[Federal Register Volume 67, Number 246 (Monday, December 23, 2002)]
[Rules and Regulations]
[Pages 78174-78176]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-32152]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9033]
RIN 1545-BB36


Section 6038--Returns Required With Respect to Controlled Foreign 
Partnerships

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulation.

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SUMMARY: This document contains final and temporary regulations 
relating to controlled foreign partnerships. This document requires 
that the United States partner must follow the filing requirements that 
are specified in the

[[Page 78175]]

instructions for Form 8865. The text of the temporary regulation also 
serves as the text of the proposed regulation set forth in the Proposed 
Rules section in this issue of the Federal Register.

DATES: Effective Date: These regulations are effective December 23, 
2002.
    Applicability Date: For dates of applicability, see Sec. Sec.  
1.6038-3(l) and 1.6038-3T(l).

FOR FURTHER INFORMATION CONTACT: Tasheaya Warren, (202) 622-3860 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    These regulations are being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collection of information contained in these 
regulations has been reviewed and, pending receipt and evaluation of 
public comments, approved by the Office of Management and Budget under 
control number 1545-1617. 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 the collection of 
information displays a valid OMB control number.
    For further information concerning this collection of information, 
and where to submit comments on the collection of information and the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble to the cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section of this 
issue of the Federal Register.
    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

    In 1997, Congress amended section 6038 to require information 
reporting by certain United States persons with direct and indirect 
interests in controlled foreign partnerships (CFPs). Treas. Reg. Sec.  
1.6038-3 was published in 1999 (TD 8850, 64 FR 72545 (1999)) (the 
``1999 Final Regulations'') and provides guidance regarding the 
reporting requirements under section 6038 with respect to CFPs. A 
United States person required to report under section 6038 with respect 
to a CFP must file Form 8865, Return of U.S. Persons With Respect To 
Certain Foreign Partnerships. In addition to the reporting obligation 
imposed on certain partners in foreign partnerships under section 6038, 
section 6031 requires certain foreign partnerships to file Form 1065, 
U.S. Return of Partnership Income or Form 1065-B, U.S. Return for 
Electing Large Partnerships.
    Treas. Reg. Sec.  1.6038-3(j)(1) provides that if a foreign 
partnership completes and files Form 1065 and a United States partner 
is required to file Form 8865 with respect to that partnership, the 
United States partner must attach to its Form 8865 copies of the Form 
1065 schedules filed by the partnership instead of completing the Form 
8865 schedules that are equivalent to Form 1065 schedules. This rule 
was added to the 1999 Final Regulations to reduce the burden imposed by 
those regulations where there is an overlap between section 6038 and 
section 6031. However, this rule does not directly address the filing 
requirements for Form 8865, when a United States partner files 
electronically its income tax return (including any attachments such as 
Form 8865).

Explanation of Provisions

    To facilitate revisions to the filing requirements for Form 8865 
(such as electronic filing of Form 8865), the temporary regulation 
amends Treas. Reg. Sec.  1.6038-3 to provide that a United States 
partner must follow the filing requirements that are specified in the 
instructions for Form 8865 when the United States partner must file 
Form 8865 and the partnership completes and files Form 1065 or Form 
1065-B. As a transitional matter, for the next filing season it is 
anticipated that the instructions for Form 8865 will continue to 
provide for the existing filing procedure pursuant to which a United 
States partner attaches certain schedules from Form 1065 or Form 1065-B 
to its Form 8865 as well as provide for an alternative electronic 
filing procedure for Form 8865.
    The final regulation also makes two revisions to the 1999 Final 
Regulations. If a U.S. person is required to file Form 8865, Treas. 
Reg. Sec.  1.6038-3(g)(1) provides that a U.S. person must submit any 
information that Form 8865 or its accompanying instructions require to 
be submitted. The final regulation clarifies the requirement under 
Treas. Reg. Sec.  1.6038-3, as reflected in the Form 8865 instructions, 
that the United States partner must include the foreign partnership's 
name, address and taxpayer identification number on Form 8865. The 
final regulation also corrects a cross reference in Treas. Reg. Sec.  
1.6038-3(b)(9) (Example 1).

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. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to this regulation. For the 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6) 
refer to the Special Analyses section of the preamble to the cross-
reference notice of proposed rulemaking published in the Proposed Rules 
section of this issue of the Federal Register. Pursuant to section 
7805(f) of the Internal Revenue Code, this temporary regulation will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small businesses.

Drafting Information

    The principal author of this regulation is Tasheaya Warren, Office 
of the Associate Chief Counsel (International). However, other 
personnel from the IRS and Treasury Department participated in its 
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

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

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


    Par. 2. Section 1.6038-3 is amended as follows:
    1. The last sentence in paragraph (b)(9) Example 1 is revised.
    2. Paragraphs (g)(1)(i) through (g)(1)(v) are redesignated as 
paragraphs (g)(1)(ii) through (g)(1)(vi), respectively.
    3. New paragraph (g)(1)(i) is added.
    4. Paragraphs (j) and (l) are revised.
    The revisions and addition read as follows:


Sec.  1.6038-3  Information returns required of certain United States 
persons with respect to controlled foreign partnerships (CFPs).

* * * * *

[[Page 78176]]

    (b) * * *
    (9) * * *

    Example 1. Sole U.S. partner does not own more than a fifty-
percent interest. * * *

    See also Sec.  1.6046A-1(f)(1) regarding the overlap between 
sections 6038B and 6046A).
* * * * *
    (g) * * * (1) * * *
    (i) The name, address, and taxpayer identification number (if any) 
of the foreign partnership of which the person qualified as a 
controlling fifty-percent partner or a controlling ten-percent partner;
* * * * *
    (j) [Reserved]. For further guidance, see Sec.  1.6038-3T(j).
* * * * *
    (l) Effective date. Except as otherwise provided, this section 
shall apply for tax years of a foreign partnership ending on or after 
December 31, 2000. For tax years of a foreign partnership prior to 
December 23, 2002, see Sec.  1.6038-3(j) in effect prior to these 
amendments (see 26 CFR part 1 revised April 1, 2002).
    Par. 3. Section 1.6038-3T is added to read as follows:


Sec.  1.6038-3T  Information returns required of certain United States 
persons with respect to controlled foreign partnership (CFPs) 
(temporary).

    (a) Through (i)(2) [Reserved]. For further guidance, see Sec.  
1.6038-3(a) through (i)(2).
    (j) Overlap with section 6031. A partner may be required to file 
Form 8865 under this section and the foreign partnership in which it is 
a partner may also be required to file a Form 1065 or Form 1065-B under 
section 6031(e) for the same partnership tax year. For cases where a 
United States person is a controlling fifty-percent partner or a 
controlling ten-percent partner with respect to a foreign partnership, 
and that foreign partnership completes and files Form 1065 or Form 
1065-B, the instructions for Form 8865 will specify the filing 
requirements that address this overlap in reporting obligations.
    (k) [Reserved]. For further guidance, see Sec.  1.6038-3(k).
    (l) Effective date. This section shall apply to tax years of a 
foreign partnership ending on or after December 23, 2002. The 
applicability of this section expires on December 20, 2005.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 4. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.

    Par. 5. In Sec.  602.101, paragraph (b) is amended by adding the 
following 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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1.6038-3T..................................................    1545-1617
 
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Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: December 5, 2002.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 02-32152 Filed 12-20-02; 8:45 am]
BILLING CODE 4830-01-P