[Federal Register Volume 71, Number 108 (Tuesday, June 6, 2006)]
[Proposed Rules]
[Pages 32495-32496]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-8698]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-112994-06]
RIN 1545-BF47


Guidance Under Section 7874 Regarding Expatriated Entities and 
Their Foreign Parents

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulation 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 determination of whether a foreign entity shall be treated as a 
surrogate foreign corporation under section 7874(a)(2)(B) of the 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 September 5, 
2006. Outlines of topics to be discussed at the public hearing 
scheduled for October 24, 2006, at 10 a.m., must be received by October 
3, 2006.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-112994-06), room 
5203, Internal Revenue Service, PO 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-
112994-06), 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-112994-06). 
The public hearing will be held in the auditorium, Internal Revenue 
Building, 1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Milton Cahn at (202) 622-3860; concerning submission and delivery of 
comments and the public hearing, Treena Garrett, (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 relating to the determination of whether a foreign entity shall 
be treated as a surrogate foreign corporation under section 
7874(a)(2)(B) of the Code. 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. Pursuant to 
the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby 
certified that this regulation will not have a significant economic 
impact on a substantial number of small entities. Accordingly, a 
regulatory flexibility analysis is not required. The nature of the 
businesses that are most likely to consider corporate expatriation 
transactions, as well as the complexity and the costs of structuring 
and implementing those transactions, makes it unlikely that a 
substantial number of small entities will engage in such transactions. 
In addition, any economic impact to entities affected by section 7874, 
large or small, is derived from the operation of the statute or its 
intended application, not the proposed regulations in this notice of 
proposed rulemaking. 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 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.

[[Page 32496]]

    A public hearing has been scheduled for October 24, 2006, at 10 
a.m., in the auditorium, 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 October 3, 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 1.7874-2 also issued under 26 U.S.C. 7874(c)(6) and (g). 
* * *

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


Sec.  1.7874-2  Surrogate foreign corporation.

    [The text of proposed Sec.  1.7874-2 is the same as the text of 
Sec.  1.7874-2T published elsewhere in this issue of the Federal 
Register].

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E6-8698 Filed 6-5-06; 8:45 am]
BILLING CODE 4830-01-P