[Federal Register Volume 62, Number 198 (Tuesday, October 14, 1997)]
[Rules and Regulations]
[Pages 53384-53387]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-25997]
[[Page 53383]]
_______________________________________________________________________
Part II
Department of the Treasury
_______________________________________________________________________
Internal Revenue Service
_______________________________________________________________________
26 CFR Part 1, et al.
Treaty-Based Return Positions; General
Revision of Regulations Relating to Witholding of Tax on Certain U.S.
Source Income Paid to Foreign Persons and Related Collection, Refunds,
and Credits; Certain Payments Made Pursuant to a Securities Lending
Transaction; Final Rules
Withholding on Interest in the Case of Sales of Obligations Between
Interest Payment Dates; Electronic Transmission of Form W-8; Proposed
Rules
Federal Register / Vol. 62, No. 198 / Tuesday, October 14, 1997 /
Rules and Regulations
[[Page 53384]]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 301, and 602
[TD 8733]
RIN 1545-AP35
Treaty-Based Return Positions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations under section 6114 of
the Internal Revenue Code of 1986 providing that reporting is
specifically required if the residency of an individual is determined
under a treaty and apart from the Code.
The IRS concluded, in the process of completing the regulations
under section 7701(b), that the rules of section 6114 should apply to
individuals determining their residency under a treaty.
These final regulations are necessary to implement the section 6114
rules to individuals determining their residency under a treaty. Also
contained in this document are final regulations relating to section
7701(b) and conforming changes to regulations under sections 6038 and
6046.
EFFECTIVE DATE: These regulations are effective December 15, 1997.
FOR FURTHER INFORMATION CONTACT: David A. Juster, telephone (202-622-
3850) (not a toll-free number), regarding sections 6114 and 7701(b) and
Carl M. Cooper, telephone (202-622-3840) (not a toll-free number)
regarding sections 6038 and 6046, both of the Office of Associate Chief
Counsel (International), within the Office of Chief Counsel, IRS.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final regulations
have been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545-1126. Responses to these collections of information
are mandatory.
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 OMB control number.
The estimated annual burden per respondent varies from 1/2 hour to
3 hours, depending on individual circumstances, with an estimated
average of 1 hour.
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, T:FP, Washington,
DC 20224, and to the Office of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503.
Books or records relating to this 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.
Background
On April 27, 1992, a notice of proposed rulemaking was published in
the Federal Register (57 FR 15272) proposing amendments to the final
Regulations on Procedure and Administration (26 CFR 301.6114-1),
published in the Federal Register on March 14, 1990 (55 FR 9438) and on
July 12, 1990 (55 FR 28608). The proposed amendments related to
Sec. 301.6114-1 (b) and (c) and Sec. 301.7701(b)-7(c)(2). No written
comments responding to the notice were received. No public hearing was
requested or held. The proposed amendments are adopted without change
by this Treasury decision. This Treasury decision also includes
modifications to Secs. 1.6038-2(j), 1.6046-1(g), 301.6114-1(d),
301.7701(b)-3(b) (3) and (4), 301.7701(b)-7(c)(1) and 301.7701(b)-8(b)
(1) and (2).
Explanation of Provisions
Section 301.6114-1(b) is amended by adding paragraph (b)(8) to
provide that reporting is required under section 6114 where residency
of an individual is determined under a treaty and apart from the
Internal Revenue Code (Code). The regulations provide, however, that
reporting is waived for an individual if payments or income items
reportable by reason of paragraph (b)(8) do not exceed $100,000 in the
aggregate. Section 301.6114-1(d) currently provides that when reporting
is required under section 6114, a taxpayer must furnish as an
attachment to his or her return a written statement with the
information as set forth in paragraph (d). Section 301.7701(b)-7(b)
currently provides that a dual resident taxpayer who claims a treaty
benefit as a nonresident of the United States must file a statement in
the form required by paragraph (c) of that section. Section 301.6114-
1(d) is now amended to provide that, when reporting is required under
section 6114, a taxpayer must furnish, as an attachment to his or her
return, a fully completed Form 8833 (Treaty-Based Return Position
Disclosure Under Section 6114 or 7701(b)) or appropriate successor
form. Section 301.7701(b)-7(c)(1) is amended to provide that the
written statement required to be furnished under paragraph (b) of that
section, as an attachment to a dual resident taxpayer's return, must be
in the form of a fully completed Form 8833 (Treaty-Based Return
Position Disclosure Under Section 6114 or 7701(b)) or appropriate
successor form. Form 8833 was developed to provide standardized
reporting of the information currently required by Secs. 301.6114-1(d)
and 301.7701(b)-7(c).
In an effort to provide standardized reporting of the information
currently required to be reported, under Sec. 301.7701(b)-8(b), by
taxpayers claiming the closer connection exception and exempt
individuals and individuals with a medical condition, the Service has
developed Form 8840 (Closer Connection Exception Statement) and Form
8843 (Statement for Exempt Individuals and Individuals with a Medical
Condition). Accordingly, Sec. 301.7701(b)-8(b)(1) is amended to provide
that the statement filed by alien individuals claiming the closer
connection exception, described in Sec. 301.7701(b)-2, must be in the
form of a fully completed Form 8840 or appropriate successor form.
Section 301.7701(b)-8(b)(2) is amended to provide that the statement
filed by exempt individuals and individuals with a medical condition,
described in Sec. 301.7701(b)-3, must be in the form of a fully
completed Form 8843 or appropriate successor form.
Sections 3121(b)(19), 3306(c)(19) and 3231(e)(1) of the Code
provide that ``J'' class visa holders (teachers and trainees) are
exempt from FICA, FUTA and Railroad Retirement Act taxes, respectively.
Section 320 of the Social Security Independence and Program
Improvements Act of 1994, Public Law 103-296 (108 Stat. 1464), extends
the FICA, FUTA and Railroad Retirement Act tax exemptions and certain
other tax rules to ``Q'' class visa holders (participants in
international cultural exchange programs). Accordingly, conforming
changes have been made to Sec. 301.7701(b)-3(b) (3) and (4) to reflect
the revisions in the Code to the definitions of a teacher or trainee
and student contained in section 7701(b)(5).
Section 301.7701(b)-7(c)(2), adopted as proposed, provides that,
for purposes of stating the approximate amount of subpart F income to
be included in the
[[Page 53385]]
statement required to be furnished under paragraph (b) of that section
by a dual resident taxpayer who is a shareholder in a controlled
foreign corporation (as defined in section 957 or section 953(c)), the
approximate amount of income may be based on the audited foreign
financial statements of the CFC if there are no other United States
shareholders in that CFC. Parallel rules with respect to information
reporting under sections 6038 and 6046 are added in Secs. 1.6038-
2(j)(2)(ii) and 1.6046-1(g). Under these rules, a taxpayer who claims a
treaty benefit as a nonresident of the United States, but who is a
United States person for purposes of the information reporting
requirements of sections 6038 or 6046, may satisfy certain information
reporting requirements by filing the audited foreign financial
statements of the foreign corporation with respect to which the
information reporting is required. However, these rules apply only if
the taxpayer is the sole United States person for purposes of the
information reporting requirements with respect to the foreign
corporation. If there are other United States persons for those
purposes, then the taxpayer must report the information required by the
regulations in the form and manner generally prescribed.
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)
does not apply to these regulations, and because the notice of proposed
rulemaking preceding the regulations was issued prior to March 29,
1996, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Code, the notice of 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: Various personnel from the Office of
Associate Chief Counsel (International), within the Office of Chief
Counsel, IRS and the Treasury Department participated in developing the
regulations.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1, 301 and 602 are 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 1.6038-2 is amended by:
1. Redesignating paragraph (j)(2)(ii) as paragraph (j)(2)(iii).
2. Adding new paragraph (j)(2)(ii) to 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.
* * * * *
(j) * * *
(2) * * *
(ii) If an individual who is a United States person required to
furnish information with respect to a foreign corporation under section
6038 is entitled under a treaty to be treated as a nonresident of the
United States, and if the individual claims this treaty benefit, and if
there are no other United States persons that are required to furnish
information under section 6038 with respect to the foreign corporation,
then the individual may satisfy the requirements of paragraphs (f)(10),
(f)(11), (g), and (h) of this section by filing the audited foreign
financial statements of the foreign corporation with the individual's
return required under section 6038.
* * * * *
Par. 3. In Sec. 1.6046-1, paragraph (g) is amended by adding a
sentence at the end to 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.
* * * * *
(g) * * * If an individual who is a United States person required
to make a return with respect to a foreign corporation under section
6046 is entitled under a treaty to be treated as a nonresident of the
United States, and if the individual claims this treaty benefit, and if
there are no other United States persons that are required to furnish
information under section 6046 with respect to the foreign corporation,
then the individual may satisfy the requirements of paragraphs (b)(10),
(11) and (12), (c)(3)(ii)(d), and (g) of this section by filing the
audited foreign financial statements of the foreign corporation with
the individual's return required under section 6046.
* * * * *
PART 301--PROCEDURE AND ADMINISTRATION
Par. 4. The authority citation for part 301 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *.
Section 301.6114-1 also issued under 26 U.S.C. 6114; * * *.
Par. 5. Section 301.6114-1 is amended by:
1. Removing the language ``(c)(1)'' in paragraph (b)(4)
introductory text and adding ``(c)(1)(i)'' in its place.
2. Removing the language ``(c)(1)'' in paragraph (b)(5)
introductory text and adding ``(c)(1)(i)'' in its place.
3. Removing the language''(c)(4)'' in paragraph (b)(6) and adding
``(c)(1)(iv)'' in its place.
4. Removing the language ``or'' at the end of paragraph (b)(6).
5. Removing the period at the end of paragraph (b)(7) and adding
``; or'' in its place.
6. Adding a paragraph (b)(8).
7. Paragraphs (c)(1) through (c)(6) are redesignated as paragraphs
(c)(1)(i) through (c)(1)(vi), respectively.
8. Paragraphs (c)(7) introductory text, (c)(7)(i), (c)(7)(ii), and
(c)(7)(iii) are redesignated as paragraphs (c)(1)(vii) introductory
text, (c)(1)(vii)(A), (c)(1)(vii)(B) and (c)(1)(vii)(C), respectively.
9. The introductory text of paragraph (c) is redesignated as the
introductory text of paragraph (c)(1).
10. Revising newly designated paragraph (c)(1)(ii).
11. Removing the concluding text immediately following newly
designated paragraph (c)(1)(vii)(C).
12. Adding paragraphs (c)(2), (c)(3), (c)(4) and (c)(5).
13. Revising paragraph (d).
The additions and revisions read as follows:
Sec. 301.6114-1 Treaty-based return positions.
* * * * *
(b) * * *
(8) For returns relating to taxable years for which the due date
for filing
[[Page 53386]]
returns (without extensions) is after December 15, 1997, that residency
of an individual is determined under a treaty and apart from the
Internal Revenue Code.
(c) Reporting requirement waived. (1) * * *
(ii) For returns relating to taxable years for which the due date
for filing returns (without extensions) is on or before December 15,
1997, that residency of an individual is determined under a treaty and
apart from the Internal Revenue Code.
* * * * *
(2) Reporting is waived for an individual if payments or income
items otherwise reportable under this section (other than by reason of
paragraph (b)(8) of this section), received by the individual during
the course of the taxable year do not exceed $10,000 in the aggregate
or, in the case of payments or income items reportable only by reason
of paragraph (b)(8) of this section, do not exceed $100,000 in the
aggregate.
(3) Reporting with respect to payments or income items the
treatment of which is mandated by the terms of a closing agreement with
the Internal Revenue Service, and that would otherwise be subject to
the reporting requirements of this section, is also waived.
(4) If a partnership, trust, or estate that has the taxpayer as a
partner or beneficiary discloses on its information return a position
for which reporting is otherwise required by the taxpayer, the taxpayer
(partner or beneficiary) is then excused from disclosing that position
on a return.
(5) This section does not apply to a withholding agent with respect
to the performance of its withholding functions.
(d) Information to be reported--(1) Returns due after December 15,
1997. When reporting is required under this section for a return
relating to a taxable year for which the due date (without extensions)
is after December 15, 1997, the taxpayer must furnish, in accordance
with paragraph (a) of this section, as an attachment to the return, a
fully completed Form 8833 (Treaty-Based Return Position Disclosure
Under Section 6114 or 7701(b)) or appropriate successor form.
(2) Earlier returns. For returns relating to taxable years for
which the due date for filing returns (without extensions) is on or
before December 15, 1997, the taxpayer must furnish information in
accordance with paragraph (d) of this section in effect prior to
December 15, 1997 (see Sec. 301.6114-1(d) as contained in 26 CFR part
301, revised April 1, 1997).
(3) In general--(i) Permanent establishment. For purposes of
determining the nature and amount (or reasonable estimate thereof) of
gross receipts, if a taxpayer takes a position that it does not have a
permanent establishment or a fixed base in the United States and
properly discloses that position, it need not separately report its
payment of actual or deemed dividends or interest exempt from tax by
reason of a treaty (or any liability for tax imposed by reason of
section 884).
(ii) Single income item. For purposes of the statement of facts
relied upon to support each separate Treaty-Based Return Position
taken, a taxpayer may treat payments or income items of the same type
(e.g., interest items) received from the same ultimate payor (e.g., the
obligor on a note) as a single separate payment or income item.
(iii) Foreign source effectively connected income. If a taxpayer
takes the return position that, under the treaty, income that would be
income effectively connected with a U.S. trade or business is not
subject to U.S. taxation because it is income treated as derived from
sources outside the United States, the taxpayer may treat payments or
income items of the same type (e.g., interest items) as a single
separate payment or income item.
(iv) Sales or services income. Income from separate sales or
services, whether or not made or preformed by an agent (independent or
dependent), to different U.S. customers on behalf of a foreign
corporation not having a permanent establishment in the United States
may be treated as a single payment or income item.
(v) Foreign insurers or reinsurers. For purposes of reporting by
foreign insurers or reinsurers, as described in paragraph
(c)(1)(vii)(B) of this section, such reporting must separately set
forth premiums paid with respect to casualty insurance and indemnity
bonds (subject to section 4371(1)); life insurance, sickness and
accident policies, and annuity contracts (subject to section 4371(2));
and reinsurance (subject to section 4371(3)). All premiums paid with
respect to each of these three categories may be treated as a single
payment or income item within that category. For reports first due
before May 1, 1991, the report may disclose, for each of the three
categories, the total amount of premiums derived by the foreign insurer
or reinsurer in U.S. dollars (even if a portion of these premiums
relate to risks that are not U.S. situs). Reasonable estimates of the
amounts required to be disclosed will satisfy these reporting
requirements.
* * * * *
Par. 6. Section 301.7701(b)-0 is amended in the contents listing
by:
1. Adding entries for Sec. 301.7701(b)-7, paragraphs (c)(1)(i) and
(c)(1)(ii).
2. Removing the language ``[Reserved]'' in the entry for
Sec. 301.7701(b)-7, paragraph (c)(2).
3. Adding entries for Sec. 301.7701(b)-8, paragraphs (b)(1)(i),
(b)(1)(ii), (b)(2)(i) and (b)(2)(ii).
The additions read as follows:
Sec. 301.7701(b)-0 Outline of regulation provision for section
7701(b)-1 through (b)-9.
* * * * *
Sec. 301.7701(b)-7 Coordination with income tax treaties.
* * * * *
(c) * * *
(1) * * *
(i) Returns due after December 15, 1997.
(ii) Earlier returns.
* * * * *
Sec. 301.7701(b)-8 Procedural rules.
* * * * *
(b) * * *
(1) * * *
(i) Returns due after December 15, 1997.
(ii) Earlier returns.
(2) * * *
(i) Returns due after December 15, 1997.
(ii) Earlier returns.
* * * * *
Par. 7. Section 301.7701(b)-3 is amended by revising paragraphs
(b)(3) and (b)(4) to read as follows:
Sec. 301.7701(b)-3 Days of presence in the United States that are
excluded for purposes of section 7701(b).
* * * * *
(b) * * *
(3) Teacher or trainee. A teacher or trainee includes any
individual (and that individual's immediate family), other than a
student, who is admitted temporarily to the United States as a
nonimmigrant under section 101(a)(15) (J) (relating to the admission of
teachers and trainees into the United States) or section 101(a)(15)(Q)
(relating to the admission of participants in international cultural
exchange programs) of the Immigration and Nationality Act (8 U.S.C.
1101(a)(15) (J), (Q)) and who substantially complies with the
requirements of being admitted.
(4) Student. A student is any individual (and that individual's
[[Page 53387]]
immediate family) who is admitted temporarily to the United States as a
nonimmigrant under section 101(a)(15)(F) or (M) (relating to the
admission of students into the United States) or as a student under
section 101(a)(15)(J) (relating to the admission of teachers and
trainees into the United States) or section 101(a)(15)(Q) (relating to
the admission of participants in international cultural exchange
programs) of the Immigration and Nationality Act (8 U.S.C. 1101(a)(15)
(F), (J), (M), (Q)) who substantially complies with the requirements of
being admitted. For rules concerning taxation of certain nonresident
students or trainees, see section 871(c) and Sec. 1.871-9(a) of this
chapter.
* * * * *
Par. 8. Section 301.7701(b)-7 is amended by:
1. Revising paragraph (c)(1).
2. Adding text for paragraph (c)(2).
The revision and addition read as follows:
Sec. 301.7701(b)-7 Coordination with income tax treaties.
* * * * *
(c) * * * (1) In general--(i) Returns due after December 15, 1997.
The statement filed by an individual described in paragraph (a)(1) of
this section, for a return relating to a taxable year for which the due
date (without extensions) is after December 15, 1997, must be in the
form of a fully completed Form 8833 (Treaty-Based Return Position
Disclosure Under Section 6114 or 7701(b)) or appropriate successor
form. See section 6114 and Sec. 301.6114-1 for rules relating to other
treaty-based return positions taken by the same taxpayer.
(ii) Earlier returns. For returns relating to taxable years for
which the due date for filing returns (without extensions) is on or
before December 15, 1997, the statement filed by the individual
described in paragraph (a)(1) of this section must contain the
information in accordance with paragraph (c)(1) of this section in
effect prior to December 15, 1997 (see Sec. 301.7701(b)-7(c)(1) as
contained in 26 CFR part 301, revised April 1, 1997).
(2) Controlled foreign corporation shareholders. If the taxpayer
who claims a treaty benefit as a nonresident of the United States is a
United States shareholder in a controlled foreign corporation (CFC), as
defined in section 957 or section 953(c), and there are no other United
States shareholders in that CFC, then for purposes of paragraph (c)(1)
of this section, the approximate amount of subpart F income (as defined
in section 952) that would have been included in the taxpayer's income
may be determined based on the audited foreign financial statements of
the CFC.
* * * * *
Par. 9. Section 301.7701(b)-8 is amended by revising paragraphs
(b)(1) and (b)(2) to read as follows:
Sec. 301.7701(b)-8 Procedural rules.
* * * * *
(b) * * * (1) Closer connection exception--(i) Returns due after
December 15, 1997. The statement filed by an individual described in
paragraph (a)(1) of this section, for a return relating to a taxable
year for which the due date (without extensions) is after December 15,
1997, must be in the form of a fully completed Form 8840 (Closer
Connection Exception Statement) or appropriate successor form.
(ii) Earlier returns. For returns relating to taxable years for
which the due date for filing returns (without extensions) is on or
before December 15, 1997, the statement filed by the individual
described in paragraph (a)(1) of this section must contain the
information in accordance with paragraph (b)(1) of this section in
effect prior to December 15, 1997 (see Sec. 301.7701(b)-8(b)(1) as
contained in 26 CFR Part 301, revised April 1, 1997).
(2) Exempt individuals and individuals with a medical condition--
(i) Returns due after December 15, 1997. The statement filed by an
individual described in paragraph (a)(2) of this section, for a return
relating to a taxable year for which the due date (without extensions)
is after December 15, 1997, must be in the form of a fully completed
Form 8843 (Statement for Exempt Individuals and Individuals with a
Medical Condition) or appropriate successor form.
(ii) Earlier returns. For returns relating to taxable years for
which the due date for filing returns (without extensions) is on or
before December 15, 1997, the statement filed by the individual
described in paragraph (a)(2) of this section must contain the
information in accordance with paragraph (b)(2) of this section in
effect prior to December 15, 1997 (see Sec. 301.7701(b)-8(b)(2) as
contained in 26 CFR Part 301, revised April 1, 1997).
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 10. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 11. In Sec. 602.101, paragraph (c) is amended by adding an
entry in numerical order to the table and revising the entry for
301.7701(b)-7 to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
301.6114-1................................................. 1545-1126
* * * * *
301.7701(b)-7.............................................. 1545-0089
1545-1126
* * * * *
------------------------------------------------------------------------
Michael P. Dolan,
Acting Commissioner of Internal Revenue.
Approved: August 28, 1997.
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 97-25997 Filed 10-6-97; 8:45 am]
BILLING CODE 4830-01-P