[Federal Register Volume 68, Number 127 (Wednesday, July 2, 2003)]
[Rules and Regulations]
[Pages 39452-39453]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-16785]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9066]
RIN 1545-BA79


Outbound Liquidations Into Foreign Corporations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations that provide guidance 
regarding the application of section 367(e)(2) to certain outbound 
liquidations. The regulations amend the anti-abuse rule by narrowing 
the scope of the rule to apply only to outbound transfers to a foreign 
corporation in a complete liquidation of a domestic corporation in 
which a principal purpose of the liquidation is the avoidance of U.S. 
tax. The regulations also clarify the application of the anti-abuse 
rule.

DATES: Effective Date: July 2, 2003.
    Applicability Date: These regulations apply to distributions 
occurring on or after September 7, 1999, or, if the taxpayer has 
elected to apply the final regulations issued pursuant to TD 8834 to 
such distributions, to distributions in taxable years ending after 
August 8, 1999.

FOR FURTHER INFORMATION CONTACT: Milton M. Cahn, (202) 622-3860 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On August 9, 1999, the IRS and Treasury published final regulations 
(TD 8834 in the Federal Register at 64 FR 43072) under section 
367(e)(2) regarding distributions of property in a complete liquidation 
under section 332 by a domestic corporation to a foreign parent 
corporation (outbound liquidation) and by a foreign corporation to a 
foreign parent corporation (foreign-to-foreign liquidations). On 
November 20, 2002, the IRS and Treasury published a notice of proposed 
rulemaking (REG-127380-02 in the Federal Register at 67 FR 70031) that 
would amend an anti-abuse rule in the final regulations to limit its 
application only to outbound liquidations of domestic corporations, and 
to clarify what constitutes a principal purpose of tax avoidance for 
purposes of the anti-abuse rule.

Explanation of Provisions

    The final regulations published in 1999 included an anti-abuse rule 
providing that the Commissioner may require a foreign or domestic 
liquidating corporation to recognize gain (or treat the liquidating 
corporation as if it had recognized a loss) on a liquidating 
distribution if a principal purpose of the liquidation is the avoidance 
of U.S. tax. Sec.  1.367(e)-2(d). The notice of proposed rulemaking 
proposed amending the anti-abuse rule under Sec.  1.367(e)-2(d) to 
limit the application of this rule to outbound liquidations of domestic 
corporations. The notice of proposed rulemaking also proposed 
clarifying what constitutes a principal purpose for purposes of the 
anti-abuse rules in Sec.  1.367(e)-2(d) and Sec.  1.367(e)-
2(b)(2)(iii)(C)(1). One written comment responding to the notice of 
proposed rulemaking was received, but this comment did not request any 
changes. The public hearing was canceled because no requests were 
received to speak at the hearing. Accordingly, the proposed regulations 
are adopted by this Treasury decision without change.

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, and because the 
regulation does not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply.

Drafting Information

    The principal author of these final regulations is Aaron A. Farmer 
of the Office of the Associate Chief Counsel (International), IRS. 
However, other personnel from the Treasury and the IRS participated in 
their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

[[Page 39453]]

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1-- INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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


0
Par. 2. Section 1.367(e)-2, is amended as follows:
0
1. Paragraph (b)(2)(iii)(C)(1) is amended by removing the parenthetical 
``(taken together or separately)'' and adding ``when taken together'' 
in its place.
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2. Paragraph (d) is revised.
    The revision reads as follows:


Sec.  1.367(e)-2  Distributions described in section 367(e)(2).

* * * * *
    (d) Anti-abuse rule. The Commissioner may require a domestic 
liquidating corporation to recognize gain on a distribution in 
liquidation described in paragraph (b) of this section (or treat the 
liquidating corporation as if it had recognized loss on a distribution 
in liquidation), if a principal purpose of the liquidation is the 
avoidance of U.S. tax (including, but not limited to, the distribution 
of a liquidating corporation's earnings and profits with a principal 
purpose of avoiding U.S. tax). A liquidation may have a principal 
purpose of tax avoidance even though the tax avoidance purpose is 
outweighed by other purposes when taken together.
* * * * *

David A. Mader,
Assistant Deputy Commissioner of Internal Revenue.

    Approved: June 23, 2003
Pamela F. Olsen,
Assistant Secretary of the Treasury.
[FR Doc. 03-16785 Filed 7-1-03; 8:45 am]
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