[Federal Register Volume 61, Number 158 (Wednesday, August 14, 1996)]
[Proposed Rules]
[Pages 42217-42219]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-20631]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-209827-96]
RIN 1545-AU22


Treatment of Section 355 Distributions by U.S. Corporations to 
Foreign Persons

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations and notice of public hearing.

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SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations revising the 
final regulations under section 367(e)(1) with respect to section 355 
distributions of stock or securities by domestic corporations to 
foreign persons. The IRS is also modifying the temporary regulations 
under section 6038B to provide that distributions described under 
section 367(e)(1) are subject to rules under section 6038B. The text of 
those temporary regulations also serves as the text of these proposed 
regulations. This document also provides notice of a public hearing on 
these proposed regulations.

DATES: Written comments must be received by November 7, 1996. Outlines 
of topics to be discussed at the public hearing scheduled for November 
20, 1996, at 10 a.m. must be received by October 31, 1996.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (INTL 0020-96), room 
5228, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. In the alternative, submissions may be hand 
delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R 
(INTL-0020-96), Courier's Desk, Internal Revenue Service, 1111 
Constitution Ave. NW., Washington, DC. The public hearing will be held 
in the IRS Auditorium, Internal Revenue Building, 1111 Constitution 
Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Philip L. 
Tretiak at (202) 622-3860; concerning submissions and the hearing, 
Evangelista Lee at (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed

[[Page 42218]]

rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507).
    Comments on the collection of information should be sent to the 
Office of Management and Budget, Attn: Desk Officer for the Department 
of Treasury, Office of Information and Regulatory Affairs, Washington, 
DC 20503, with copies to the Internal Revenue Service, Attn: IRS 
Reports Clearance Officer, T:FP, Washington, DC 20224. Alternatively, 
taxpayers may submit comments electronically via the Internet by 
selecting the ``Tax Regs'' option on the IRS Home Page, or by 
submitting comments directly to the IRS Internet site at http://
www.irs.ustreas.gov/prod/tax regs/comments.html. Comments on the 
collection of information should be received by October 15, 1996.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number.
    The collection of information under section 367(e)(1) is in 
Sec. 1.367(e)-1T(c) (1)(ii), (2)(i)(C) and (3). The temporary 
regulations provide that in order for taxpayers to qualify for either 
the ``U.S. real property holding corporation exception'' or the 
``publicly traded corporation'' exception, taxpayers must comply with 
the reporting requirements contained in Sec. 1.367(e)-1T(c)(1)(ii) and 
Sec. 1.367(e)-1T(c)(2)(i)(C), respectively. The temporary regulations 
also modify the reporting requirements under the ``gain recognition 
agreement'' exception (Sec. 1.367(e)-1T(c)(3)). Under the temporary 
regulations, the controlled corporation, in addition to the 
distributing corporation, must sign the gain recognition agreement 
(Sec. 1.367(e)-1T(c)(3) (ii)(F) and (iii)), extend the statute of 
limitations accordingly (Sec. 1.367(e)-1T(c)(3) (ii)(F) and (iv)), and 
annually report its distributees to the distributing corporation but 
not the Service (Sec. 1.367(e)-1T(c)(3)(v)(B)). This information is 
required by the IRS as a condition for a taxpayer to qualify for an 
exception to the general rule of taxation under section 367(e)(1), and 
to avoid the penalties contained under section 6038B. This information 
will be used to determine whether a taxpayer properly qualifies for a 
claimed exception. The respondents generally will be U.S. corporations, 
probably subsidiaries of foreign multinationals, that are either 
distributing another corporation or being distributed under section 
355, pursuant to a corporate restructuring.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.
    Estimated total annual reporting burden: 2,124 hours. (This equals 
the sum of (i) the prior burden of 1,604 hours, and (ii) the additional 
burden of 520 hours contained in the new regulations.) The estimated 
annual burden per respondent varies from 1 hour to 8 hours, depending 
on individual circumstances, with an estimated average of 2 hours.
    Estimated number of respondents: 462.
    Estimated annual frequency of responses: Once (in the case of 
taxpayers that qualify for the U.S. real property holding company 
exception and the publicly traded company exception). Annually (in the 
case of taxpayers that qualify for the gain recognition agreement 
exception).

Background

    The temporary regulations published in the Rules and Regulations 
section of this issue of the Federal Register amend the Income Tax 
Regulations (26 CFR part 1) under section 367(e)(1). The temporary 
regulations under section 367(e)(1) contain rules relating to the 
distribution of stock or securities under section 355 by a domestic 
corporation to a person that is not a U.S. person.
    The text of those temporary regulations also serves as the text of 
these proposed regulations. The preamble to the temporary regulations 
explains the reasons for the modifications to the final regulations 
contained in the temporary regulations.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in EO 12866. Therefore, 
a regulatory assessment is not required. It is hereby certified that 
these regulations do not have a significant impact on a substantial 
number of small entities. This certification is based on the fact that 
these regulations will primarily affect large multinational 
corporations with foreign shareholders. The regulations do not 
significantly alter the reporting or recordkeeping duties of small 
entities. Therefore, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. 
Pursuant to section 7805(f) of the Internal Revenue Code, this notice 
of proposed rulemaking will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on their 
impact on small business.

Comments and Notice of Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) that are submitted timely to the Internal Revenue 
Service. All comments will be available for public inspection and 
copying.
    A public hearing has been scheduled for November 20, 1996, at 10 
a.m. in the IRS Auditorium. Because of access restrictions, visitors 
will not be admitted beyond the building lobby more than 15 minutes 
before the hearing starts.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing.
    Persons that wish to present oral comments at the hearing must 
submit written comments by November 7, 1996, and submit an outline of 
the topics to be discussed and the time to be devoted to each topic 
(signed original and eight (8) copies) by October 31, 1996.
    A period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

Drafting Information

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

List of Subjects in 26 CFR Part 1

    Income tax, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

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

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

    Par. 2. Section 1.367(e)-1 is added to read as follows:


Sec. 1.367(e)-1  Treatment of section 355 distributions by U.S. 
corporations to foreign persons.

    [The text of this proposed section is the same as the text of 
Sec. 1.367(e)-1T

[[Page 42219]]

published elsewhere in this issue of the Federal Register].
    Par. 3. Section 1.6038B-1, as proposed on May 16, 1986, at 51 FR 
17990, is amended by revising the second sentence of paragraph 
(b)(2)(i) and adding the text of paragraph (e) to read as follows:


Sec. 1.6038B-1  Reporting of transfers described in section 367.

    [The text of proposed paragraphs (b)(2)(i) and (e) are the same as 
the text of Sec. 1.6038B-1T (b)(2)(i) and (e) published elsewhere in 
this issue of the Federal Register].
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 96-20631 Filed 8-9-96; 12:19 pm]
BILLING CODE 4830-01-U