[Federal Register Volume 69, Number 144 (Wednesday, July 28, 2004)]
[Proposed Rules]
[Pages 44988-44990]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-17080]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-208246-90]
RIN 1545-BD47


Allocation and Apportionment of Deductions for Charitable 
Contributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of notice of proposed rulemaking, notice of proposed 
rulemaking, notice of proposed rulemaking by cross-reference to 
temporary regulations, and notice of public hearing.

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SUMMARY: This document withdraws the notice of proposed rulemaking 
published on March 12, 1991 (the 1991 proposed regulations), relating 
to the allocation and apportionment of charitable deductions. In 
addition, in the Rules and Regulations section of this issue of the 
Federal Register, the Treasury Department and the IRS are issuing 
temporary regulations providing that the deduction for a charitable 
contribution (as defined in section 170(c)) is to be allocated to all 
of the taxpayer's gross income and apportioned on the basis of income 
from sources within the United States. The text of the temporary 
regulations also serves as the text of these proposed regulations. 
Further, regulations are proposed in this document, without cross-
reference to temporary regulations, with respect to deductions for 
charitable contributions that are provided by an income tax treaty 
rather than by sections 170, 873(b)(2), and 882(c)(1)(B). This document 
also provides a notice of public hearing on these proposed regulations.

DATES: Written or electronic comments must be received by October 26, 
2004. Outlines of topics to be discussed at the public hearing 
scheduled for December 2, 2004, at 10 a.m. must be received by November 
12, 2004.

[[Page 44989]]


ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-208246-90), Room 
5203, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered between the 
hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-208246-90), Courier's 
Desk, Internal Revenue Service, 1111 Constitution Ave., NW., 
Washington, DC or sent electronically, via the IRS Internet site at 
http://www.irs.gov/regs or Federal eRulemaking Portal at http://www.regulations.gov (IRS and REG-208246-90). The public hearing will be 
held in the Auditorium, Internal Revenue Building, 1111 Constitution 
Ave., NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the withdrawal of the 1991 
proposed regulations and the proposed regulations, Teresa Burridge 
Hughes, (202) 622-3850 (not a toll-free number); concerning the 
submission of comments, the hearing, and/or placement on the building 
access list to attend the hearing, Treena Garrett, (202) 622-7180 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    Section 1.861-8(e)(9) provides that the deduction for charitable 
contributions allowed by sections 170, 873(b)(2), and 882(c)(1)(B) is 
generally considered as not definitely related to any gross income and 
therefore is ratably apportioned to all of a taxpayer's gross income. 
On March 12, 1991, Treasury and the IRS published in the Federal 
Register (56 FR 10395) a notice of proposed rulemaking (INTL-116-90, 
REG-208246-90) that would have modified the allocation and 
apportionment of the deduction for charitable contributions. The 1991 
proposed regulations generally would have provided for the allocation 
and apportionment of a deduction for a charitable contribution to 
sources within or without the United States based on where the 
contribution was used. Where the deduction for a charitable 
contribution would not have been allocable to United States or foreign 
source gross income based on the new test, it would have been ratably 
apportioned to all gross income. Written comments were received and a 
public hearing on the 1991 proposed regulations was held on August 1, 
1991. In response to comments received, and after further consideration 
of the issue, the 1991 proposed regulations are withdrawn.
    Contemporaneously with the withdrawal of the 1991 proposed 
regulations, the Treasury Department and the IRS are issuing a Treasury 
decision containing temporary regulations that are published in the 
Rules and Regulations section in this issue of the Federal Register. 
The temporary regulations provide for the allocation and apportionment 
of the deduction for charitable contributions to U.S. source income. 
The text of the temporary regulations also serves as the text of these 
proposed regulations. The preamble to the temporary regulations 
discusses the comments received on the 1991 proposed regulations, the 
reasons for the withdrawal of the 1991 proposed regulations, and the 
approach of the temporary regulations.
    This document also proposes a rule for the allocation and 
apportionment of deductions for charitable contributions that are 
allowed under a U.S. income tax treaty (rather than under sections 170, 
873(b)(2), and 882(c)(1)(B)) that limits the amount of the deduction 
based on a percentage of income that arises from sources within the 
treaty partner. In such case, these proposed regulations would provide 
that the deduction is definitely related and allocable to all of the 
taxpayer's gross income. The deduction would be apportioned between the 
statutory grouping (or among the statutory groupings) of gross income 
and the residual grouping on the basis of the relative amounts of gross 
income from sources within the treaty partner within each grouping This 
rule is proposed to be effective for taxable years beginning on or 
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 
the regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. 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 their 
impact on small businesses.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The IRS and the Treasury Department request comments on the 
clarity of the proposed rules and how they can be made easier to 
understand. All comments will be available for public inspection and 
copying.
    A public hearing has been scheduled for December 2, 2004, beginning 
at 10 a.m. in the IRS Auditorium of the Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. For more information about having your name placed on 
the building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit electronic or 
written comments by October 26, 2004, and an outline of the topics to 
be discussed the time to be devoted to each topic (signed original and 
eight (8) copies) by November 12, 2004. 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 this document is Teresa Burridge Hughes, 
Office of Associate Chief Counsel (International). However, other 
personnel from the Treasury Department and the IRS participated in its 
development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Withdrawal of a Notice of Proposed Rulemaking

    Under the authority of 26 U.S.C. 7805, Sec.  1.861-8(e) and (g) of 
the notice of proposed rulemaking (INTL-116-90) published in the 
Federal Register on March 12, 1991, (56 FR 10395) is withdrawn.

Proposed Amendments to the Regulations

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

[[Page 44990]]

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
an entry in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Par. 2. Section 1.861-8(e)(12) is added to read as follows:


Sec.  1.861-8  Computation of taxable income from sources within the 
United States and from other sources and activities.

* * * * *
    (e) * * *
    (e)(12)(i) and (ii) [The text of the proposed addition of Sec.  
1.861-8(e)(12)(i) and (ii) is the same as Sec.  1.861-8T(e)(12)(i) and 
(ii) published elsewhere in this issue of the Federal Register.]
    (e)(12)(iii) Treaty provisions. (A) In general. If a deduction for 
charitable contributions not otherwise permitted by sections 170, 
873(b)(2) and 882(c)(1)(B) is allowed under a U.S. income tax treaty, 
and such treaty limits the amount of the deduction based on a 
percentage of income arising from sources within the treaty partner, 
the deduction is definitely related and allocable to all of the 
taxpayer's gross income. The deduction allocated under this paragraph 
(e)(12)(iii) shall be apportioned between the statutory grouping (or 
among the statutory groupings) of gross income and the residual 
grouping on the basis of the relative amounts of gross income from 
sources within the treaty partner within each grouping.
    (B) The rules of this paragraph (e)(12)(iii) are applicable for 
charitable contributions made on or after the date of publication of 
this document as a final regulation in the Federal Register.
    (e)(12)(iv)(A) [The text of the proposed addition of Sec.  1.861-
8(e)(12)(iv)(A) is the same as Sec.  1.861-8T(e)(12)(iv)(A) published 
elsewhere in this issue of the Federal Register.]
    (e)(12)(iv)(B) [Reserved]
    Par. 4. Section 1.861-14(e)(6) is revised to read as follows:


Sec.  1.861-14  Special rules for allocating and apportioning certain 
expenses (other than interest expense) of an affiliated group of 
corporations.

* * * * *
    (e) * * *
    (e)(6) [The text of the proposed revision of Sec.  1.861-14(e)(6) 
is the same as Sec.  1.861-14T(e)(6) through (e)(6)(ii)(A) published 
elsewhere in this issue of the Federal Register.]
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 04-17080 Filed 7-27-04; 8:45 am]
BILLING CODE 4830-01-P