[Federal Register Volume 70, Number 244 (Wednesday, December 21, 2005)]
[Proposed Rules]
[Pages 75759-75761]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E5-7582]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-144615-02]
RIN 1545-BB26


Section 482: Methods To Determine Taxable Income in Connection 
With a Cost Sharing Arrangement; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correction to notice of proposed rulemaking.

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SUMMARY: This document corrects notice of proposed rulemaking (REG-
144615-02) that was published in the Federal Register on Monday, August 
29, 2005 (70 FR 51116). The document contains proposed regulations that 
provide guidance regarding methods under section 482 to determine 
taxable income in connection with a cost sharing arrangement.

FOR FURTHER INFORMATION CONTACT: Jeffrey L. Parry or Christopher J. 
Bello, (202) 435-5265 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The notice of proposed rulemaking (REG-144615-02) that is the 
subject of this correction is under section 482 of the Internal Revenue 
Code.

Need for Correction

    As published, REG-144615-02 contains errors that may prove to be 
misleading and are in need of clarification.

Correction of Publication

    Accordingly, the notice of proposed rulemaking (REG-144615-02), 
that was the subject of FR Doc. 05-16626, is corrected as follows:
    1. On page 51116, column 2, in the preamble, under the paragraph 
heading ``Paperwork Reduction Act'', eighth paragraph, third line, the 
language ``of information (see below);'' is corrected to read ``of 
information (see above);''.
    2. On page 51116, column 3, in the preamble, under the paragraph 
heading ``Background'', tenth line from the bottom of the last 
paragraph, the language ``for this type of external contributions is'' 
is corrected to read ``for this type of external contribution is''.
    3. On page 51117, column 1, in the preamble, under the paragraph 
heading ``A. Overview'', fourth line from the bottom of the first 
paragraph, the language ``the commensurate income standard'' is 
corrected to read ``the commensurate with income standard''.
    4. On page 51117, column 2, in the preamble, under the paragraph 
heading ``A. Overview'', the second line from the bottom of the column, 
the language ``appropriate return would be provided to such'' is 
corrected to read ``appropriate return would be required to such''.
    5. On page 51118, column 2, in the preamble, under the paragraph 
heading ``1. General Rule--Proposed Sec.  1.482-7(a)'', the last line 
of the second paragraph, the language ``exploiting cost shared 
intangibles.'' is corrected to read ``exploiting the cost shared 
intangibles.''.
    6. On page 51118, column 3, in the preamble, under the paragraph 
heading ``1. General Rule Proposed Sec.  1.482-7(a)'', the second line 
from the bottom of the first full paragraph of the column, the language 
``the rules of Sec. Sec.  1.482-1 and 1.482-5'' is corrected to read 
``the rules of Sec. Sec.  1.482-1 and 1.482-4''.
    7. On page 51118, column 3, in the preamble, under the paragraph 
heading ``a. CSA Transactions in General'', the eighth line of the 
first paragraph, the language ``circumstances. ``(Emphasis added.)'' is 
corrected to read ``circumstances * * * ``(Emphasis added.)''.
    8. On page 51119, column 1, in the preamble, under the paragraph 
heading ``a. CSA Transactions in General'', the fifteenth line of the 
first paragraph of the column, the language ``expected in a cost 
sharing agreement'' is corrected to read ``expected in a cost sharing 
arrangement.''.
    9. On page 51119, column 1, in the preamble, under the paragraph 
heading ``a. CSA Transactions in General'', the second line from bottom 
of the second full paragraph, the language ``be provided to such party 
to reflect its'' is corrected to read ``be required to such party to 
reflect its''.
    10. On page 51124, column 3, in the preamble, under the paragraph 
heading ``h. Valuation Consistent With the Investor Model--Proposed 
Sec.  1.482-7(g)(2)(viii)'', the third line from the bottom of the 
column, the language

[[Page 75760]]

``would be expected to yield a rate return'' is corrected to read 
``would be expected to yield a rate of return''.
    11. On page 51125, column 1, in the preamble, under the paragraph 
heading ``h. Valuation Consistent With the Investor Model--Proposed 
Sec.  1.482-7(g)(2)(viii)'', the sixth and seventh lines from the 
bottom of the column, the language ``ins effectively diminish the value 
of the buy-in payments, such that the return to'' is corrected to read 
``ins effectively diminishes the value of the buy-in payments, such 
that''.
    12. On page 51125, column 2, in the preamble, under the paragraph 
heading ``i. Coordination of Best Method Rule and Form of Payment--
Proposed Sec.  1.482-7(g)(2)(ix)'', the last line of the paragraph, the 
language `` method as to its method payment form.'' is corrected to 
read ``method.''.
    13. On page 51127, column 1, in the preamble, under the paragraph 
heading ``6. Market Capitalization Method--Proposed Sec.  1.482-
7(g)(6)'', the seventeenth and eighteenth lines of the first full 
paragraph, the language ``separately accounted for under proposed Sec.  
1.482-7(d) and by the value'' is corrected to read ``(separately 
accounted for under proposed Sec.  1.482-7(d)) and by the value''.
    14. On page 51128, column 3, in the preamble, under the paragraph 
heading ``2. Allocations When CSTs Are Consistently and Materially 
Disproportionate to RAB Shares--Proposed Sec.  1.482-7(i)(5)'', the 
second full paragraph of the column, the first line, the language 
``Current Sec.  1.482-7(g)(5) provides that'' is corrected to read 
``Current Sec.  1.482-7(g)(5) to the extent it provides that''.
    15. On page 51129, column 2, in the preamble, under the paragraph 
heading ``3. Periodic Adjustments--Proposed Sec.  1.482-7(i)(6)'', the 
fourth line from the bottom of the first full paragraph of the column, 
the language ``would be provided to such party to'' is corrected to 
read ``would be required to such party to''.
    16. On page 51130, column 1, in the preamble, under the paragraph 
heading ``3. Periodic Adjustments--Proposed Sec.  1.482-7(i)(6)'', the 
seventh line from the top of the column, the language ``profits, cost 
contributions, or PCT'' is corrected to read ``profits, cost 
contributions, and PCT''.
    17. On page 51130, column 3, in the preamble, under the paragraph 
heading ``6. Territorial Operating Profit or Loss-Proposed Sec.  1.482-
7(j)(1)(vi)'', the sixth line of the paragraph, the language 
``Activity, determined before an expense'' is corrected to read 
``Activity, determined before any expense''.


Sec.  1.482-7  [Corrected]

    18. On page 51133, column 2, Sec.  1.482-7(b)(5)(iii), the language 
``Example.'' is corrected to read ``Examples.''.
    19. On page 51133, column 2, Sec.  1.482-7(e)(2)(ii), the language 
``Indirect bases for measuring benefits.'' is corrected to read 
``Indirect bases for measuring anticipated benefits.''.
    20. On page 51133, column 3, Sec.  1.482-7(g)(2)(x), the language 
``Coordination of the valuations or prior and subsequent PCTs.'' is 
corrected to read ``Coordination of the valuations of prior and 
subsequent PCTs.''.
    21. On page 51133, column 3, Sec.  1.482-0 is corrected by adding 
two entries to the outline for Sec.  1.482-7(g)(2)(x)(A) and 
(g)(2)(x)(B) to read as follows:


Sec.  1.482-0  Outline of regulations under section 482.

* * * * *


Sec.  1.482-7  Methods to determine taxable income in connection with a 
cost sharing arrangement.

* * * * *
    (g) * * *
    (2) * * *
    (x) * * *
    (A) In general.
    (B) Coordination with regard to PFAs.
* * * * *
    22. On page 51133, column 3, Sec.  1.482-7(g)(7), the language 
``Residual profit split.'' is corrected to read ``Residual profit split 
method.''.
    23. On page 51134, column 1, Sec.  1.482-7(i)(6)(vi)(A), second 
line, the language ``external contributions as in the PCT.'' is 
corrected to read ``external contribution as in the PCT.''.
    24. On page 51134, column 1, Sec.  1.482-7(i)(6)(viii), the 
language ``Documentation.'' is removed.


Sec.  1.482-5  [Corrected]

    25. On page 51136, column 3, Sec.  1.482-7(b)(3)(viii), Example 4., 
second line from the bottom of the paragraph, the language ``as 
Company's P acquisition of Company X,'' is corrected to read ``as 
Company P's acquisition of Company X,''.
    26. On page 51140, column 3, Sec.  1.482-7(e)(2)(ii)(C), sixth 
line, the language ``amortization) on account of IDCS, may'' is 
corrected to read ``amortization) on account of IDCs, may''.
    27. On page 51141, column 1, Sec.  1.482-7(e)(2)(ii)(E), Example 
2., lines fourteen through seventeen, the language ``relative to USS' 
units by a factor of 2. This reflects the fact that FP pays twice as 
much as USS as a percentage of its other production costs for 
electricity and,'' is corrected to read ``relative to USS's units by a 
factor of 2. This reflects the fact that FP pays twice as much as USS 
for electricity and,''.
    28. On page 51142, column 1, Sec.  1.482-7(e)(2)(iii)(B), paragraph 
(ii) of Example 1., fourth line, the language ``order to reflect USS' 
one-year lag in'' is corrected to read ``order to reflect USS's one-
year lag in''.
    29. On page 51142, column 2, Sec.  1.482-7(g), ninth line, the 
language ``provisions of Sec.  1.482-1, including best'' is corrected 
to read ``provisions of Sec.  1.482-1, including the best''.
    30. On page 51143, column 1, Sec.  1.482-7(g)(2)(iv)(B), paragraph 
(i) of Example 1., first line of the column, the language ``product and 
are therefore the RT Rights in'' is corrected to read ``product and 
therefore the RT Rights in''.
    31. On page 51143, column 1, Sec.  1.482-7(g)(2)(iv)(B), paragraph 
(iii) of Example 1., third line, the language ``product outside of the 
Country X for a royalty'' is corrected to read ``product outside of 
Country X for a royalty''.
    32. On page 51144, column 1, Sec.  1.482-7(g)(2)(vi)(B), Example 
1., twenty second line, the language ``USPharm in the form of the RT 
Rights in its'' is corrected to read ``USPharm consisting of the RT 
Rights in its''.
    33. On page 51144, column 2, Sec.  1.482-7(g)(2)(vi)(B), Example 
2., fourth line from the top of the column, the language ``USPharm's 
cost of debt is 6%. Equity'' is corrected to read ``USPharm's after-tax 
cost of debt is 6%. Equity''.
    34. On page 51144, column 2, Sec.  1.482-7(g)(2)(vii)(B), paragraph 
(ii) of Example 1., sixth line, the language ``technology and workforce 
of Company X'' is corrected to read ``technology and workforce of 
Company X are''.
    35. On page 51144, column 3, Sec.  1.482-7(g)(2)(vii)(B), paragraph 
(ii) of Example 1., second line from the bottom of the paragraph, the 
language ``PCTs. See paragraph (g)(5)(iv(A) of this'' is corrected to 
read ``PCTs. See paragraph (g)(5)(iv)(A) of this''.
    36. On page 51146, column 3, Sec.  1.482-7(g)(4)(ii)(B), paragraph 
(i) of Example., twentieth line, the language ``did not participate in 
the CSA, its next best'' is corrected to read ``did not participate in 
the CSA, its best''.
    37. On page 51146, column 3, Sec.  1.482-7(g)(4)(ii)(B), paragraph 
(ii) of Example., fourth line, the language ``present value to USP of 
the next best realistic'' is corrected to read ``present value to USP 
of the best realistic''.
    38. On page 51148, column 1, Sec.  1.482-7(g)(4)(iv)(D), paragraph 
(ii) of

[[Page 75761]]

Example., second line, the language ``Payment under the income method 
is an'' is corrected to read ``Payment based on territorial sales under 
the income method is an''.
    39. On page 51148, column 1, Sec.  1.482-7(g)(4)(iv)(D), paragraph 
(ii) of Example., fifth line, the language ``case the alternative rate 
is 80% (($80 million'' is corrected to read ``case the alternative rate 
is 80% ($80 million''.
    40. On page 51148, column 1, Sec.  1.482-7(g)(4)(iv)(D), paragraph 
(ii) of Example., fourteenth line, the language ``payable by the FS to 
the USP over the period'' is corrected to read ``payable by FS to USP 
over the period''.
    41. On page 51148, column 1, Sec.  1.482-7(g)(4)(iv)(D), paragraph 
(iii) of Example., sixth line, the language ``alternative rate is 100% 
(($80 million'' and is corrected to read ``alternative rate is 100% 
($80 million''.
    42. On page 51148, column 1, Sec.  1.482-7(g)(4)(iv)(D), paragraph 
(iii) of Example., fifth line from the bottom of the paragraph, the 
language ``PCT Payment, payable by the FS to the USP'' is corrected to 
read ``PCT Payment, payable by FS to USP''.
    43. On page 51148, column 2, Sec.  1.482-7(g)(4)(vi)(C), sixth 
line, the language ``considerations stated in Sec.  1.482-5(c)'' is 
corrected to read ``considerations stated in Sec.  1.482-5(c) may''.
    44. On page 51149, column 1, Sec.  1.482-7(g)(5)(v), eighth line 
from the bottom of the paragraph, the language ``acquisition price $100 
million ($110 million'' is corrected to read ``acquisition price of 
$100 million ($110 million''.
    45. On page 51149, column 3, Sec.  1.482-7(g)(6)(vi), Example 2., 
lines six through nine, the language ``reasonably anticipated to 
contribute software development that is the subject of the CSA and are 
therefore not external contributions and accordingly not required to be 
covered `` is corrected to read ``reasonably anticipated to contribute 
to the software development that is the subject of the CSA and, 
therefore, are not external contributions and, accordingly, are not 
required to be covered''.
    46. On page 51150, column 3, Sec.  1.482-7(g)(7)(iii)(C)(4), second 
line from the bottom of the paragraph, the language ``controlled 
participant for its such'' is corrected to read ``controlled 
participant for such''.
    47. On page 51151, column 1, Sec.  1.482-7(g)(7)(iv)(D), third 
line, the language ``3, 1.482-4, and 1.482-5, or with the'' is 
corrected to read ``3, 1.482-4, and 1.482-5, or the''.
    48. On page 51151, column 3, Sec.  1.482-7(g)(7)(v)(ix), sixth 
line, the language ``amount of its territorial operating iprofit or'' 
is corrected to read ``amount of its territorial operating profit or''.
    49. On page 51154, column 1, Sec.  1.482-7(i)(2)(ii)(D), paragraph 
(iii) of Example 7., fourth line from the bottom of the paragraph, the 
language ``Commissioner adjusts costs shares for each of'' is corrected 
to read ``Commissioner adjusts cost shares for each of''.
    50. On page 51155, column 1, Sec.  1.482-7(i)(6)(v)(A)(1), fifth 
and sixth lines, the language ``paragraphs (i)(6)(vi)(A)(2) and 
(i)(6)(vi)(A)(3) of this section.'' is corrected to read ``paragraphs 
(i)(6)(v)(A)(2) and (i)(6)(v)(A)(3) of this section.''.
    51. On page 51155, column 2, Sec.  1.482-7(i)(6)(v)(B)(1), fifth 
and sixth lines, the language ``specified in paragraphs 
(i)(6)(vi)(B)(2) and (i)(6)(vi)(B)(3) of this section.'' is corrected 
to read ``specified in paragraphs (i)(6)(v)(B)(2) and (i)(6)(v)(B)(3) 
of this section.''.
    52. On page 51155, column 2, Sec.  1.482-7(i)(6)(vi)(D)(1), fifth 
line, the language ``RT (as defined in paragraph (b)(3)(iii) of'' is 
corrected to read ``RT (as defined in paragraph (b)(3)(iv) of''.
    53. On page 51155, column 3, Sec.  1.482-7(i)(6)(vi)(D)(2), second 
line, the language ``(i)(6)(vii)(D) of this section, the'' is corrected 
to read ``(i)(6)(vi)(D) of this section, the''.
    54. On page 51156, column 1, Sec.  1.482-7(i)(6)(vi)(E), fourth 
line from the top of the column, the language ``CSA is, then no 
periodic adjustment in'' is corrected to read ``CSA, then no periodic 
adjustment in''.
    55. On page 51156, column 3, Sec.  1.482-7(i)(6)(vi)(F)(vii), 
paragraph (ii) of Example 1., third line, the language ``cash flows 
include the lump sum PCT of'' is corrected to read ``cash flows include 
the lump sum PCT Payment of''.
    56. On page 51158, column 1, Sec.  1.482-7(j)(1)(viii), Example 1., 
second line from the bottom of the paragraph, the language ``derive a 
benefit from the exploiting the'' is corrected to read ``derive a 
benefit from exploiting the''.
    57. On page 51158, column 3, Sec.  1.482-7(j)(3)(iii), Example 1., 
twelfth line, the language ``FS's share is 120X. The payment will be'' 
is corrected to read ``FS's share is 120X so that FS must make a 
payment to USP of 20X. The payment will be''.
    58. On page 51160, column 1, Sec.  1.482-7(k)(2)(ii)(J)(2), last 
line, the language ``use;'' is corrected to read ``used;''.
    59. On page 51160, column 1, Sec.  1.482-7(k)(2)(ii)(J)(4), fourth 
line, the language ``controlled participant method selected'' is 
corrected to read ``controlled participant's method selected''.
    60. On page 51161, column 2, Sec.  1.482-7(m)(3)(vii), fifth line, 
the language ``paragraph (m)(3)(iv) of this section no'' is corrected 
to read ``paragraph (m)(3)(v) of this section no''.


Sec.  1.482-8  [Corrected]

    61. On page 51161, column 3, Sec.  1.482-8, paragraph (i) of 
Example 10., fourteenth line, the language ``Y, a promising molecular 
compound derived'' is corrected to read ``X, a promising molecular 
compound derived''.
    62. On page 51161, column 3, Sec.  1.482-8, paragraph (i) of 
Example 11., sixth line, the language ``are its workforce and the its 
sole patent,'' is corrected to read ``are its workforce and its sole 
patent,''.
    63. On page 51161, column 3, Sec.  1.482-8, paragraph (i) of 
Example 11., thirteenth line, the language ``derived from Compound Y. 
Compound X is'' is corrected to read ``derived from Compound Y. 
Compound Y is''.
    64. On page 51161, column 3, Sec.  1.482-8, paragraph (i) of 
Example 11., eighteenth line, the language ``the developing Oncol under 
the CSA. The RT'' is corrected to read ``developing Oncol under the 
CSA. The RT''.
    65. On page 51162, column 2, Sec.  1.482-8, paragraph (ii) of 
Example 14., sixth line, the language ``evidence of the arm's length 
price of USP''' is corrected to read ``evidence of the arm's length 
price of USP's''.

Guy R. Traynor,
Acting Chief, Publications and Regulations Branch, Legal Processing 
Division, Associate Chief Counsel. (Procedure and Administration)
 [FR Doc. E5-7582 Filed 12-20-05; 8:45 am]
BILLING CODE 4830-01-P