[Federal Register Volume 71, Number 10 (Tuesday, January 17, 2006)]
[Proposed Rules]
[Pages 2496-2497]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-356]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-106418-05]
RIN 1545-BE34


Guidance Under Subpart F Relating to Partnerships

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations.

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SUMMARY: In the Rule and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations that provide 
rules for determining whether a controlled foreign corporation's 
(CFC's) distributive share of partnership income is excluded from 
foreign personal holding company income under the exception contained 
in section 954(i). The regulations will affect CFCs that are qualified 
insurance companies, as defined in section 953(e)(3), that have an 
interest in a partnership and U.S. shareholders of such CFCs. The text 
of those temporary regulations also serves as the text of these 
proposed regulations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by April 17, 2006.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-106418-05), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington,

[[Page 2497]]

DC 20044. Submissions may be hand-delivered between the hours of 8 a.m. 
and 4 p.m. to CC:PA:LPD:PR (REG-106418-05), Courier's Desk, Internal 
Revenue Service, 1111 Constitution Avenue, NW., Washington, DC, or sent 
electronically, via the IRS Internet site at http://www.irs.gov/regs or 
via the Federal eRulemaking Portal at http://www.regulations.gov (IRS-
REG-106418-05).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Kate Y. Hwa, (202) 622-3840; concerning submissions of comments, Treena 
Garrett, (202) 622-3401 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    Temporary regulations in Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating to the rules under section 954(i) of the Internal 
Revenue Code (Code) for determining whether a controlled foreign 
corporation's (CFC's) distributive share of partnership income is 
excluded from foreign personal holding company income under the 
exception contained in section 954(i). The text of the temporary 
regulations also serves as the text of these proposed regulations. The 
preamble to the temporary regulations explains the temporary 
regulations and these proposed regulations.

Special Analyses

    It has been determined that this proposed regulation 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 Procedures Act (5 
U.S.C. chapter 5) does not apply to these regulations 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. 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 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 will be scheduled if requested in writing by 
any person that timely submits written comments. If a public hearing is 
scheduled, notice of the date, time, and place for the public hearing 
will be published in the Federal Register.
    The IRS and the Treasury Department have become aware of possible 
uncertainty regarding the application of section 956 in certain 
transactions involving foreign partnerships. The IRS and the Treasury 
Department therefore also request comments regarding the proper 
application of section 956 in the case of a loan by a CFC to a foreign 
partnership in which one or more partners are domestic corporations 
that are U.S. shareholders of the CFC. Specifically, comments are 
requested regarding the circumstances, if any, under which the loan to 
the foreign partnership should be considered to be the obligation of 
such partners and, thus, U.S. property for purposes of section 956. The 
IRS and the Treasury Department are particularly interested in the 
relevance of (1) the consistent application of section 956 to CFC loans 
to foreign partnerships, domestic partnerships, foreign branches, and 
disregarded entities of U.S. shareholders; (2) the foreign 
partnership's status as a foreign person; (3) the partners' liability 
for the partnership's debt under local foreign law; (4) the use of the 
loan proceeds in business activities located inside or outside of the 
United States; and (5) the fact that the CFC earnings loaned to the 
partnership would not have been deferred had they been earned by the 
partnership.

Drafting Information

    The principal author of these regulations is Kate Y. Hwa of the 
Office of the Associate Chief Counsel (International), IRS. However, 
other personnel from the IRS and the 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 26 CFR part 1 continues to 
read, in part, as follows:

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

    Par. 2. Section 1.954-2 is amended by revising paragraphs 
(a)(5)(ii)(C) and (a)(5)(iii) Example 2 to read as follows:


Sec.  1.954-2  Foreign personal holding company income.

    (a) * * *
    (5) * * *
    (ii) * * *
    (C) [The text of the proposed amendment to Sec.  1.954-
2(a)(5)(ii)(C) is the same as the text for Sec.  1.954-2T(a)(5)(ii)(C) 
published elsewhere in this issue of the Federal Register.]
    (iii) * * *

    Example 2. [The text of proposed Sec.  1.954-2(a)(5)(iii) 
Example 2 is the same as the text of Sec.  1.954-2T(a)(5)(iii) 
Example 2 published elsewhere in this issue of the Federal 
Register.]
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
 [FR Doc. E6-356 Filed 1-13-06; 8:45 am]
BILLING CODE 4830-01-P