[Federal Register Volume 70, Number 248 (Wednesday, December 28, 2005)]
[Proposed Rules]
[Pages 76732-76733]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-24580]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-143244-05]
RIN 1545-BE93


Guidance Under Section 7874 for Determining Ownership by Former 
Shareholders or Partners of Domestic Entities

AGENCY: Internal Revenue Service (IRS), Treasury.

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

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SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations relating to 
the disregard of affiliate-owned stock in determining the percentage of 
stock of a foreign corporation held by former shareholders or partners 
of a domestic entity, in order to determine whether the foreign 
corporation is a surrogate foreign corporation under section 7874 of 
the Internal Revenue Code (Code). The text of those regulations also 
serves as the text of these proposed regulations. This document also 
provides notice of a public hearing on these proposed regulations.

DATES: Written or electronic comments must be received by March 28, 
2006. Outlines of topics to be discussed at the public hearing 
scheduled for April 27, 2006, at 10 a.m., must be received by April 6, 
2006.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-143244-05), room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
143244-05), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically, via the IRS 
Internet site at: www.irs.gov/regs or via the Federal eRulemaking 
Portal at www.regulations.gov (IRS-REG-143244-05).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Jefferson VanderWolk at (202) 622-3810; concerning submission and 
delivery of comments and the public hearing, Robin Jones at (202) 622-
7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating to section 7874. The temporary regulations set forth 
rules on disregarding affiliate-owned stock in determining the 
percentage of stock of a foreign corporation held by former 
shareholders or partners of a domestic entity by reason of holding 
stock or a partnership interest in the domestic entity, for purposes of 
determining whether the foreign corporation is a surrogate foreign 
corporation under section 7874(a)(2)(B). The text of those regulations 
also serves as the text of these proposed regulations. The preamble to 
the temporary regulations explains the amendments.

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 has also 
been determined that section

[[Page 76733]]

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 small entities, the provisions of 
the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply. 
Pursuant to section 7805(f) of the 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 Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are submitted timely 
to the IRS. The IRS and Treasury Department specifically request 
comments on the clarity of the proposed regulations 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 April 27, 2006, at 10 a.m., 
in the 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 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 and an outline of the topics to be discussed and the 
time to be devoted to each topic (a signed original and eight (8) 
copies) by April 6, 2006. 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 Jefferson VanderWolk 
of the Office of the Associate Chief Counsel (International). However, 
other personnel from the IRS and Treasury Department participated in 
their development.

List of Subjects in 26 CFR Part 1

    Income taxes, 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

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

    Authority: 26 U.S.C. 7805 * * *
    Section 1.7874-1 also issued under 26 U.S.C. 7874(c)(6) and (g).

    Par. 2. Section 1.7874-1 is added to read as follows:


Sec.  1.7874-1  Disregard of affiliate-owned stock.

[The text of proposed Sec.  1.7874-1 is the same as the text of Sec.  
1.7874-1T published elsewhere in this issue of the Federal Register].

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 05-24580 Filed 12-27-05; 8:45 am]
BILLING CODE 4830-01-P