[Federal Register Volume 67, Number 144 (Friday, July 26, 2002)]
[Proposed Rules]
[Pages 48823-48832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-18792]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[REG-106876-00]
RIN 1545-AY24


Revision of Income Tax Regulations Under Sections 897, 1445, and 
6109 To Require Use of Taxpayer Identifying Numbers on Submissions 
Under the Section 897 and 1445 Regulations

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 to require the use 
of taxpayer identifying numbers on submissions under sections 897 and 
1445. The proposed regulations are necessary to properly identify 
foreign taxpayers for which submissions are made for the reduction or 
elimination of tax under sections 897 and 1445. The proposed 
regulations also address miscellaneous items, such as the amendment to 
section 1445(e)(3) under the Small Business Job Protection Act of 1996. 
This document also provides notice of a public hearing on these 
proposed regulations.

DATES: Electronic or written comments and requests to speak (with 
outlines of oral comments) at the public hearing scheduled for November 
13, 2002, must be submitted by October 23, 2002.

ADDRESSES: Send submissions to: CC:ITA:RU (REG-106876-00), room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. In the alternative, submissions may be hand delivered Monday 
through Friday between the hours of 8 a.m. and 5 p.m. to: CC:ITA:RU 
(REG-106876-00), Courier's Desk, Internal Revenue Service, 1111 
Constitution Avenue, NW., Washington, DC. Alternatively, taxpayers may 
submit comments electronically directly to the IRS Internet site at 
www.irs.gov/regs. The public hearing will be held in room 6718, 
Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, 
DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Robert W. 
Lorence, (202) 622-3860; concerning submissions, the hearing, and/or to 
be placed on the building access list to attend the hearing, Treena 
Garrett, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have 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 collections of information should be 
sent 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, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S; 
Washington, DC 20224. Comments on the collections of information should 
be received by September 24, 2002.
    The collections of information in this proposed regulation are in 
Secs. 1.1445-2(d)(2) and 1.1445-3. The collections of information 
relate to the requirement that notices of nonrecognition or 
applications for withholding certificates be filed with the IRS with 
respect to (1) dispositions of U.S. real property interests that have 
been used by foreign persons as a principal residence within the prior 
5 years and excluded from gross income under section 121 and (2) 
dispositions of U.S. real property interests by foreign persons in 
deferred like kind exchanges that qualify for nonrecognition under 
section 1031. This collection of information is necessary for the 
proper performance of the functions of the IRS because it notifies the 
IRS of dispositions of U.S. real property interests by foreign persons 
that otherwise are subject to taxation under section 897 and the 
collection of a withholding tax under section 1445 except as provided 
in these provisions. The likely respondents will be individuals and 
business or other for-profit institutions.
    Estimated total annual reporting burden: 600 hours.
    The estimated annual burden per respondent varies from 3 hours to 5 
hours, depending on individual circumstances, with an estimated average 
of 4 hours.
    Estimated number of respondents: 150.
    Estimated annual 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

[[Page 48824]]

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

    Under section 897, a foreign transferor of a U.S. real property 
interest (USRPI) is generally taxed on gain from the disposition of the 
USRPI as if the taxpayer were engaged in a U.S. trade or business and 
as if such gain were effectively connected with such trade or business 
under section 871 or 882 (ECI). As a means to ensure the collection of 
the tax, the transferee of the USRPI generally has a withholding tax 
obligation under section 1445, which is generally 10 percent of the 
amount realized on the disposition. The withholding agent must report 
and pay over the tax withheld under section 1445 on Form 8288, ``U.S. 
Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real 
Property Interests'', by the 20th day after the disposition of the 
USRPI. The foreign transferor also must report the gain subject to tax 
under section 897 by filing a U.S. income tax return. Any amounts 
withheld under section 1445 are credited against the foreign 
transferor's U.S. tax liability.
    Withholding under section 1445 can be reduced or eliminated 
pursuant to various nonrecognition provisions (e.g., certain 
reorganizations under section 368(a)), pursuant to an applicable U.S. 
income tax treaty, by reason of the tax-exempt status of the foreign 
transferor, or in situations where the transferor's maximum tax 
liability under section 897 is less than the withholding tax. To reduce 
or eliminate the amount to be withheld under section 1445, either the 
transferor or transferee (acting as the withholding agent) may request 
a withholding certificate from the IRS citing the grounds for the 
reduction or elimination of withholding and including any supporting 
documentation or other evidence substantiating the request.
    A withholding certificate that is issued by the IRS prior to the 
disposition of the USRPI serves to notify the withholding agent that no 
withholding or reduced withholding is required. If an application for a 
withholding certificate is submitted before or on the date of the 
transfer (so it is considered to be pending with the IRS at the time of 
transfer), the withholding agent is not required to file the 
withholding tax return and pay over the withholding tax until 20 days 
after the date the IRS mails the withholding certificate or notice of 
denial. See Sec. 1.1445-1(c)(2)(A). An application for a withholding 
certificate after the date of transfer can be combined with an 
application for an early claim for refund. See Sec. 1.1445-3(g).
    Under section 6109(a)(1), Treasury and the IRS have the authority 
to issue regulations requiring taxpayers to obtain taxpayer identifying 
numbers (TINs) for placement on returns, statements, or other documents 
for the purpose of securing the proper identification of taxpayers. 
Under the section 6109 regulations, which govern the extent to which 
foreign persons must have TINs, a foreign person is not required to 
have a TIN for inclusion on a return, statement, or other document, 
unless the foreign person: (1) Has ECI at any time during the taxable 
year, (2) has a U.S. office, U.S. place of business, or a U.S. fiscal 
or paying agent during the taxable year, or (3) files a tax return, an 
amended return, or a refund claim, excluding information returns, 
statements, or other documents. See Sec. 301.6109-1(b)(2).

Explanation of Provisions

    The sections 897 and 1445 regulations do not require foreign 
transferors of USRPIs to provide TINs on withholding tax returns, 
applications for withholding certificates, and other notices and 
elections unless the foreign transferor otherwise has previously 
obtained a TIN. The IRS proposes to amend regulations under sections 
897 and 1445 (each discussed in greater detail below) to require 
foreign transferors to include TINs on such documents so that the IRS 
can better identify the foreign taxpayer and more easily match the 
applications, withholding tax returns, notices, and elections with the 
transferor's tax return for compliance purposes. For example, the use 
of the foreign transferor's TIN to match the withholding tax return 
with the foreign transferor's income tax return will facilitate 
verification of the amount of withholding tax that the foreign taxpayer 
may credit on its return. The use of the foreign transferor's TIN also 
will facilitate verification that the foreign transferor files a U.S. 
tax return reporting the transaction (which could be matched against a 
withholding tax return and any application for a withholding 
certificate that has been filed).
    In most cases, the requirement of including a TIN under the 
proposed regulations will not impose a new obligation on the foreign 
person. Such foreign person typically will be required to file a tax 
return for the year in which the property was sold, which requires the 
foreign person to obtain a TIN at that time. Accordingly, the proposed 
regulations simply would accelerate the time by which the foreign 
person is required to obtain a TIN. The IRS is considering ways to 
facilitate obtaining TINs in connection with transactions subject to 
section 897 and 1445. For example, the IRS is considering approaches 
for combining an application for a reduced withholding certificate 
under Sec. 1.1445-3 with an application for a TIN.

1. Section 6109  Regulations

    Under section 6109, every person who makes a return, statement, or 
other document is required to furnish its TIN as required by 
regulation. Under the section 6109 regulations, a foreign person 
generally is required to have a TIN if (1) the foreign person has ECI 
at any time during the taxable year; (2) the foreign person has a U.S. 
office or place of business or a U.S. fiscal or paying agent during the 
taxable year; (3) the foreign person files a tax return, amended 
return, or a refund claim (excluding information returns, statements, 
or documents). Sec. 301.6109-1(b)(2). A person is required to furnish 
the TIN of another person (including a foreign person) when filing a 
return, statement, or other document which requires the TIN of the 
other person, and the other person is required to have a TIN under the 
section 6109 regulations. If the person does not know the TIN of the 
other person, the first person must request it, and if this request is 
denied, then the first person must file an affidavit with the filing so 
stating. See Sec. 301.6109-1(c).
    The IRS and Treasury propose to amend the section 6109 regulations 
to include a specific reference to the new provisions requiring TINs 
for foreign taxpayers under sections 897 and 1445. The section 6109 
regulations would be amended to provide that foreign persons will be 
required to have TINs for placement on any return, statement, or other 
document required by the regulations under section 897 or section 1445. 
See Sec. 301.6109-1(b)(2). The section 6109 regulations also would be 
amended to provide that another person (e.g., the transferee as 
withholding agent) making a return, statement, or other document will 
be required to furnish the TIN of a foreign person as required by the 
regulations under section 897 or section 1445. See Sec. 301.6109-1(c).

[[Page 48825]]

2. Section 1445 Regulations

(a) Section 1.1445-1

    In connection with the withholding requirements under section 1445, 
the transferee generally must report and pay over any tax withheld by 
the 20th day after the date of the transfer. Sec. 1.1445-1(b)(1). Form 
8288 ``Withholding Tax Return'' and Form 8288-A ``Statement of 
Withholding'' are used for this purpose. Form 8288-A serves as a 
receipt of withholding tax reported and paid over and is stamped by the 
IRS upon receipt and mailed to the transferor. The transferor must 
attach the Form 8288-A to its U.S. income tax return to verify the 
amount of withholding tax creditable on its return.
    Under Sec. 1.1445-1(d), Forms 8288 and 8288-A only require the TIN 
of the transferor and the transferee to the extent the transferor and 
transferee otherwise have TINs. If the transferee is a U.S. person it 
will have a TIN, and if the transferee is a foreign person, it must 
have or obtain a TIN under the section 6109 regulations when filing a 
Form 8288 (which is considered to be a tax return). A foreign 
transferor, however, will not have a TIN for placement on the Forms 
8288 and 8288-A, unless it is otherwise required to have one under the 
section 6109 regulations (e.g., the foreign person otherwise has ECI). 
The section 1445 regulations will be amended to provide that the 
transferors and transferees must have TINs for placement on the Forms 
8288 and 8288-A.
    Finally, the section 1445 regulations provide for various documents 
(including applications for withholding certificates) to be sent to the 
Assistant Commissioner (International). Section 1.1445-1(g)(10) 
provides the address of the Assistant Commissioner (International). 
Because of the restructuring of the IRS, the Office of the Assistant 
Commissioner (International) no longer exists, and its duties regarding 
the administration of the section 1445 regulations are performed, in 
general, by the Philadelphia Service Center. Section 1.1445-1(g)(10) 
and other provisions in the section 1445 regulations will be amended to 
reflect this change.

(b) Section 1.1445-2

    Under Sec. 1.1445-2(d)(2), a transferee is not required to withhold 
under section 1445, if, by reason of a nonrecognition provision of the 
Internal Revenue Code or a U.S. income tax treaty provision, the 
transferor is not required to recognize gain or loss with respect to 
the transfer. The transferor must notify the transferee of the 
nonrecognition provision or treaty provision, and the transferee must 
provide a copy of the transferor's notice to the IRS by the 20th day 
after the date of the transfer. Section 1.1445-9T specifies the 
information the notice must contain, such as identifying information of 
the transferor, a description of the transaction, and a brief summary 
of the law and facts supporting the claim of nonrecognition of gain on 
the transaction. The notice is required to include a TIN of the 
transferor only if the foreign transferor otherwise has a TIN. The 
notice forwarded by the transferee to the IRS must include a cover 
letter identifying the transferee. The transferee must include its TIN 
on the cover letter only if it has one.
    The proposed regulations would withdraw section 1.1445-9T and 
incorporate it into Sec. 1.1445-2(d)(2). In addition, the information 
required for inclusion on the notice would be revised to provide that 
the transferor must have a TIN for inclusion on the notice of 
nonrecognition. The regulations also would be amended to provide that 
the transferee must have a TIN for placement on the cover letter.
Certificates of Non-Foreign Status Under Sec. 1.1445-2
    Under Sec. 1.1445-2(b), no withholding is required under section 
1445 if the transferor of a U.S. real property interest is not a 
foreign person. If the transferor provides a certificate of non-foreign 
status to the transferee of the U.S. real property interest prior to or 
at the time of the transfer, the transferee is not required to withhold 
under section 1445(a). The certificate of non-foreign status must 
certify that the transferor is not a foreign person, must set forth the 
transferor's name, identifying number and address, and must contain the 
transferor's signature under penalties of perjury.
    The IRS is considering requiring Form W-9 to be used as 
certificates of non-foreign status under Sec. 1.1445-2(b). Form W-9 
generally contains the same information as a certificate of non-foreign 
status and currently is used in the context of section 1441 withholding 
to determine a taxpayer's non-foreign status. Because Form W-9 is not 
now required in real estate transactions and because payments with 
respect to real estate transactions are exempt from backup withholding 
under Sec. 31.3406(g)-2(e) (although Form W-9 can be used to provide 
the TIN of the seller to the reporting person required to report the 
transaction on Form 1099 under Sec. 1.6045-4(l)), the IRS requests 
comments on the use of Form W-9 in real estate transactions to avoid 
withholding under section 1445. The IRS believes that the use of Form 
W-9 could ease compliance with section 1445.

(c) Section 1.1445-3

    Section 1.1445-3 provides procedures for the reduction or 
elimination of withholding under section 1445 pursuant to a withholding 
certificate issued by the IRS. A withholding certificate may be issued 
by the IRS in cases where the transferor is exempt from U.S. tax, the 
transferor's maximum tax liability under section 897 is less than the 
withholding tax, or where the transferor or transferee enters into an 
agreement for the payment of tax with the IRS. A withholding 
certificate that is applied for prior to or on the date of the transfer 
notifies the transferee that reduced or no withholding is required. A 
withholding certificate that is applied for after a transfer has been 
made may authorize a normal refund or an early refund. Either the 
transferor or transferee may apply for a withholding certificate.
    Section Sec. 1.1445-3(b)(2) identifies the information that must be 
furnished on an application for a withholding certificate. It includes 
the name and address of the transferee and the transferee's TIN, but 
only if the transferee has a TIN. It also includes the name and address 
of all other parties to the transaction (e.g., transferors) and their 
TINs, but only if they have TINs. The applicant must determine if each 
party has a TIN, and if none exists for a particular party, the 
application must so state. The regulations would be amended to provide 
that the transferee and all other parties (e.g., transferors) must have 
TINs for placement on an application for a withholding certificate. The 
regulations would further provide that the application will be denied 
if the TINs of all the parties are not provided.

(d) Section 1.1445-5

    Under Sec. 1.1445-5, special rules are provided concerning 
withholding required under section 1445(e) on distributions and other 
transactions involving domestic or foreign corporations, partnerships, 
trusts, and estates. Paragraph (b)(2) provides that no withholding is 
required for transfers of a USRPI described in section 1445(e) if no 
gain or loss is required to be recognized by a foreign person under a 
nonrecognition provision of the Internal Revenue Code or a provision of 
a U.S. income tax treaty. The entity or fiduciary otherwise required to 
withhold must deliver a notice of the nonrecognition transfer to the 
IRS by the 20th day after the transfer of the USRPI. The entity or 
fiduciary may obtain a

[[Page 48826]]

withholding certificate from the IRS to confirm the applicability of a 
nonrecognition provision, but is not required to do so.
    The notice of a nonrecognition transfer delivered to the IRS must 
contain a description of the transfer and a supporting explanation of 
the claim of nonrecognition treatment, as well as identifying 
information of the entity or fiduciary submitting the notice and each 
foreign person with respect to which withholding would otherwise be 
required. The TINs of the entity or fiduciary and each foreign person 
are required to be furnished only if such persons otherwise have TINs. 
The regulations under Sec. 1.1445-5(b)(2)(ii) would be amended to 
provide that the entity or fiduciary and all foreign persons must have 
TINs to be furnished on the notice of nonrecognition.

(e) Section 1.1445-6

    Section 1.1445-6 provides procedures for obtaining a withholding 
certificate for distributions and other transactions involving domestic 
or foreign corporations, partnerships, trusts, and estates subject to 
withholding tax under section 1445(e) and Sec. 1.1445-5. The procedures 
for obtaining a withholding certificate are modeled after Sec. 1.1445-
3, which provides the procedures for obtaining a withholding 
certificate under section 1445(a). Hence, the entity or fiduciary 
(acting as withholding agent) or the foreign taxpayer subject to 
section 897 can apply for a withholding certificate on the basis that 
the foreign person is exempt from U.S. tax, the transferor's maximum 
tax liability under section 897 is less than the withholding tax, or an 
agreement is entered into by the transferor or transferee for the 
payment of tax.
    Section 1.1445-6(b) identifies the information that must be 
furnished on an application for a withholding certificate. It includes 
the name, address of the foreign taxpayer subject to section 897 and 
the foreign taxpayer's TIN, but only if the taxpayer otherwise has a 
TIN. The regulations will be amended to require the foreign taxpayer to 
have a TIN for placement on an application for a withholding 
certificate.

3. Section 897 Regulations

(a) Section 1.897-3

    Section Sec. 1.897-3 provides rules enabling a foreign corporation 
to make a section 897(i) election to be treated as a domestic 
corporation for purposes of sections 897 and 1445. A foreign 
corporation making a section 897(i) election is subject to all of the 
rules under section 897 and 1445 that apply to domestic corporations. 
For example, if a foreign corporation that has made the section 897(i) 
election is a USRPHC, interests in it are USRPIs that are subject to 
taxation under section 897 and withholding tax under section 1445. A 
foreign corporation that makes an election under section 897(i) is not 
treated as a domestic corporation for purposes of any other provision 
of the Code or regulations, except to the extent that it is required to 
consent to such treatment as a condition of making the election.
    The election under section 897(i) must include the name, address, 
and place and date of incorporation of the foreign corporation and the 
foreign corporation's TIN but only if the foreign corporation otherwise 
has a TIN. The regulations would be amended to require the electing 
foreign corporation to have a TIN for placement on the election.

(b) Section 1.897-5T

    Section Sec. 1.897-5T provides that certain distributions of USRPIs 
(which otherwise qualify for nonrecognition treatment) are not subject 
to section 897 if any gain from a subsequent disposition of the USRPIs 
would be included in gross income of the distributee or transferee 
receiving the USRPI in the distribution. See, e.g., Sec. 1.897-
5T(c)(2)(i). An interest will be considered subject to U.S. tax upon 
its subsequent disposition only if certain reporting requirements are 
satisfied. See Sec. 1.897-5T(d)(1)(i). Under the reporting 
requirements, the distributor must file an income tax return for the 
taxable year of the distribution. The person filing the return must 
attach a document describing the distribution or exchange, including 
the name and address of the distributee, and its TIN, but only to the 
extent it has one. See Sec. 1.897-5T(d)(1)(iii).
    The regulations would be amended to require that the document 
attached to the return includes the TIN of the distributee. This is 
necessary to properly identify the foreign distributee which will be 
subject to section 897 upon a subsequent disposition of the USRPI.

4. Miscellaneous Items

(a) Section 1445(e)(3)

    Section 1445(e)(3) provides that if a domestic corporation which is 
a U.S. real property holding corporation (or at any time during the 
preceding five year period was a U.S. real property holding 
corporation) distributes property to a foreign shareholder in 
redemption of stock under section 302 or in liquidation of the 
corporation, the corporation must withhold 10 percent of the amount 
distributed to the foreign shareholder. Withholding is not required if 
the domestic corporation was ``purged'' of its U.S. real property 
holding corporation status by disposing of all of its U.S. real 
property interests within the prior five-year period and recognizing 
gain (if any) pursuant to section 897(c)(1)(B).
    Section 1445(e)(3) was amended by the Small Business Job Protection 
Act of 1996 (Pub. L. 104-188, Sec. 1704(c)) to provide that similar 
rules apply in the case of any distribution to which section 301 
applies and which is not made out of earnings and profits of the 
domestic corporation. Because a section 301 distribution by a domestic 
corporation to a foreign shareholder is also governed by section 1441 
(or 1442 or 1443), the section 1441 regulations provide coordination 
rules between withholding under sections 1445 and 1441 (or 1442 or 
1443) in the case of section 301 distributions to foreign shareholders 
by a domestic corporation which is a U.S. real property holding 
corporation or was one at any time within the prior five-year period. 
See Sec. 1.1441-3(c)(4).
    In general, Sec. 1.1441-3(c)(4) provides that a domestic 
corporation may elect to withhold on the entire distribution under 
section 1441 (or 1442 or 1443), and not under section 1445, regardless 
of whether a portion of the distribution constitutes a return of basis 
or capital gain. Alternatively, a domestic corporation may elect to 
withhold under both sections 1445 and 1441 (or 1442 or 1443), in which 
case the domestic corporation must withhold under section 1441 (or 1442 
or 1443) on the portion of the distribution that is estimated to be a 
dividend under Sec. 1.1441-3(c)(2)(ii)(A) and must withhold under 
section 1445(e)(3) on the remainder of the distribution. A domestic 
corporation may withhold a reduced amount on the distribution under 
section 1445(e)(3) by obtaining a withholding certificate establishing 
that the amount of capital gain under section 301(c)(3) is less than 
the withholding tax otherwise due under section 1445(e)(3).
    Section 1.1445-5(e) currently provides that if a domestic 
corporation, the stock of which is a U.S. real property interest, 
distributes property to a foreign shareholder in a redemption of stock 
under section 302 or in liquidation of the corporation, the domestic 
corporation must withhold 10 percent of the fair market value of the 
property distributed to the foreign shareholder. Section 1.1445-5(e) 
would be amended to provide that withholding

[[Page 48827]]

is required in the case of a distribution of property under section 
301(c). A cross-reference to Sec. 1.1441-3(c)(4), which provides the 
coordination rules for withholding between sections 1445 and 1441 (or 
1442 or 1443), is provided.

(b) Section 121 Exclusion

    Prior to the Taxpayer Relief Act of 1997 (Pub. L. 105-34; 111 Stat. 
788) (TRA 97), section 121 provided a one-time exclusion from gross 
income up to $125,000 for certain gains from the sale of a principal 
residence by a taxpayer that was 55 years or older. The amendment of 
section 121 under TRA 97 expanded the exclusion to all taxpayers (not 
just those 55 years of age and older) and increased the amount of the 
exclusion to $250,000 (or $500,000, in the case of a husband and wife 
filing a joint return). Section 121(e) denies the exclusion to 
nonresident alien taxpayers who expatriated from the United States and 
are subject to the provisions of section 877(a).
    For section 121 to apply, the taxpayer must have owned and used the 
property as a personal residence for periods aggregating 2 years or 
more during the 5-year period ending on the date of the sale. Section 
121(a). An alien individual who owns and has used a U.S. real property 
interest as a personal residence during the 5-year period prior to the 
date of sale may nevertheless be a nonresident alien at the time of 
sale and subject to sections 897 and 1445. In addition, certain alien 
individuals (for example, full-time diplomats or employees of 
international organizations), who may own and use a U.S. real property 
interest as a personal residence at the time of sale, are treated as 
nonresident alien individuals for tax purposes under section 7701(b).
    In connection with the amendments to section 121, section 1034 was 
repealed. Section 1034 had provided for nonrecognition of gain upon the 
sale of a personal residence provided that another personal residence 
of greater value was purchased within a specified period of time. Prior 
to the repeal of section 1034, withholding agents could rely on a 
notice of nonrecognition under Sec. 1.1445-2(b)(2) on certain section 
1034 exchanges because section 1034 exchanges were treated as 
nonrecognition exchanges for purposes of sections 897 and 1445. See 
Sec. 1.897-6T(a)(5). Section 121 is not treated as a nonrecognition 
exchange for purposes of sections 897 and 1445. See Sec. 1.897-
6T(a)(2). Therefore, withholding agents cannot rely on a notice of 
nonrecognition under Sec. 1.1445-2(b)(2) with respect to the section 
121 exclusion, and dispositions of personal residences entitled to the 
section 121 exclusion are not entitled to a reduction in withholding 
absent a withholding certificate. Accordingly, the withholding 
certificate provisions of Sec. 1.1445-3(c) are proposed to be amended 
to provide that a claimed adjustment to the maximum tax liability on 
the disposition of a U.S. real property interest will include the 
section 121 exclusion if the claim includes information establishing 
that the transferor is entitled to the benefits of section 121. Because 
section 1034 has been repealed, the following regulatory provisions 
concerning section 1034 will be withdrawn effective on the date of its 
repeal: Sec. 1.897-6T(a)(5), Sec. 1.897-6T(a)(7), Examples 2 and 3, and 
Sec. 1.1445-9T(b)(6).

(c) Section 1031  Like-Kind Exchanges

    Section 1031(a) provides for the nonrecognition of gain or loss on 
the exchange of like-kind property which is held for productive use in 
a trade or business or held for investment. Section 1031(a)(3) provides 
for the exchange of like-kind property in deferred exchanges, where the 
taxpayer has 45 days after it relinquishes the property to the 
transferee to identify replacement property and the transferee has 
until the earlier of 180 days or the due date of the tax return for the 
year of transfer to deliver such property to the transferor. In cases 
where there is a simultaneous exchange of like-kind U.S. real property 
interests, the foreign transferor can provide a notice of recognition 
under Sec. 1.1445-2(d)(2) to the transferee, and the transferee can 
rely on such notice because the like-kind exchange will be fully 
completed on the day of the exchange.
    In the case of a deferred like-kind exchange of U.S. real property 
interests, the issue has been raised whether the transferee can rely on 
a notice of nonrecognition under Sec. 1.1445-2(d)(2) when the exchange 
is not completed (because of the 45 day and 180 day rule) and the 
determination of nonrecognition is not known by the 20th day after 
receipt of the relinquished property by the transferee (when it has the 
obligation to pay withholding tax and file a withholding tax return, 
Form 8288). It has been the view of the IRS and Treasury that the 
transferee cannot rely on a notice of nonrecognition in the case of a 
deferred like-kind exchange, because the transferee cannot be assured 
that the exchange will qualify for nonrecognition treatment under 
section 1031. Although Sec. 1.1445-2(d)(2) does not apply to section 
1031 transactions, taxpayers have requested withholding certificates 
under Sec. 1.1445-3 in the case of deferred like-kind exchanges. This 
practice will be incorporated in the regulations by amending 
Sec. 1.1445-3(c) to provide that taxpayers may obtain withholding 
certificates in the case of deferred like-kind exchanges under section 
1031(a)(3) (see also the safe-harbor for reverse like-kind exchanges 
under Rev. Proc. 2000-37, 2000-40 I.R.B. 308).
(d) Transfers By an Entity Treated as a Disregarded Entity for U.S. Tax 
Purposes
    Under Sec. 1.1445-2(a), a transferee generally has the duty to 
withhold under section 1445(a) if the transferor is a foreign person 
and the transferee is acquiring a U.S. real property interest. A 
transferee generally is not required to withhold under section 1445(a) 
if the transferee receives a certificate of non-foreign status from the 
transferor without actual knowledge (or notice from an agent of the 
transferor or transferee) that the certificate is false. Sec. 1.1445-
2(b)(2). While the transferee is not required to request a certificate 
of non-foreign status and may rely on other means to determine the non-
foreign status of the transferor, the transferee will be subject to the 
liability imposed under section 1445 if the transferor is in fact a 
foreign person and the transferor has not received a certificate of 
non-foreign status. Sec. 1.1445-2(b)(1). Thus, the transferee may 
demand a certificate of non-foreign status and is entitled to withhold 
under section 1445 if a certificate of non-foreign status is not 
provided. Id.
    Taxpayers have inquired about the operation of sections 897 and 
1445 where the legal entity transferring a U.S. real property interest 
is disregarded as an entity separate from its owner for U.S. tax 
purposes, for example, under Sec. 301.7701-3 (disregarded entity). If 
the transferor is a disregarded entity, the owner (and not the entity) 
is treated as the transferor of property for U.S. tax purposes, 
including sections 897 and 1445. See, e.g., Sec. 301.7701-3(a). 
Accordingly, if a disregarded entity disposes of a U.S. real property 
interest and its owner is a foreign person, the foreign person is 
treated as the transferor of the property and is subject to tax under 
sections 897 and 1445. If a disregarded entity disposes of a U.S. real 
property interest and its owner is a U.S. person, then the U.S. person 
is the transferor of the property and may provide a certificate of non-
foreign status.
    In order to clarify the treatment of disregarded entities, the 
regulations are amended to provide that a disregarded entity may not 
provide a certificate of

[[Page 48828]]

non-foreign status because the disregarded entity is not the 
transferor. The sample certifications which an entity may provide to 
the transferee with respect to its non-foreign status (as provided in 
Sec. 1.1445-2(b)(2)) are amended to include a certification that the 
entity is not a disregarded entity for U.S. tax purposes.

Proposed Effective Date

    These regulations are proposed to apply to transactions occurring 
30 days or more after the date final regulations are published in the 
Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
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 
these regulations do not impose a collection of information on U.S. 
small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
does not apply. Therefore, a Regulatory Flexibility Analysis 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 its impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (preferably a 
singed original and eight (8) copies) that are submitted timely to the 
IRS. The IRS and Treasury request comments on the clarity of the 
proposed regulations and how they may be made easier to understand. All 
comments will be available for public inspection and copying.
    A public hearing has been scheduled for November 13, 2002, 
beginning at 10 am, in room 6718, 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 30 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 timely written comments and an outline of the topics to be 
discussed and the time to be devoted to each topic (preferably a signed 
original and eight (8) copies) by October 23, 2002.
    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 regulations is Robert W. Lorence, 
Jr., of the Office of Associate Chief Counsel (International). However, 
other personnel from the IRS and Treasury Department participated in 
their development.

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.

Proposed Amendments to the Regulations

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

PART 1-- INCOME TAXES

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

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

    2. In Sec. 1.897-1, paragraph (p), the first sentence is amended by 
adding the language ``or the identification number assigned by the 
Internal Revenue Service (see Sec. 301.6109-1 of this chapter)'' 
immediately after the language ``United States social security number'.
    3. Section 1.897-2 is amended as follows:
    For each of the paragraphs listed in the first column, remove the 
language in the second column and add in its place the language in the 
third column:

------------------------------------------------------------------------
           Paragraphs                   Remove                Add
------------------------------------------------------------------------
(g)(1)(i)(B)....................  Director, Foreign   Commissioner,
                                   Operations          Small Business/
                                   District            Self Employed
                                   (``Director'').     Division (SB/SE).
(g)(1)(i), fourth sentence of     Director..........  Commissioner.
 concluding text immediately
 following paragraph
 (g)(1)(i)(B).
(g)(1)(iii) heading.............  Director..........  Commissioner.
(g)(1)(iii)(A), first, fourth,    Director..........  Commissioner.
 and last sentences.
(g)(1)(iii)(A), third sentence..  Director, Foreign   Commissioner,
                                   Operations          Small Business/
                                   District; 1325 K    Self Employed
                                   St. NW.;            Division (SB/SE);
                                   Washington, DC      S C3-413 NCFB,
                                   20225.              500 Ellin Road,
                                                       Lanham, MD 20706.
(g)(1)(iii)(B) heading..........  Director's........  Commissioner's.
(g)(1)(iii)(B) introductory text  Director..........  Commissioner.
(g)(1)(iii)(B) concluding text    Director..........  Commissioner.
 immediately following
 (g)(1)(iii)(B)(2).
(g)(1)(iii)(C) both places it     Director..........  Commissioner.
 appears.
(g)(1)(iii)(D) heading..........  Director..........  Commissioner.
(g)(1)(iii)(D)..................  Director..........  Commissioner.
(g)(2)(i)(B)....................  Director..........  Commissioner.
(g)(2)(iii) heading.............  Director..........  Commissioner.
(g)(2)(iii)(A), first, fourth,    Director..........  Commissioner.
 and fifth sentence (both places
 it appears).
(g)(2)(iii)(A), third sentence..  Director, Foreign   Commissioner,
                                   Operations          Small Business/
                                   District; 1325 K    Self Employed
                                   St. NW.;            Division (SB/SE);
                                   Washington, DC      S C3-413 NCFB,
                                   20225.              500 Ellin Road,
                                                       Lanham, MD 20706.
(g)(2)(iii)(B) heading..........  Director's........  Commissioner's.
(g)(2)(iii)(B) introductory text  Director..........  Commissioner.
(g)(2)(iii)(B) concluding text    Director..........  Commissioner.
 immediately following
 (g)(2)(iii)(B)(2).

[[Page 48829]]

 
(g)(2)(iii)(C), first and second  Director..........  Commissioner.
 sentences.
(g)(2)(iii)(D) heading..........  Director..........  Commissioner.
(g)(2)(iii)(D)..................  Director..........  Commissioner.
(g)(2)(iv), fourth sentence.....  Director..........  Commissioner.
(h)(2)(v), third sentence.......  Assistant           Director,
                                   Commissioner.       Philadelphia
                                   (International),    Service Center,
                                   Director, Office    P.O. Box 21086,
                                   of Compliance,      Drop Point 8731,
                                   OP:I:C:E:666, 950   FIRPTA Unit,
                                   L'Enfant Plaza      Philadelphia, PA
                                   South, SW, COMSAT   19114-0586.
                                   Building,
                                   Washington, DC
                                   20024.
(h)(4)(ii), first sentence......  Assistant           Director,
                                   Commissioner        Philadelphia
                                   (International),    Service Center,
                                   Director, Office    P.O. Box 21086,
                                   of Compliance,      Drop Point 8731,
                                   OP:I:C:E:666, 950   FIRPTA Unit,
                                   L'Enfant Plaza      Philadelphia, PA
                                   South, SW, COMSAT   19114-0586.
                                   Building,
                                   Washington, DC
                                   20024.
------------------------------------------------------------------------

    4. Section 1.897-3 is amended as follows:
    1. For each of the paragraphs listed in the first column, remove 
the language in the second column and add in its place the language in 
the third column:

------------------------------------------------------------------------
           Paragraphs                   Remove                Add
------------------------------------------------------------------------
(c), introductory text..........  Director of the     Director,
                                   Foreign             Philadelphia
                                   Operations          Service Center,
                                   District, 1325 K    P.O. Box 21086,
                                   St., NW.,           Drop Point 8731,
                                   Washington, DC      FIRPTA Unit,
                                   20225.              Philadelphia, PA
                                                       19114-0586.
(c)(1), introductory text, last   which must set      which must contain
 sentence.                         forth.              all the following
                                                       information.
(d)(1), fourth sentence.........  Foreign Operations  Philadelphia
                                   District.           Service Center.
(d)(2)(i), penultimate sentence.  Director, Foreign   U.S. Treasury.
                                   Operations
                                   District.
(f)(1), second sentence.........  Director, Foreign   Director,
                                   Operations          Philadelphia
                                   District, 1325 K    Service Center,
                                   St., NW.,           P.O. Box 21086,
                                   Washington, DC      Drop Point 8731,
                                   20225.              FIRPTA Unit,
                                                       Philadelphia, PA
                                                       19114-0586.
(f)(1), fifth sentence..........  Foreign Operations  Philadelphia
                                   District.           Service Center.
(g)(1), second sentence.........  Director of the     Director,
                                   Foreign             Philadelphia
                                   Operations          Service Center.
                                   District.
------------------------------------------------------------------------

    2. In paragraph (c)(1)(i), remove the parenthetical ``(if any)'' 
after the words ``identifying number'.
    5. Section 1.897-5 is added to read as follows:


Sec. 1.897-5  Corporate distributions.

    (a) through (d)(1)(iii)(E) [Reserved]. For further guidance, see 
Sec. 1.897-5T(a) through (d)(1)(iii)(E).
    (d)(1)(iii)(F) Identification by name and address of the 
distributee or transferee, including the distributee's or transferee's 
taxpayer identification number;
    (d)(1)(iii)(G) through (d)(4) [Reserved]. For further guidance, see 
Sec. 1.897-5T(d)(1)(iii)(G) through (d)(4).
    (e) Effective date. This section is applicable to transfers and 
distributions after 30 days after publication of final regulations in 
the Federal Register.
    6. In Sec. 1.897-5T, paragraph (d)(1)(iii)(F) is revised to read as 
follows:


Sec. 1.897-5T  Corporate distributions (temporary).

* * * * *
    (d) * * * (1) * * *
    (iii) * * *
    (F) [Reserved]. For further guidance, see Sec. 1.897-
5(d)(1)(iii)(F).
* * * * *


Sec. 1.897-6T  [Amended]

    7. Section 1.897-6T is amended as follows:
    1. In paragraph (a)(2), second sentence, the language '', 1034'' is 
removed.
    2. Paragraph (a)(5) is removed and reserved.
    3. Paragraph (a)(7), Example 2 and Example 3 are removed and 
reserved.
    8. Section 1.1445-1 is amended as follows:
    1. In paragraph (c)(1), second sentence, remove the language 
``filed with the Internal Revenue Service Center, Philadelphia, PA 
19255'' and add in its place the language ``filed at the location as 
provided in the instructions to Forms 8288 and 8288-A''.
    2. In paragraph (c)(2)(i)(B), second sentence, remove the phrase 
``,if any,'' after the words ``taxpayer identification number''.
    3. In paragraphs (d)(1)(i) and (d)(1)(ii), remove the parenthetical 
``(if any)'' after the words ``identifying number''.
    4. In paragraphs (d)(2)(i), (d)(2)(iv)(B), and (d)(2)(vi)(B), 
remove the parenthetical ``(if any)'' after the words ``identifying 
number''.
    5. Paragraphs (g)(9) and (g)(10) are revised.
    The revisions read as follows:


Sec. 1.1445-1  Withholding on dispositions of U.S. real property 
interests by foreign persons: In general.

* * * * *
    (g) * * *
    (9) Identifying number. Pursuant to Sec. 1.897-1(p), an 
individual's identifying number is the social security number or the 
identification number assigned by the Internal Revenue Service (see 
Sec. 301.6109-1 of this chapter). The identifying number of any other 
person is its United States employer identification number.
    (10) Address of the Director, Philadelphia Service Center. Any 
written communication directed to the Director, Philadelphia Service 
Center is to be addressed as follows: P.O. Box 21086, Drop Point 8731, 
FIRPTA Unit, Philadelphia, PA 19114-0586.
    9. Section 1.1445-2 is amended as follows:
    1. Paragraph (b)(2)(iii) is redesignated as paragraph (b)(2)(iv), 
and new paragraph (b)(2)(iii) is added.
    2. Newly designated paragraph (b)(2)(iv)(B) is revised.
    3. In paragraph (d)(2)(i)(B), the language ``Assistant Commissioner 
(International)'' is removed, and ``Director, Philadelphia Service 
Center'' is added in its place, and the parenthetical ``(if any),'' is 
removed after the words ``identifying number''.

[[Page 48830]]

    4. Paragraphs (d)(2)(iii) and (d)(2)(iv) are added immediately 
following the concluding text following paragraph (d)(2)(ii)(B).
    5. In paragraphs (d)(3)(iii)(A)(2) and (d)(3)(iii)(A)(3), the 
parenthetical ``(if any)'' is removed after the words ``identifying 
number''.
    The revision and additions read as follows:


Sec. 1.1445-2  Situations in which withholding is not required under 
section 1445(a).

* * * * *
    (b) * * *
    (2) * * *
    (iii) Disregarded entities. A disregarded entity may not certify 
that it is the transferor of a U.S. real property interest, as the 
disregarded entity is not the transferor for U.S. tax purposes, 
including sections 897 and 1445. Rather, the owner of the disregarded 
entity is treated as the transferor of property and must provide a 
certificate of non-foreign status to avoid withholding under section 
1445. A disregarded entity for these purposes means an entity that is 
disregarded as an entity separate from its owner under Sec. 301.7701-3 
of this chapter, a qualified REIT subsidiary as defined in section 
856(i), or a qualified subchapter S subsidiary under section 
1361(b)(3)(B). Any domestic entity must include in its certification of 
non-foreign status with respect to the transfer a certification that it 
is not a disregarded entity.
    (iv) * * *
    (B) Entity transferor.

    ``Section 1445 of the Internal Revenue Code provides that a 
transferee of a U.S. real property interest must withhold tax if the 
transferor is a foreign person. For U.S. tax purposes (including 
section 1445), the owner of a disregarded entity (which has legal 
title to a U.S. real property interest under local law) will be the 
transferor of the property and not the disregarded entity. To inform 
the transferee that withholding of tax is not required upon the 
disposition of a U.S. real property interest by [name of transferor] 
, the undersigned hereby certifies the following on behalf of [name 
of the transferor]:
    1. [Name of transferor] is not a foreign corporation, foreign 
partnership, foreign trust, or foreign estate (as those terms are 
defined in the Internal Revenue Code and Income Tax Regulations);
    2. [Name of transferor] is not a disregarded entity as defined 
in Sec. 1.1445-2(b)(2)(iii);
    3. [Name of transferor]'s U.S. employer identification number is 
________; and
    4. [Name of transferor]'s office address is ________________.
    [Name of transferor] understands that this certification may be 
disclosed to the Internal Revenue Service by transferee and that any 
false statement contained herein could be punished by fine, 
imprisonment, or both.
    Under penalties of perjury I declare that I have examined this 
certification and to the best of my knowledge and belief it is true, 
correct, and complete, and I further declare that I have authority 
to sign this document on behalf of [name of transferor].
[Signature(s) and date]
[Title(s)]''

* * * * *
    (d) * * *
    (2) * * *
    (iii) Contents of the notice. No particular form is required for a 
transferor's notice to a transferee that the transferor is not required 
to recognize gain or loss with respect to a transfer. The notice must 
be verified as true and signed under penalties of perjury by the 
transferor, by a responsible officer in the case of a corporation, by a 
general partner in the case of a partnership, and by a trustee or 
equivalent fiduciary in the case of a trust or estate. The following 
information must be set forth in paragraphs labeled to correspond with 
the designation set forth as follows--
    (A) A statement that the document submitted constitutes a notice of 
a nonrecognition transaction or a treaty provision pursuant to the 
requirements of Sec. 1.1445-2(d)(2);
    (B) The name, identifying number, and home address (in the case of 
an individual) or office address (in the case of an entity) of the 
transferor submitting the notice;
    (C) A statement that the transferor is not required to recognize 
any gain or loss with respect to the transfer;
    (D) A brief description of the transfer; and
    (E) A brief summary of the law and facts supporting the claim that 
recognition of gain or loss is not required with respect to the 
transfer.
    (iv) No notice allowed. The provisions of this paragraph (d)(2) do 
not apply to exclusions from income under section 121 and to non-
simultaneous like-kind exchanges under section 1031 where the 
transferee cannot determine that the exchange has been completed and 
all the conditions for nonrecognition have been satisfied at the time 
it is otherwise required to pay the section 1445 withholding tax and 
file the withholding tax return (Form 8288, ``U.S. Withholding Tax 
Return for Dispositions by Foreign Persons of U.S. Real Property 
Interests''). In these cases, the transferee is excused from 
withholding only upon the timely application for and receipt of a 
withholding certificate under Sec. 1.1445-3 (see Sec. 1.1445-3(b)(5) 
and (6) for specific rules applicable to transactions under sections 
121 and 1031).
* * * * *
    10. Section 1.1445-3 is amended as follows:
    1. For each of the paragraphs listed in the column below, remove 
the language ``Assistant Commissioner (International)'', and add 
``Director, Philadelphia Service Center'' in its place.


Paragraphs
(b)(1), first sentence
(f)(1), first sentence
(f)(2)(iii), heading
(f)(2)(iii), first sentence
(g), third sentence, introductory text

    2. In paragraph (b)(1), last sentence, remove the language ``of 
this section'' and add ``, and to the extent applicable, paragraph 
(b)(5) or (6) of this section'' in its place.
    3. Paragraph (b)(2) is revised.
    4. Paragraphs (b)(5) and (b)(6) are added.
    5. In paragraphs (f)(3)(i) and (g)(1), remove the parenthetical 
``(if any)'' after the words ``identifying number''.
    The revision and additions read as follows:


Sec. 1.1445-3  Adjustments to amount required to be withheld pursuant 
to withholding certificate.

* * * * *
    (b) * * *
    (2) Parties to the transaction. The application must set forth the 
name, address, and identifying number of the person submitting the 
application (specifying whether that person is the transferee or 
transferor), and the name, address, and identifying number of other 
parties to the transaction (specifying whether each such party is a 
transferee or transferor). The Service will deny the application if 
complete information, including the identifying numbers of all the 
parties, is not provided. Thus, for example, the applicant should 
determine if an identifying number exists for each party, and, if none 
exists for a particular party, the applicant should notify the 
particular party of the obligation to get an identifying number before 
the application can be submitted to the Service. The address provided 
in the case of an individual must be that individual's home address, 
and the address provided in the case of an entity must be that entity's 
office address. A mailing address may be provided in addition to, but 
not in lieu of, a home address or office address.
* * * * *
    (5) Special rule for exclusions from income under section 121. A 
withholding certificate may be sought on the basis of a section 121 
exclusion as a reduction in the amount of tax due under paragraph 
(c)(2)(v) of this section. The application must include

[[Page 48831]]

information establishing that the transferor, who is a nonresident 
alien individual at the time of the sale (and is therefore subject to 
sections 897 and 1445) is entitled to claim the benefits of section 
121. For example, a claim for reduced withholding as a result of 
section 121 must include information that the transferor occupied the 
U.S. real property interest as his or her personal residence for the 
required period of time.
    (6) Special rule for like-kind exchanges under Section 1031. A 
withholding certificate may be requested with respect to a like-kind 
exchange under section 1031 as a transaction subject to a 
nonrecognition provision under paragraph (c)(2)(ii) of this section. 
The application must include information substantiating the 
requirements of section 1031. The IRS may require additional 
information during the course of the application process to determine 
that the requirements of section 1031 are satisfied. In the case of a 
deferred like-kind exchange, the transferee is excused from withholding 
only if the transferee or transferor submits an application for a 
withholding certificate prior to or on the date of transfer, in which 
case the withholding tax will be placed in escrow pursuant to 
procedures established by the IRS and ultimately paid to the IRS if the 
withholding certificate is denied or released for the benefit of the 
taxpayer if the withholding certificate is granted. See Sec. 1.1445-
1(c)(2) for rules concerning delayed reporting and payment where an 
application for a withholding certificate has been submitted to the IRS 
prior to or on the date of transfer.
* * * * *


Sec. 1.1445-4  [Amended]

    11. In Sec. 1.1445-4, paragraph (c)(2), second sentence, is amended 
by removing the language ``Assistant Commissioner (International)'' and 
adding ``Director, Philadelphia Service Center'' in its place.
    12. Section 1.1445-5 is amended as follows:
    1. In paragraph (b)(2)(ii), first sentence, remove the language 
``Assistant Commissioner (International)'' and add ``Director, 
Philadelphia Service Center'' in its place.
    2. In paragraphs (b)(2)(ii)(B) and (b)(2)(ii)(C), remove the 
parenthetical ``(if any)'' after the words ``identifying number''.
    3. Paragraph (b)(8)(iii) is revised.
    4. In paragraph (c)(3)(v), first and fifth sentences, remove the 
language ``Assistant Commissioner (International)'' and add ``Director, 
Philadelphia Service Center'' in its place.
    5. Paragraph (e)(1)(ii) is revised.
    6. Paragraph (e)(2) is redesignated as paragraph (e)(3), and new 
paragraph (e)(2) is added,
    7. In newly designated paragraph (e)(3)(iii)(B), remove the 
language ``Sec. 1.1445-5(e)(2)(iii)(B)'' and add ``Sec. 1.1445-
5(e)(3)(iii)(B)'' in its place; and remove the language ``paragraph 
(e)(2)(iii)(B)'' and add ``paragraph (e)(3)(iii)(B)'' in its place.
    The revisions and additions read as follows:


Sec. 1.1445-5  Special rules concerning distributions and other 
transactions by corporations, partnerships, trusts, and estates.

* * * * *
    (b) * * *
    (8) * * *
    (iii) Distributions by certain domestic corporations to foreign 
shareholders. The provisions of section 1445(e)(3) and paragraph (e)(1) 
of this section, requiring withholding upon distributions in redemption 
of stock under section 302(a) or liquidating distributions under Part 
II of subchapter C of the Internal Revenue Code by U.S. real property 
holding corporations to foreign shareholders, shall apply to 
distributions made on or after January 1, 1985. The provisions of 
section 1445(e)(3) and paragraph (e)(1) of this section requiring 
withholding on distributions under section 301 by U.S. real property 
holding corporations to foreign shareholders shall apply to 
distributions made after August 20, 1996. The provisions of paragraph 
(e) of this section providing for the coordination of withholding 
between sections 1445 and 1441 (or 1442 or 1443) for distributions 
under section 301 by U.S. real property holding corporations to foreign 
shareholders apply to distributions after December 31, 2000 (see 
Sec. 1.1441-3(c)(4) and (h)).
* * * * *
    (e) * * * (1) * * *
    (ii) There is a distribution of property in redemption of stock 
treated as an exchange under section 302(a), in liquidation of the 
corporation pursuant to the provisions of Part II of subchapter C of 
the Internal Revenue Code (sections 331 through section 341), or with 
respect to stock under section 301 that is not made out of earnings and 
profits of the corporation.
    (2) Coordination rules for Section 301 distributions. If a domestic 
corporation makes a distribution of property under section 301 to a 
foreign person whose interest in such corporation constitutes a U.S. 
real property interest under the provisions of section 897 and the 
regulations thereunder, then see Sec. 1.1441-3(c)(4) for rules 
coordinating withholding obligations under sections 1445 and 1441 (or 
1442 or 1443)).
* * * * *
    13. Section 1.1445-6 is amended as follows:
1. The section heading and paragraph (b)(3) are revised.
    2. For each of the paragraphs listed in the column below, remove 
the language ``Assistant Commissioner (International)'' and add 
``Director, Philadelphia Service Center'' in its place.

Paragraphs
    (f)(1), first sentence
    (f)(2)(iii), heading
    (f)(2)(iii)
    (g), introductory text, second sentence
    3. Paragraphs (f)(3)(i) and (g)(1) are amended by removing the 
parenthetical ``(if any)'' after the words ``identifying number''.
    The revision reads as follows:


Sec. 1.1445-6  Adjustments pursuant to withholding certificate of 
amount required to be withheld under section 1445(e).

* * * * *
    (b) * * *
    (3) Relevant taxpayers. An application for withholding certificate 
pursuant to this section must include all of the following information: 
the name, identifying number, and home address (in the case of an 
individual) or office address (in the case of an entity) of each 
relevant taxpayer with respect to which adjusted withholding is sought.
* * * * *


Sec. 1.1445-9T  [Removed]

    14. Section 1.1445-9T is removed.

PART 301--PROCEDURE AND ADMINISTRATION

    15. The authority for part 301 continues to read in part as 
follows:

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

    16. Section 301.6109-1 is amended as follows:
    1. In paragraph (b)(2)(v), remove the word ``and''.
    2. In paragraph (b)(2)(vi), remove the period at the end of the 
paragraph and add ``; and'' in its place.
    3. Paragraph (b)(2)(vii) is added.
    4. In paragraph (c), first and third sentences, remove the language 
``or (vi) of this section'' and add ``(vi), or (vii) of this section'' 
in its place.
    The addition reads as follows:


Sec. 301.6109-1  Identifying numbers.

* * * * * *

[[Page 48832]]

    (b) * * *
    (2) * * *
    (vii) A foreign person whose taxpayer identifying number is 
required to be furnished on any return, statement, or other document as 
required by the income tax regulations under section 897 or 1445.
* * * * *

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 02-18792 Filed 7-25-02; 8:45 am]
BILLING CODE 4830-01-P