[Federal Register Volume 63, Number 174 (Wednesday, September 9, 1998)]
[Proposed Rules]
[Pages 48154-48157]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23883]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-209060-86]
RIN 1545-AK75


Return Requirement for United States Persons Owning Interests in 
Foreign Partnerships

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations under section 
6046A of the Internal Revenue Code relating to return requirements for 
certain United States persons who acquire or dispose of an interest in 
a foreign partnership, or whose interest in a foreign partnership 
changes substantially. These proposed regulations would provide 
guidance to United States persons who must file such a return. This 
document also provides notice of a public hearing on these proposed 
regulations.

DATES: Written comments must be received by November 9, 1998. Outlines 
of topics to be discussed at the public hearing scheduled for November 
10, 1998, at 10 a.m., must be received by October 20, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209060-86), room 
5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered between the 
hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG-209060-86), Courier's 
Desk, Internal Revenue Service, 1111 Constitution Avenue NW., 
Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the Internet by selecting the ``Tax Regs'' option of 
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.
    A public hearing has been scheduled to be held in room 2615, 
Internal Revenue Building, 1111 Constitution Avenue NW., Washington, 
DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, 
Christopher Kelley, 202-622-3860; concerning the hearing and 
submissions of written comments, Michael Slaughter, 202-622-7190 (not 
toll-free calls).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
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(d)). Comments on the collection of information should be 
sent 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, with copies to the Internal 
Revenue Service, Attention: IRS Reports Clearance Officer OP:FS:FP, 
Washington, DC 20224. Comments on the collection of information must be 
received by November 9, 1998. Comments are specifically requested on:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of the capital or start-up costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in these regulations is in 
Sec. 1.6046A-1. This information is required by the IRS to identify 
United States persons with significant interests in foreign 
partnerships and to ensure the correct reporting of items with respect 
to these interests. The collection of information is mandatory. The 
likely respondents will be individuals and businesses or other for-
profit organizations.
    The burden of complying with the proposed collection of information 
required to be reported on Form 8865 is reflected in the burden for 
Form 8865.
    The burden of complying with the proposed collection of information 
in Sec. 1.6046A-1(f)(1)(ii) is as follows:
    Estimated total annual reporting burden: 250 hours.
    Estimated annual burden per respondent: .25 hours to 1 hour, with 
an average of .5 hours.
    Estimated number of respondents: 500.
    Estimated frequency of responses: On occasion.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    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.

Background

Taxpayer Relief Act of 1997

    In the Taxpayer Relief Act of 1997 (TRA 1997), Public Law 105-34 
(111 Stat. 983 (1997)), Congress significantly modified the information 
reporting requirements with respect to foreign partnerships under 
sections 6038, 6038B and 6046A (and also amended section 6501(c)(8) to 
provide that the statute of limitations on the assessment of tax under 
section 6038, 6038B and 6046A does not expire until three years after 
the information required under those sections is reported). These 
regulations under section 6046A are being proposed along with 
regulations under sections 6038 (reporting with respect to certain 
foreign partnerships) and 6038B (reporting of certain transfers to 
foreign partnerships). The IRS is also developing a comprehensive form 
(Form 8865) for reporting under all of these provisions. A draft 
version of the form will be issued for public comment while the 
proposed regulations are outstanding.

Section 6046A

    Section 6046A was added to the Internal Revenue Code (Code) by 
section 405 of the Tax Equity and Fiscal Responsibility Act of 1982 
(TEFRA), Public Law 97-248 (96 Stat. 669 (1982)), and, prior to 
amendment by TRA 1997, required reporting of acquisitions and 
dispositions of interests in foreign partnerships as well as of 
substantial changes in proportional interests in such partnerships. 
Section 1143 of TRA 1997, Public Law 105-34 (111 Stat. 983 (1997)), 
amended section 6046A, to provide that reporting is required only when 
the interest acquired, disposed of, or substantially changed is at 
least a 10-percent interest in the partnership.

[[Page 48155]]

Explanation of Provisions

Filing Requirement

    The proposed regulations require a United States person to report 
the information required under section 6046A with respect to a 
``reportable event'' on Form 8865, ``Information Return of U.S. Persons 
With Respect To Certain Foreign Partnerships''. The proposed 
regulations follow the statute and define a reportable event to mean 
(1) an acquisition by a United States person of at least a 10-percent 
interest in a foreign partnership, (2) a disposition by a United States 
person of at least a 10-percent interest in a foreign partnership, or 
(3) a change in a United States person's proportional interest in a 
foreign partnership that is equivalent to at least a 10-percent 
interest in the partnership. However, the proposed regulations exclude 
from the definition of a reportable event any acquisition of an 
interest in, or change in proportional interest in a foreign 
partnership resulting from a transfer by a partner also subject to the 
reporting requirements under section 6038B.
    Under section 6046A(d), a 10-percent interest is defined by cross-
reference to section 6038(e)(3)(C) and regulations issued under that 
provision, and means direct or indirect ownership of a interest equal 
to 10 percent of the capital interest or profits interest in a 
partnership, and an interest to which 10 percent of the deductions or 
losses of a partnership are allocated.

Partnerships Excluded From Application of Subchapter K

    The reporting requirements of this section shall not apply in 
respect of any foreign partnership which is an eligible partnership 
described in Sec. 1.761-2(a) that has validly elected pursuant to 
Sec. 1.761-2(b)(2)(i) to be wholly excluded from the application of 
subchapter K. Nor shall the reporting requirements of these proposed 
regulations apply to any foreign partnership validly deemed to have 
wholly elected out of the provisions of subchapter K as specified in 
Sec. 1.761-2(b)(2)(ii). Taxpayers are reminded, however, that a 
precondition to being an ``electing-out'' partnership is that, as 
provided in Sec. 1.761-2(a)(1), ``[t]he members of such organization 
must be able to compute their income without the necessity of computing 
partnership taxable income.'' The IRS and Treasury are concerned that 
in certain cases the necessary books and records are not being 
maintained to allow verification that such computations can indeed be 
made without regard to the partnership. If it appears that, in the 
absence of a reporting requirement under this section, the members of 
the ``electing-out'' partnership cannot make such separate 
computations, this exception to the reporting requirements will be 
reconsidered.

Exception for Certain International Satellite Partnerships

    The proposed regulations contain an exception to the filing 
requirement for certain international satellite partnerships. Section 
406 of TEFRA provides that section 6031 and 6046A do not apply to the 
International Telecommunications Satellite Organization, the 
International Maritime Satellite Organization, or any organization 
which is a successor of either organization. Although the International 
Maritime Satellite Organization has been subsequently renamed the 
International Mobile Satellite Organization, no legislation has been 
enacted that would eliminate the exception provided by section 406 of 
TEFRA.

Time and Place for Filing Return

    Section 6046A(c) provides that any return required by section 
6046A(a) must be filed on or before the 90th day after the day on which 
the United States person becomes liable to file it, or on or before a 
later day prescribed in regulations. After section 6046A was enacted, 
the IRS announced that the regulations would provide that any return 
would be considered timely filed if filed on or before the 90th day 
following the date of publication of the regulations, even if the date 
of filing was more than 90 days after a reportable event. Announcement 
83-5 (1983-2 I.R.B. 31). Thus, no returns under section 6046A have been 
required to be filed to date.
    Rather than require a return to be made within a specified period 
after a reportable event, under the proposed regulations a return under 
section 6046A would generally be required to be filed with the United 
States person's income tax return for the taxable year during which a 
reportable event occurs (or on the Form 8865 for the foreign 
partnership's taxable year in which the reportable event occurs (filed 
in accordance with Secs. 1.6038-3(e) and (h)) if the United States 
person is also required to report under proposed regulation 
Sec. 1.6038-3(a)). However, a return for a reportable event would not 
be required to be filed before the 90th day after the event. A 
reportable event occurring within 90 days of the due date for a 
taxpayer's return may be reported on a Form 8865 filed with that 
return, or may be reported on a separate Form 8865 filed with the 
taxpayer's return for the next taxable year. If required by the 
instructions to Form 8865, a duplicate return under section 6046A must 
also be filed.
    In certain circumstances, the proposed regulations would also 
eliminate the need for two or more United States persons to file Form 
8865 with respect to the same reportable event in the case of 
attribution of ownership.

Effective Dates

    The proposed regulations are generally effective for reportable 
events occurring on or after January 1, 1998. The proposed regulations 
would relieve a United States person from having to file a return under 
section 6046A for reportable events occurring prior to January 1, 1998. 
Furthermore, the return period for reportable events occurring on or 
before the date that final regulations are published in the Federal 
Register would generally be extended for one taxable year.

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 has also been determined 
that section 553(b) of the Administrative Procedure Act (5 U.S.C. 
chapter 5) does not apply to these proposed regulations. It is hereby 
certified that the collection of information contained in these 
proposed regulations will not have a significant economic impact on a 
substantial number of small entities. This certification is based on 
the fact that the amount of time required to complete the form and file 
the information required under these regulations is brief and will not 
have a significant impact on those small entities that are required to 
provide notification. Furthermore, the number of small entities that 
will be required to file the form is not significant. Accordingly, 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, these regulations will be submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on their impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be giver to any written comments (preferably a 
signed original and eight (8) copies) that are

[[Page 48156]]

submitted timely to the Internal Revenue Service. All comments will be 
made available for public inspection and copying.
    A public hearing has been scheduled for Tuesday, November 10, 1998, 
at 10 a.m., in room 2615, Internal Revenue Building, 1111 Constitution 
Avenue NW., Washington, DC. Because of access restrictions, visitors 
will not be admitted beyond the Internal Revenue 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 and an outline of the topics to be discussed 
(preferably a signed original and eight (8) copies) by October 20, 
1998.
    A period of 10 minutes will be allotted for each person 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 Christopher Kelley of the Office of Associate Chief 
Counsel (International). However, other personnel from the IRS and 
Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, 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 is amended by adding 
an entry in numerical order to read in part as follows:

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

    Section 1.6046A-1 also issued under 26 U.S.C. 6046A. * * *

    Par. 2. Section 1.6046A-1 is added to read as follows:


Sec. 1.6046A-1  Return requirement for United States persons owning 
interests in foreign partnerships.

    (a) Return requirement--(1) General rule. If a reportable event 
occurs with respect to the interest of a United States person in a 
foreign partnership, the United States person is required to report the 
event on Form 8865, Information Return of U.S. Persons With Respect To 
Certain Foreign Partnerships'' except as provided in paragraphs 
(b)(1)(ii), (e), (g) or (h) of this section.
    (2) Separate return for each partnership. If a United States person 
is required under section 6046A and this section to report an event 
with respect to an interest in more than one foreign partnership, the 
United States person must file a separate return for each partnership.
    (b) Definitions--(1) Reportable event--(i) General rule. For 
purposes of section 6046A and this section, a reportable event means--
    (A) An acquisition by a United States person of at least a 10-
percent interest in a foreign partnership;
    (B) A disposition by a United States person of at least a 10-
percent interest in a foreign partnership; or
    (C) Any change in a United States person's proportional interest in 
a foreign partnership that is equivalent to at least a 10-percent 
interest in the partnership.
    (ii) Exception. If a United States person acquires an interest in a 
foreign partnership (or the amount of such interest changes) as a 
result of a transfer subject to the reporting requirements under 
section 6038B, the United States person will not be required to also 
report the acquisition (or change) under section 6046A(a).
    (2) 10-percent interest. Under section 6046A and this section, a 
10-percent interest in a partnership is an interest described in 
section 6038(e)(3)(C) and the regulations thereunder.
    (3) United States person. United States person means a person 
described in section 7701(a)(30).
    (4) Foreign partnership. Foreign partnership means any partnership 
that is a foreign partnership under sections 7701(a)(2) and (5).
    (c) Content of return. In respect of acquisitions and dispositions 
of, and changes in interest described in section 6046A(a), the return 
must contain information in such form or manner as Form 8865 (and its 
accompanying instructions) prescribes with respect to reportable 
events, including--
    (1) The name, address, and taxpayer identification number of the 
United States person required to file the return;
    (2) The name, address, and taxpayer identification number, if any, 
of the foreign partnership;
    (3) The name of the country under the laws of which the foreign 
partnership was organized, and the date of formation;
    (4) For each reportable event, the date of the event, the type of 
event (acquisition, disposition, or change in partnership interest), 
and the United States person's percentage interest in the foreign 
partnership before and after the event; and
    (5) For an acquisition, disposition or change affecting the United 
States person's interest in partnership capital, profits, losses, or 
deductions, the fair market value of the interest acquired, disposed 
of, or changed.
    (d) Time and manner for filing returns--(1) General rule. Except as 
provided in paragraph (d)(2) of this section, the Form 8865 must be 
filed with the income tax return (including a partnership return of 
income) of the United States person for the taxable year in which the 
reportable event occurs, and must be filed by the due date (including 
extensions) of the income tax return.
    (2) Exceptions--(i) United States person also required to file 
under Sec. 1.6038-3(a). If the United States person required to file 
under this section is also required to file under Sec. 1.6038-3(a) for 
the period in which the reportable event occurred, then the United 
States person must report under this section on the Form 8865 for the 
foreign partnership's annual accounting period in which the reportable 
event occurred (not its own taxable year) and file with its income tax 
return for that year as provided in Sec. 1.6038-3(e) and (h).
    (ii) Reportable event less than 90 days before the due date of the 
United States person's income tax return. If the date of a reportable 
event is less than 90 days before the due date of the United States 
person's income tax return for the taxable year in which the reportable 
event occurred, the United States person may file the Form 8865 in 
respect of that reportable event with its income tax return for that 
taxable year, or may file a separate Form 8865 in respect of that 
reportable event with its income tax return for the next taxable year.
    (3) Duplicate returns. If required by the instructions to Form 
8865, a duplicate Form 8865 (including attachments and schedules) must 
also be filed.
    (e) Persons excepted from filing return--(1) Requirements. A United 
States person otherwise required to file a return under this section 
with respect to a foreign partnership need not file a return provided 
all of the following conditions are met--
    (i) The person does not directly own an interest in the foreign 
partnership;
    (ii) The person is required to file a return solely by reason of 
attribution of ownership from a United States person (as determined 
under the rules of section 6038(e)(3) and the regulations thereunder); 
and

[[Page 48157]]

    (iii) A person from whom ownership is attributed furnishes all of 
the information required under this section with respect to the 
reportable event.
    (2) Statement required. A United States person who does not furnish 
an information return under the provisions of paragraph (e)(1) of this 
section must file a statement with the person's income tax return--
    (i) Indicating that the filing requirement has been or will be 
satisfied;
    (ii) Identifying the person who has or will file the return;
    (iii) Identifying the IRS Service Center where the return was or 
will be filed; and
    (iv) Providing any additional information as Form 8865 and the 
accompanying instructions may require.
    (f) Method of Reporting. Except as otherwise provided on Form 8865, 
or the accompanying instructions, any amounts required to be reported 
under section 6046A and this section must be expressed in United States 
dollars, with a statement of the exchange rates used. All statements 
required on or with Form 8865 pursuant to this section must be in the 
English language.
    (g) Reporting under this section not required of partnerships 
excluded from the application of subchapter K--(1) Election to be 
wholly excluded. The reporting requirements of this section will not 
apply to any United States person in respect of an eligible partnership 
as described in Sec. 1.761-2(a) in which that United States person is a 
partner, if such partnership has validly elected to be excluded from 
all of the provisions of subchapter K of chapter 1 of the Internal 
Revenue Code in the manner specified in Sec. 1.761-2(b)(2)(i).
    (2) Deemed excluded. The reporting requirements of this section 
will not apply to any United States person in respect of an eligible 
partnership as described in Sec. 1.761-2(a) in which that United States 
person is a partner, if such partnership is validly deemed to have 
elected to be excluded from all of the provisions of subchapter K of 
chapter 1 of the Internal Revenue Code in accordance with the 
provisions of Sec. 1.761-2(b)(2)(ii).
    (h) Exclusion for satellite organizations. The return requirement 
of section 6046A does not apply to the International Telecommunications 
Satellite Organization (or a successor organization) or the 
International Mobile Satellite Organization (or any other organization 
that is a successor to the International Maritime Satellite 
Organization).
    (i) Failure to comply with reporting requirements--(1) Failure to 
comply. A failure to comply with the requirements of section 6046A 
includes--
    (i) The failure to report at the proper time and in the proper 
manner any information required to be reported under the rules of this 
section; and
    (ii) The provision of false or inaccurate information in purported 
compliance with the requirements of this section.
    (2) Penalties. For penalties for failure to comply with the 
reporting requirements of section 6046A and this section, see sections 
6679 and 7203.
    (3) Statute of limitations. For exceptions to the limitations on 
assessment and collection in the event of a failure to provide 
information under section 6046A, see section 6501(c)(8).
    (j) Effective date--(1) General rule. This section applies to 
reportable events occurring on or after January 1, 1998.
    (2) Reportable event prior to issuance of final regulations. If a 
reportable event occurs on or before the date final regulations on this 
subject are published in the Federal Register, the Form 8865 may be 
filed with the United States person's timely filed (including 
extensions) income tax return for the taxable year immediately 
following the taxable year in which the reportable event occurs.
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 98-23883 Filed 9-8-98; 8:45 am]
BILLING CODE 4830-01-U