after March 7,''.
    3. On page 46505, column 2, in the preamble under the paragraph 
heading ``Section 1.954-2: Foreign Personal Holding Company Income'', 
the second full paragraph in the column, line 3, the language ``1.952-
2(e)(3)(iv) excludes from foreign'' is corrected to read ``1.954-
2(e)(3)(iv) excludes from foreign''.


Sec. 1.954-0  [Corrected]

    4. On page 46509, middle of column 1, Sec. 1.954-0 (b), the entry 
for Sec. 1.954- 2(b)(3), ``(3) Treatment of tax-exempt interest. 
[RESERVED.]'' is corrected to read ``(3) Treatment of tax-exempt 
interest. [RESERVED]''.


Sec. 1.954-1  [Corrected]

    5. On page 46513, column 2, Sec. 1.954-1(d)(7)(i), paragraph (ii) 
of Example 1, line 7, the language ``subpart F under the rules of this 
paragraph'' is corrected 

[[Page 62025]]
to read ``subpart F income under the rules of this paragraph''.
    6. On page 46513, column 2, Sec. 1.954-1(d)(7)(i), paragraph (ii) 
of Example 1, line 18, the language ``year is 34 percent. Accordingly, 
the net item'' is corrected to read ``year is 35 percent. Accordingly, 
the net item''.
    7. On page 46513, column 2, Sec. 1.954-1(d)(7)(i), paragraph (ii) 
of Example 1, the third and fourth lines from the bottom of the 
paragraph, the language ``that is greater that 30.6 percent (90 percent 
of 34 percent). However, for purposes of'' is corrected to read ``that 
is greater than 31.5 percent (90 percent of 35 percent). However, for 
purposes of''.
    8. On page 46513, column 2, Sec. 1.954-1(d)(7)(i), paragraph (ii) 
of Example 2, line 2, the language ``greater than 30.6 percent. The net 
item of'' is corrected to read ``greater than 31.5 percent. The net 
item of''.
    9-11. On page 46513, column 3, Sec. 1.954-1 (d)(7)(i), paragraph 
(ii) of Example 3, line 3, the language ``greater than 30.6 percent, 
but Item 2 is not.'' is corrected to read ``greater than 31.5 percent, 
but Item 2 is not.''.
    12-13. On page 46513, column 3, Sec. 1.954-1 (d)(7)(i), Example 4, 
line 7, the language ``effective rate greater than 30.6 percent. The'' 
is corrected to read ``effective rate greater than 31.5 percent. The''.
    14. On page 46514, column 2, Sec. 1.954-1 (d)(7)(ii), paragraph 
(iv) of Example 1, the last two lines of the paragraph, the language 
``States rate of taxation under section 11 is 34 percent.'' is 
corrected to read ``States rate of taxation under section 11 is 35 
percent.''.
    15. On page 46514, column 3, Sec. 1.954-1 (d)(7)(ii), paragraph (v) 
of Example 1, the fourteenth line from the bottom of the column, the 
language ``tax rate . . . . . . 30.6%'' is corrected to read ``tax rate 
. . . . . . 31.5%''.

    16. On page 46515, column 1, Sec. 1.954-1 (d)(7)(ii), paragraph (v) 
of Example 1, in item ``(29)'', the last line, the language

``line (27) over line (26) . . . . . . 100'' is corrected to read

``line (27) over line (26)) . . . . . . 100''.

    17. On page 46515, column 2, Sec. 1.954-1 (d)(7)(ii), paragraph 
(iv) of Example 2, the last line, the language ``of taxation under 
section 11 is 34 percent'' is corrected to read ``of taxation under 
section 11 is 35 percent''.
    18. On page 46515, column 3, Sec. 1.954-1 (d)(7)(ii), paragraph (v) 
of Example 2, in item ``(15)'', the last line, the language

``tax rate . . . . . . 30.6%'' is corrected to read

``tax rate . . . . . . 31.5%''.

    19. On page 46517, column 1, Sec. 1.954-1 (f)(2)(iv), line 4, the 
language ``the principles of section 958(a) shall be'' is corrected to 
read ``the principles of section 958 shall be''.


Sec. 1.954-2  [Corrected]

    20. On page 46521, column 3, Sec. 1.954-2 (b)(4)(x), is corrected 
to read as follows:


Sec. 1.954-2  Foreign personal holding company income.

* * * * *
    (b) * * *
    (4) * * *
    (x) Treatment of certain stock interests. Stock in a controlled 
foreign corporation (lower-tier corporation) that is incorporated in 
the same country as the payor and that is more than 50-percent owned, 
directly or indirectly, by the payor within the meaning of section 
958(a) shall be considered located in the payor's country of 
incorporation and, solely for purposes of section 954(c)(3), used in a 
trade or business of the payor in proportion to the value of the assets 
of the lower-tier corporation that are used in a trade or business in 
the country of incorporation. The location of assets used in a trade or 
business of the lower-tier corporation shall be determined under the 
rules of this paragraph (b)(4).
* * * * *
    21. On page 46523, column 2, Sec. 1.954-2 (d)(1)(i), line 6, the 
language ``creation, or production of, or in the'' is corrected to read 
``creation or production of, or in the''.
    22. On page 46523, column 3, Sec. 1.954-2 (d)(3), Example 1, line 
4, the language ``country X. At the research facility employees'' is 
corrected to read ``country X. At the research facility, employees''.
    23. On page 46523, column 3, Sec. 1.954-2 (d)(3), Example 1, line 
18, the language ``creation, or production of, or in the'' is corrected 
to read ``creation or production of, or in the''.
    24. On page 46524, column 3, Sec. 1.954-2 (e)(2)(ii) introductory 
text, line 2, the language ``the sale, exchange, or retirement of a'' 
is corrected to read ``the sale, exchange or retirement of a''.
    25. On page 46525, column 2, Sec. 1.954-2 (f)(2)(iii)(A), line 6, 
the language ``merchant, or handler of commodities if'' is corrected to 
read ``merchant or handler of commodities if''.
    26. On page 46525, column 2, Sec. 1.954-2 (f)(2)(iii)(B) 
introductory text, line 5, the language ``producer, processor, 
merchant, or'' is corrected to read ``producer, processor, merchant 
or''.
    27. On page 46525, column 3, Sec. 1.954-2 (f)(2)(iii)(C), line 4, 
the language ``processor, merchant, or handler of'' is corrected to 
read ``processor, merchant or handler of''.
    28. On page 46525, column 3, Sec. 1.954-2 (f)(2)(iii)(E), line 4, 
the language ``producer, processor, merchant, or'' is corrected to read 
``producer, processor, merchant or''.
    29. On page 46526, column 1, Sec. 1.954-2 (g)(2)(ii)(A), line 1, 
the language ``General Rule. Foreign currency gain or'' is corrected to 
read ``General rule. Foreign currency gain or''.
    30. On page 46527, column 2, Sec. 1.954-2 (g)(3)(iv), paragraph 
(ii) of the Example, third line from the bottom of the paragraph, the 
language ``transactions generate a net foreign currency'' is corrected 
to read ``transactions generate a net foreign base company sales''.
    31. On page 46528, column 1, Sec. 1.954-2 (h)(2)(i)(A), line 3, the 
language ``payments, cash flows, or return'' is corrected to read 
``payments, cash flows or return''.
    32. On page 46528, column 1, Sec. 1.954-2 (h)(2)(i)(G), lines 2 and 
3, the language ``provide financing, whether or not such financing 
actually is provided;'' is corrected to read ``provide financing, if 
any portion of such financing is actually provided;''.
    33. On page 46528, column 3, Sec. 1.954-2 (h)(4)(iv), Example 1, 
line 10, the language ``receivable is acquired by FS). FS purchases'' 
is corrected to read ``receivables are acquired by FS). FS purchases''.
    34. On page 46528, column 3, Sec. 1.954-2 (h)(4)(iv), Example 1, 
line 13, the language ``obligor under the receivable on Day 40.'' is 
corrected to read ``obligor under the receivables on Day 40.''.
    35. On page 46528, column 3, Sec. 1.954-2 (h)(4)(iv), Example 2, 
lines 4 through 9, the language ``under the factored receivable on Day 
40, FS sells the receivable to controlled foreign corporation Y on Day 
15 for $97. Both the income derived by FS on the factored receivable 
and the income derived by Y (other than stated interest) on the 
receivable'' is corrected to read ``under the factored receivables on 
Day 40, FS sells the receivables to controlled foreign corporation Y on 
Day 15 for $97. Both the income derived by FS on the factored 
receivables and the income derived by Y (other than stated interest) on 
the receivables''. 

[[Page 62026]]

    36. On page 46529, column 1, Sec. 1.954-2 (h)(4)(iv), Example 5, 
line 3, the language ``receivable to Y for $99 on day 45, at which'' is 
corrected to read ``receivables to Y for $99 on Day 45, at which''.
    37. On page 46529, column 1, Sec. 1.954-2 (h)(4)(iv), Example 5, 
lines 7 through 10, the language ``receivable at a rate equal to at 
least 120 percent of the applicable Federal short-term rate, income 
derived by Y from the factored receivable is excluded from factoring 
income'' is corrected to read ``receivables at a rate equal to at least 
120 percent of the applicable Federal short-term rate, income derived 
by Y from the factored receivables is excluded from factoring income''.
    38. On page 46529, column 1, Sec. 1.954-2 (h)(4)(iv), Example 6, 
line 4, the language ``controlled foreign corporation. On Day 1'' is 
corrected to read ``controlled foreign corporation. On Day 1,''.
    39. On page 46529, column 2, Sec. 1.954-2 (h)(6), Example 1, is 
corrected to read as follows:


Sec. 1.954-2  Foreign personal holding company income.

* * * * *
    (h) * * *
    (6) * * *

    Example 1. CFC, a controlled foreign corporation, promises that 
Corporation A may borrow up to $500 in principal for one year 
beginning at any time during the next three months at an interest 
rate of 10 percent. In exchange, Corporation A pays CFC a commitment 
fee of $2. Pursuant to this agreement, CFC lends $80 to Corporation 
A. As a result, the entire $2 fee is included in the computation of 
CFC's foreign personal holding company income under paragraph 
(h)(2)(i)(G) of this section.
* * * * *
    40. On page 46529, column 2, Sec. 1.954-2 (h)(6), paragraph (i) of 
Example 3, lines 7 and 8, the language ``a floating rate of interest 
set at the London Interbank Offered Rate (LIBOR) plus one'' is 
corrected to read ``a floating rate of interest set at LIBOR plus 
one''.
    41. On page 46529, column 3, Sec. 1.954-2 (h)(6), paragraph (i) of 
Example 4, line 1 in the column, the language ``contemporaneously, 
enters into a 3 month'' is corrected to read ``contemporaneously, enter 
into a 3-month''.


Sec. 1.957-1  [Corrected]

    42. On page 46529, column 3, Sec. 1.957-1 (a)(2), the third line 
from the bottom of the paragraph, the language ``association, joint 
stock company, or'' is corrected to read ``association, joint stock 
company or''.
Cynthia E. Grigsby,
Chief, Regulations Unit, Assistant Chief Counsel (Corporate).
[FR Doc. 95-28802 Filed 12-1-95; 8:45 am]
BILLING CODE 4830-01-P