[Federal Register Volume 71, Number 79 (Tuesday, April 25, 2006)]
[Proposed Rules]
[Pages 24543-24544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-3885]



  Federal Register / Vol. 71, No. 79 / Tuesday, April 25, 2006 / 
Proposed Rules  

[[Page 24543]]


-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-144784-02]
RIN 1545-BB28


Notice of Proposed Rulemaking by Cross-Reference to Temporary 
Regulations; Application of Separate Limitations to Dividends From 
Noncontrolled Section 902 Corporations

AGENCY: Internal Revenue Service (IRS), Treasury.

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

-----------------------------------------------------------------------

SUMMARY: In this issue of the Federal Register, the IRS is issuing 
temporary regulations that provide guidance needed to comply with 
amendments enacted by the American Jobs Creation Act of 2004, Public 
Law 108-357, 118 Stat. 1418 (October 22, 2004) (AJCA) and the Gulf 
Opportunity Zone Act of 2005, Public Law 109-135, 119 Stat. 2577 
(December 22, 2005) (GOZA), concerning the treatment of dividends from 
noncontrolled section 902 corporations. The AJCA modified the treatment 
under section 904(d)(4) of dividends from noncontrolled section 902 
corporations effective for taxable years beginning after December 31, 
2002. GOZA permits taxpayers to elect to defer the effective date of 
the AJCA amendments until taxable years beginning after December 31, 
2004. The temporary regulations affect domestic corporations that own 
stock in foreign corporations and that claim foreign tax credits. The 
text of those temporary regulations published in this issue of the 
Federal Register also serves as the text of these proposed regulations.

DATES: Written and electronic comments and requests for a public 
hearing must be received by July 24, 2006.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-144784-02), Room 5203, 
Internal Revenue Service, P.O. Box 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-144784-02), 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 Rulemaking Portal at http://www.regulations.gov (IRS and REG-144784-02).

FOR FURTHER INFORMATION CONTACT: Concerning submission of comments, 
Kelly Banks (202) 622-7180; concerning the regulations, Ginny Y. Chung 
(202) 622-3850 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collections of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, 
Washington, DC 20224. Comments on the collections of information should 
be received by July 24, 2006. Comments are specifically requested 
concerning:
    Whether the proposed collections of information are necessary for 
the proper performance of the functions of the IRS, including whether 
the information will have practical utility;
    The accuracy of the estimated burdens associated with the proposed 
collections of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burdens of complying with the proposed collections of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collections of information in these proposed regulations are in 
Sec. Sec.  1.904-7(f)(9) and 1.964-1(c)(3)(ii). This information is 
required to enable the IRS to verify that taxpayers that make certain 
elections (described in the Background section of this document) 
applied the appropriate separate foreign tax credit limitation rules to 
dividends from noncontrolled section 902 corporations, and, in the case 
of shareholders making certain tax elections on behalf of a controlled 
foreign corporation or noncontrolled section 902 corporation, the 
shareholders complied with the applicable regulations concerning such 
elections. The collections of information are mandatory. The 
respondents are domestic shareholders of noncontrolled section 902 
corporations and controlled foreign corporations.
    Estimated total annual reporting burden: 25 hours.
    The estimated annual burden per respondent is a half hour.
    Estimated number of respondents: 50.
    The estimated annual frequency of responses: on occasion.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    Temporary regulations in this issue of the Federal Register provide 
rules concerning the application of separate foreign tax credit 
limitations to dividends received from noncontrolled section 902 
corporations (10/50 corporations) under section 904(d)(4). Section 403 
of the American Jobs Creation Act of 2004, Public Law 108-357, 118 
Stat. 1418 (October 22, 2004) (AJCA), modified the treatment of such 
dividends effective for taxable years beginning after December 31, 2002 
(post-2002 taxable years). Section 403(l) of the Gulf Opportunity Zone 
Act of 2005, Public Law 109-135, 119 Stat. 2577 (December 22, 2005) 
(GOZA), permits taxpayers to elect to defer the effective date of the 
AJCA amendments until taxable years beginning after December 31, 2004 
(post-2004 taxable years). The temporary regulations provide guidance 
needed to comply with these changes. 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.
    The collections of information in these proposed regulations are in 
Sec. Sec.  1.904-7(f)(9) and 1.964-1(c)(3). Section 1.904-7(f)(9)(ii) 
provides that a taxpayer electing to defer the effective date of the 
AJCA amendments until post-2004 taxable years must attach a statement 
to its next tax return for which the due date (with extensions) is more 
than 90 days after April 20, 2006. This statement must indicate that 
the taxpayer elects not to apply the provisions of section 403 of the 
AJCA to taxable years of its noncontrolled section 902 corporations 
beginning in

[[Page 24544]]

2003 and 2004 and that the taxpayer has filed original returns or will 
file amended returns reflecting tax liabilities for all affected years 
that satisfy the requirements described in Sec.  1.904-7(f)(9)(ii).
    Section 1.964-1(c)(2) and (3) provides that the controlling United 
States shareholders of a controlled foreign corporation, and the 
majority domestic corporate shareholders of a noncontrolled section 902 
corporation, may make an election, or adopt or change a method of 
accounting or taxable year, on behalf of the foreign corporation. 
Section 1.964-1(c)(3)(ii) requires that a jointly executed statement 
evidencing the controlling shareholders' consent to the election, or 
change in method of accounting or taxable year of the foreign 
corporation, be retained by one or more of the shareholders, and that 
each controlling shareholder file a separate statement with its tax 
return for the taxable year with or within which the foreign 
corporation's taxable year ends.

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, these 
proposed regulations will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on their 
impact on small businesses.

Comments and Request for a 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 Treasury Department 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 may be scheduled if requested in writing by a person who 
timely submits comments. If a public hearing is scheduled, notice of 
the date, time, and place for the hearing will be published in the 
Federal Register.

Drafting Information

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

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 for part 1 continues to read in part as 
follows:


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

    Par. 2. In Sec.  1.861-9, paragraph (f) is revised to read as 
follows:


Sec.  1.861-9  Allocation and apportionment of interest expense.

* * * * *
    (f) [The text of proposed Sec.  1.861-9(f) is the same as the text 
of Sec.  1.861-9T(f) published elsewhere in this issue of the Federal 
Register.]
* * * * *
    Par. 3. In Sec.  1.861-12, paragraph (c) is revised to read as 
follows:


Sec.  1.861-12  Characterization rules and adjustments for certain 
assets.

* * * * *
    (c) [The text of proposed Sec.  1.861-12(c) is the same as the text 
of Sec.  1.861-12T(c) published elsewhere in this issue of the Federal 
Register.]
* * * * *
    Par. 4. In Sec.  1.902-1, paragraphs (a), (c), (d) and (g) are 
revised to read as follows:


Sec.  1.902-1  Credit for domestic corporate shareholder of a foreign 
corporation for foreign income taxes paid by the foreign corporation.

    [The text of the proposed amendments to Sec.  1.902-1(a), (c), (d), 
and (g) are the same as the text of Sec.  1.902-1T(a), (c), (d), and 
(g) published elsewhere in this issue of the Federal Register.]
* * * * *
    Par. 5. In Sec.  1.904-2, paragraph (a) is revised and paragraph 
(h) is added to read as follows:


Sec.  1.904-2  Carryback and carryover of unused foreign tax.

    [The text of the proposed amendment to Sec.  1.904-2(a) and the 
text of proposed Sec.  1.904-2(h) are the same as the text of Sec.  
1.904-2T(a) and (h) published elsewhere in this issue of the Federal 
Register.]
    Par. 6. In Sec.  1.904-4, paragraph (c) is revised to read as 
follows:


Sec.  1.904-4  Separate application of section 904 with respect to 
certain categories of income.

* * * * *
    (c) [The text of the proposed amendments to Sec.  1.904-4(c) is the 
same as the text of Sec.  1.904-4T(c) published elsewhere in this issue 
of the Federal Register.]
    Par. 7. In Sec.  1.904-5, paragraphs (a), (b), (c), (i), (m), (n), 
and (o) are revised to read as follows:


Sec.  1.904-5  Look-through rules as applied to controlled foreign 
corporations and other entities.

* * * * *
    [The text of the proposed amendments to Sec.  1.904-5(a), (b), (c), 
(i), (m), (n), and (o) are the same as the text of Sec.  1.904-5T(a), 
(b), (c), (i), (m), (n), and (o) published elsewhere in this issue of 
the Federal Register.]
    Par. 8. In Sec.  1.904-7, paragraph (f) is added as follows:


Sec.  1.904-7  Transition rules.

* * * * *
    (f) [The text of proposed Sec.  1.904-7(f) is the same as the text 
of Sec.  1.904-7T(f) published elsewhere in this issue of the Federal 
Register.]
    Par. 9. In Sec.  1.904(f)-12, paragraph (g) is added as follows:


Sec.  1.904(f)-12  Transition rules.

* * * * *
    (g) [The text of proposed Sec.  1.904(f)-12(g) is the same as the 
text of Sec.  1.904(f)-12T(g) published elsewhere in this issue of the 
Federal Register.]
    Par. 10. In Sec.  1.964-1, paragraph (c) is revised to read as 
follows:


Sec.  1.964-1  Determination of the earnings and profits of a foreign 
corporation.

* * * * *
    (c) [The text of proposed amendments to Sec.  1.964-1(c) is the 
same as the text of Sec.  1.964-1T(c) published elsewhere in this issue 
of the Federal Register.]

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 06-3885 Filed 4-20-06; 3:51 pm]
BILLING CODE 4830-01-P