[Federal Register Volume 64, Number 248 (Tuesday, December 28, 1999)]
[Rules and Regulations]
[Pages 72555-72558]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-32696]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 8851]
RIN 1545-AK75
Return Requirement for United States Persons Acquiring or
Disposing of an Interest in a Foreign Partnership, or Whose
Proportional Interest in a Foreign Partnership Changes
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations under section 6046A
of the Internal Revenue Code relating to the requirement that United
States persons, in certain circumstances, file a return if they acquire
or dispose of an interest in a foreign partnership, or if their
proportional interest in a foreign partnership changes.
DATES: Effective Date: December 29, 1999.
Applicability Dates: For dates of applicability of Sec. 1.6046A-1,
see Sec. 1.6046A-1(j).
FOR FURTHER INFORMATION CONTACT: Eliana Dolgoff, (202) 622-3860 (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 of 1995 (44 U.S.C.
3507(d)) under control number 1545-1646. Responses to this collection
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 it displays a valid
control number assigned by the Office of Management and Budget.
The burden of complying with the collection of information required
to be reported on Form 8865 is reflected in the burden for Form 8865,
``Return of U.S. Persons With Respect to Certain Foreign
Partnerships.''
Suggestions for reducing the burden associated with this rule
should be sent to the Internal Revenue Service, Attn: IRS Reports
Clearance Officer, OP:FS:FP, Washington, DC 20224, and to the Office of
Management and Budget, Attn: Desk Officer of 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 September 9, 1998, the IRS published in the Federal Register (63
FR 48154) proposed regulations under section 6046A. A public hearing on
the proposed regulations was held on November 10, 1998, even though no
requests to speak at the hearing were received. Though no comments were
made at the hearing, written comments were received. After
consideration of all of the written comments, the proposed regulations
under section 6046A are adopted as revised by this Treasury decision.
The revisions are discussed below.
Explanation of Provisions and Summary of Comments
Commentators requested that section 6046A reporting not be required
of United States persons that are indirect partners in a partnership.
For example, a United States person would not be required to report
under section 6046A with respect to an interest in a foreign
partnership that the person owned indirectly through another
partnership. Unlike section 6038, section 6046A reporting may apply
with respect to any foreign partnership, not just foreign partnerships
controlled by U.S. persons. Accordingly, the IRS agrees that reporting
should not be required for indirect acquisitions, dispositions, and
changes in proportional foreign partnership interests, because it would
be burdensome and difficult for some partners to discover and keep
track of such events. Additionally, if section 6046A reporting were
required for changes in indirectly owned foreign partnership interests,
then a transfer of an interest in one entity in a chain of entities at
the bottom of which is a foreign partnership could result in multiple,
duplicative, section 6046A reporting obligations.
Thus, the final regulations substantially reduce the burden section
6046A would have imposed on taxpayers under the proposed regulations.
The final regulations provide that under Sec. 1.6046A-1(a)(1), a United
States person is only required to report pursuant to section 6046A if
that person has a ``reportable event.'' A person can only have a
reportable event with respect to a particular foreign partnership if
that person owns a direct interest in the partnership. More
specifically, the United States person must acquire or dispose of a
direct interest in the foreign partnership, or have a change in its
direct proportional interest, in order to have a reportable event under
section 6046A. See Sec. 1.6046A-1(b)(1).
Some commentators also requested that the final regulations exempt
state and local government employee retirement plans from the section
6046A reporting requirements. The final regulations provide that trusts
relating to state and local government employee retirement plans are
not required to report under section 6046A, unless required to do so in
the instructions to Form 8865, ``Return of U.S. Persons With Respect To
Certain Foreign Partnerships.'' The IRS and Treasury invite comments
regarding whether the section 6046A reporting obligation should also be
reduced for other tax-exempt entities.
A United States person required to report information pursuant to
section 6046A must do so by completing and filing Form 8865. A final
version of Form 8865 will be released prior to January 1, 2000.
Taxpayers will be able to download a copy of the form and its
instructions from the IRS Internet website located at
www.irs.ustreas.gov.
The final regulations apply to reportable events that occur on or
after January 1, 2000. Acquisitions and dispositions of foreign
partnership interests, and changes in proportional foreign partnership
interests, occurring before January 1, 2000, are not required to be
reported under section 6046A.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required.
This Treasury decision finalizes a notice of proposed rulemaking
published September 9, 1998. It has been determined that section 553(b)
of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply
to the final regulations issued pursuant to the notice of proposed
rulemaking published on September 9, 1998. It is hereby certified that
this Treasury decision 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
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number of small entities that will be required to file the form is not
substantial. 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, the
notice of proposed rulemaking preceding these regulations was submitted
to the Small Business Administration for comment on its impact on small
business.
Drafting information. The principal author of these final
regulations is Eliana Dolgoff of the Office of Associate Chief Counsel
(International). However, other personnel from the IRS and the 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.
Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
Par. 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 who
acquire or dispose of an interest in a foreign partnership, or whose
proportional interest in a foreign partnership changes substantially.
(a) Return requirement--(1) General rule. If a United States person
has a reportable event (as defined in paragraph (b)(1) of this section)
during the person's tax year, then, except as provided in paragraph (f)
of this section, the United States person is required to complete and
file Form 8865, ``Return of U.S. Persons With Respect To Certain
Foreign Partnerships,'' containing the information described in
paragraph (c) of this section.
(2) Separate return for each partnership. If a United States person
has a reportable event with respect to an interest in more than one
foreign partnership, the United States person must file a separate Form
8865 for each foreign partnership.
(b) Definitions--(1) Reportable event. There are three categories
of reportable events under section 6046A: acquisitions, dispositions,
and changes in proportional interests.
(i) Acquisitions. A United States person that acquires a foreign
partnership interest has a reportable event if--
(A) The person did not own a ten-percent or greater direct interest
in the partnership and as a result of the acquisition the person owns a
ten-percent or greater direct interest in the partnership. For purposes
of this paragraph (b)(1)(i)(A), an acquisition includes an increase in
a person's direct proportional interest; or
(B) Subject to paragraph (b)(2) of this section, compared to the
person's direct interest when the person last had a reportable event,
after the acquisition the person's direct interest has increased by at
least a ten-percent interest.
(ii) Dispositions. A United States person that disposes of a
foreign partnership interest has a reportable event if--
(A) The person owned a ten-percent or greater direct interest in
the partnership before the disposition and as a result of the
disposition the person owns less than a ten-percent direct interest.
For purposes of this paragraph (b)(1)(ii)(A), a disposition includes a
decrease in a person's direct proportional interest; or
(B) Subject to paragraph (b)(2) of this section, compared to the
person's direct interest when the person last had a reportable event,
after the disposition the person's direct interest has decreased by at
least a ten-percent interest.
(iii) Changes in proportional interests not otherwise reportable as
acquisitions or dispositions under paragraph (b)(1)(i)(A) or
(b)(1)(ii)(A) of this section. A United States person has a reportable
event if, subject to paragraph (b)(2) of this section, compared to the
person's direct proportional interest the last time the person had a
reportable event, the person's direct proportional interest has
increased or decreased by at least the equivalent of a ten-percent
interest.
(2) Special rule for foreign partnership interests owned on
December 31, 1999. If a United States person owned a ten-percent or
greater direct interest in a foreign partnership on December 31, 1999,
then to determine whether the person has a reportable event under
paragraph (b)(1)(i)(B), (b)(1)(ii)(B), or (b)(1)(iii) of this section,
the comparison should be made to the person's direct interest on
December 31, 1999. Once the person has a reportable event after
December 31, 1999, future comparisons should be made by reference to
the last reportable event.
(3) Change in a proportional interest. A partner's proportional
interest in a foreign partnership may change for a number of reasons,
for example, the change may be caused by changes in other partners'
interests resulting from a partner withdrawing from the partnership. A
proportional change may also occur by operation of the partnership
agreement, for example, if the partnership agreement provides that a
partner's interest in profits will change on a set date or when the
partnership has earned a specified amount of profits and one of those
events occurs.
(4) Ten-percent interest. Under section 6046A(d) and this section,
a ten-percent interest in a foreign partnership, as described in
section 6038(e)(3)(C) and the regulations thereunder, means an interest
equal to ten percent of the capital interest in such partnership, an
interest equal to ten percent of the profits interest in such
partnership, or an interest to which ten percent of the deductions or
losses of such partnership are allocated.
(5) United States person. United States person means a person
described in section 7701(a)(30).
(6) Foreign partnership. Foreign partnership means any partnership
that is a foreign partnership under sections 7701(a)(2) and (5).
(7) Examples. The rules of paragraph (a) of this section and this
paragraph (b) are illustrated by the following examples:
Example 1. Acquisition of an indirect interest. FP, a foreign
partnership, has two partners, FC1 and FC2, both foreign
corporations. FC1 owns a 40% interest in FP, and FC2 owns a 60%
interest in FP. No United States person owns an interest in FP,
either directly, or constructively under section 6038(e)(3)(C) and
section 267(c). On January 1, 2001, US, a United States person and
calendar year taxpayer, acquires by purchase 100% of FC2's stock. US
has acquired an indirect interest of 60% in FP. See sections
6038(e)(3)(C) and 267(c)(1). However, US is not required to report
the January 1, 2001 indirect acquisition under section 6046A. US did
not own a 10% or greater direct interest in FP before the
acquisition, and US does not own a 10% or greater direct interest as
a result of the acquisition. (US must, however, comply with the
reporting requirements under section 6038 (controlled foreign
corporation and controlled foreign partnership reporting) with
respect to FC2 and FP.)
Example 2. Acquisition of direct interests. (i) Assume the same
facts as Example 1. In addition, on June 1, 2001, US purchases a 5%
direct interest in FP from FC1. US did not own a 10% or greater
direct interest in FP before the acquisition. After the acquisition,
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US does not own a direct interest of 10% or more. US owns a 10% or
greater total interest (direct and indirect), but only a 5% direct
interest. Therefore, US is not required to report the June 1, 2001,
acquisition under section 6046A.
(ii) On September 1, 2001, US purchases a 7% direct interest in
FP from FC1. The September 1, 2001 acquisition constitutes a
reportable event under paragraph (b)(1)(i)(A) of this section.
Before the September 1 acquisition, US did not own a 10% or greater
direct interest in FP. After the September 1 acquisition, US owns a
12% direct interest, and therefore, as a result of the September 1
acquisition, US now owns a 10% or greater direct interest in FP.
Consequently, US must report its September 1 acquisition under
section 6046A on Form 8865 filed with US's 2001 income tax return.
(iii) On December 1, 2001, US acquires an additional 4% direct
interest in FP from FC1, so that US's total direct interest has
increased from 12% to 16%. This acquisition does not constitute a
reportable event. Compared to US's direct interest when US last had
a reportable event (12% on September 1, 2001), after acquiring the
4% interest US's direct interest has not increased by at least a 10%
direct interest (i.e., its direct interest increased by only 4%).
Therefore, US does not have to report the December 1, 2001,
acquisition under section 6046A. On April 1, 2002, FC2 distributes a
6% direct interest in FP to US. US now owns a 22% direct interest in
FP. Compared to US's direct interest when US last had a reportable
event (12% on September 1, 2001), after the April 1 acquisition US's
direct interest has increased by at least a 10% interest (12% to
22%). US must report the April 1, 2002 acquisition on a Form 8865
attached to US's 2002 income tax return.
Example 3. Change in proportional interest resulting from
withdrawal of a partner. Assume the same facts as Example 3. In
addition, on January 5, 2003, FC2 withdraws entirely from FP. As a
result, the direct interests of US and FC1 in FP each increase by at
least the equivalent of 10% interests. Compared to US's direct
interest the last time US had a reportable event (22% on April 1,
2002), US's direct interest has increased by at least the equivalent
of a ten percent interest. Therefore, US has had a reportable event
pursuant to paragraph (b)(1)(iii) of this section, and US must
report the change in its interest resulting from FC2's withdrawal
from the partnership on US's Form 8865 filed with US's 2003 tax year
income tax return.
Example 4. Change in proportional interest constituting an
acquisition. FP is a foreign partnership that has no United States
persons as direct or constructive partners. US is a United States
person and a calendar year taxpayer. On January 1, 2001, US
purchases an 8% direct interest in FP. US is not required to report
this acquisition. US did not own a 10% or greater direct interest in
FP, and US does not own a 10% or greater direct interest as a result
of the acquisition. On March 1, 2001, FC, a foreign partner of FP,
withdraws from FP, and as result, US's direct interest in FP
increases by a 7% interest. The increase in US's direct interest is
considered an acquisition of an interest under paragraph
(b)(1)(i)(A) of this section. US did not own a 10% or greater direct
interest in FP before FC withdrew, and as a result of the increase
in US's direct interest because of FC's withdrawal from FP, US now
owns a 10% or greater direct interest in FP. Therefore, US must
report under section 6046A the increase in US's direct interest
resulting from the withdrawal of FC from FP on Form 8865 filed with
US's tax return for US's 2001 tax year.
(c) Content of return. The Form 8865 that must be filed under
paragraph (a)(1) of this section must contain the following information
in such form and manner and to the extent that Form 8865 and its
instructions prescribe--
(1) The name, address, and taxpayer identification number of the
United States person required to file the return;
(2) Information about other persons (foreign or domestic) whose
interests in the foreign partnership the person reporting under section
6046A is considered to own under section 6038(e)(3)(C) and section
267(c);
(3) Information about all foreign entities that were disregarded as
entities separate from their owners under Secs. 301.7701-2 and
301.7701-3 of this chapter that were owned by the foreign partnership
during the partnership's tax year ending with or within the tax year of
the person filing Form 8865 pursuant to section 6046A;
(4) For each reportable event, the date of the event, the type of
event (acquisition, disposition, or change in proportional interest),
and the United States person's direct percentage interest in the
foreign partnership immediately before and immediately after the event;
(5) The fair market value of the interest acquired or disposed of;
(6) Information about partnerships (foreign and domestic) in which
the foreign partnership owned a direct interest, or a constructive
interest of ten percent or more under sections 267(c)(1) and (5) and
the regulations thereunder, during the partnership's tax year ending
with or within the tax year of the person filing Form 8865 pursuant to
section 6046A; and
(7) Any other information required to be submitted by Form 8865 and
its instructions.
(d) Time and manner for filing returns. The Form 8865 must be filed
with the timely filed (including extensions) income tax return of the
United States person for the tax year in which the reportable event
occurs. If the United States person is not required to file an income
tax return for its tax year in which the reportable event occurs, but
is required to file an information return for that year (for example,
Form 1065, ``U.S. Partnership Return of Income,'' or Form 990, ``Return
of Organization Exempt from Income Tax''), the United States person
should attach the Form 8865 to its information return filed for that
tax year.
(e) Duplicate returns. If required by the instructions to Form
8865, a duplicate Form 8865 (including attachments and schedules) must
also be filed.
(f) Persons excepted from filing return--(1) Section 6038B overlap.
If a United States person acquires an interest in a foreign partnership
as a result of a section 721 contribution required to be reported under
section 6038B, and the person properly reports the contribution under
section 6038B, then the United States person is not required to report
the acquisition of the partnership interest under section 6046A(a)
should it constitute a reportable event under paragraph (b)(1) of this
section. The acquisition will still constitute a reportable event for
purposes of making future comparisons pursuant to paragraphs
(b)(1)(i)(B), (b)(1)(ii)(B) and (b)(1)(iii) of this section. A person
that fails to properly report the section 721 contribution under
section 6038B and the regulations thereunder and that fails to properly
report the acquisition of the partnership interest under section 6046A
may be subject to the penalties applicable to a failure to comply with
the requirements of section 6038B, as well as the penalties applicable
for a failure to comply with the requirements of section 6046A. See
paragraph (h) of this section for more information about the penalties
for failure to comply with the requirements of section 6046A.
(2) Trusts relating to state and local government employee
retirement plans. The return requirement of section 6046A does not
apply to trusts relating to state and local government employee
retirement plans, unless the instructions to Form 8865 provide
otherwise.
(3) Reporting under this section not required of partnerships
excluded from the application of subchapter K. 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), or is 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).
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(4) 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 Maritime Satellite Organization (or a successor
organization).
(g) 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
English.
(h) Penalties for violating section 6046A. For penalties for
violating section 6046A, see sections 6679 and 7203.
(i) Statute of limitations. For exceptions to the limitations on
assessment in the event of a failure to provide information under
section 6046A, see section 6501(c)(8).
(j) Effective date. This section applies to reportable events
occurring after December 31, 1999. No reporting under section 6046A is
required for reportable events occurring on or before December 31,
1999.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 3 The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 4. In Sec. 602.101, paragraph (b) is amended by adding an
entry in numerical order to the table to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
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Current OMB
CFR part or section where identified and described control No.
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* * * * *
1.6046A................................................. 1545-1646
* * * * *
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Robert Wenzel,
Deputy Commissioner of Internal Revenue.
Approved: December 9, 1999.
Jonathan Talisman,
Acting Assistant Secretary of the Treasury.
[FR Doc. 99-32696 Filed 12-27-99; 8:45 am]
BILLING CODE 4830-01-U