[Federal Register Volume 71, Number 236 (Friday, December 8, 2006)]
[Rules and Regulations]
[Pages 71040-71045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20734]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 301 and 602

[TD 9300]


Guidance Necessary to Facilitate Business Electronic Filing

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations designed to eliminate 
regulatory impediments to the electronic filing of certain income tax 
returns and other forms. These regulations affect business taxpayers 
who file income tax returns electronically. This document also makes 
conforming changes to certain current regulations.

DATES: Effective Date: These regulations are effective on December 8, 
2006.
    Applicability Date: These regulations apply with respect to taxable 
years beginning after December 31, 2002. The applicability of 
Sec. Sec.  1.170A-11T, 1.556-2T, 1.565-1T, 1.936-7T, 1.1017-1T, 1.1368-
1T, 1.1377-1T, 1.1502-21T(b)(3)(i) and (b)(3)(ii)(B), 1.1502-75T, 
1.1503-2T, 1.6038B-1T(b)(1)(ii) and 301.7701-3T will expire on December 
8, 2006.

FOR FURTHER INFORMATION CONTACT: Nathan Rosen, (202) 622-4910 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these regulations has 
been reviewed and approved by the Office of Management and Budget in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) 
under control number 1545-1868. The collection of information in these 
final regulations is in Sec.  1.170A-11(b)(2). The information required 
in Sec.  1.170A-11(b)(2) concerning the date on which a corporation's 
board of directors authorizes a certain type of charitable contribution 
assists the IRS in determining the deductibility of such contributions. 
Responses to this collection of information are mandatory.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number assigned by the Office of 
Management and Budget.
    The estimated annual burden per respondent is .25 hours.
    Comments concerning the accuracy of this burden estimate and 
suggestions for reducing this burden should be sent to the Internal 
Revenue Service, Attn: IRS Reports, Clearance Officer, 
SE:W:CAR:MP:T:T:SP, Washington, DC 20224, and 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.
    Books and 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

    This document contains amendments to 26 CFR part 1 and 26 CFR part 
301 designed to eliminate regulatory impediments to the electronic 
submission of tax returns and other forms filed by corporations, 
partnerships, other business entities, and their owners.
    In 1998, Congress enacted the Internal Revenue Service 
Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. No. 105-206 
(112 Stat. 685) (1998). RRA 1998 states a Congressional policy to 
promote the paperless filing of Federal tax returns. Section 2001(a) of 
RRA 1998 set a goal for the IRS to have at least 80 percent of all 
Federal tax and information returns filed electronically by 2007. 
Section 2001(b) of RRA 1998 requires the IRS to establish a 10-year 
strategic plan to eliminate barriers to electronic filing.

Finalization of December 2003 Regulations Facilitating Electronic 
Filing

    On December 19, 2003, the IRS and Treasury published in the Federal 
Register (TD 9100, 2004-1 C.B. 297 [68 FR 70701]) temporary and final 
regulations modifying the regulations under sections 170, 556, 565, 
936, 1017, 1368, 1377, 1502, 1503, 6038B and 7701 of the Internal 
Revenue Code. In the same issue of the Federal Register, the IRS and 
Treasury published a notice of proposed rulemaking (REG-116664-01, 
2004-1 C.B. 319 [68 FR 70747]) proposing to amend regulations under the 
code sections noted in the previous sentence. The temporary, final, and 
proposed regulations published on December 19, 2003, are collectively 
referred to as the December 2003 Regulations.
    The December 2003 Regulations generally affect taxpayers who must 
file any of the following forms: Form 926, ``Return by a U.S. 
Transferor of Property to a Foreign Corporation''; Form 972, ``Consent 
of Shareholder To Include Specific Amount in Gross Income''; Form 973, 
``Corporation Claim for Deduction for Consent Dividends''; Form 982, 
``Reduction of Tax Attributes Due to Discharge of Indebtedness (and 
Section 1082 Basis Adjustment)''; Form 1120, ``U.S. Corporation Income 
Tax Return''; Form 1120S, ``U.S. Income Tax Return for an S 
Corporation''; Form 1122, ``Authorization and Consent of Subsidiary 
Corporation To Be Included in a Consolidated Income Tax Return''; Form 
5471, ``Information Return of U.S. Persons With Respect To Certain 
Foreign Corporations''; Form 5712-A, ``Election and Verification of the 
Cost Sharing or Profit Split Method Under Section 936(h)(5)''; and Form 
8832, ``Entity Classification Election.''
    Prior to the changes adopted by the December 2003 Regulations, 
certain regulations under the code sections cited above impeded 
electronic filing of returns. Some of these regulations, for example, 
impeded electronic filing by requiring taxpayers to include third-party 
signatures on their tax returns or by requiring taxpayers to attach 
documents or statements generated by a third party. Other regulations 
required a taxpayer to sign an IRS form and file it as an attachment to 
the taxpayer's income tax return. To address certain situations in 
which regulations required

[[Page 71041]]

taxpayers to attach documents or statements to their tax returns, for 
example, the December 2003 Regulations allowed taxpayers to retain such 
items in their books and records. Taxpayers would be obligated, of 
course, to make the items available for inspection by the IRS.
    The IRS received no comments responding to the December 2003 
Regulations, and no public hearing regarding the proposed regulations 
was requested or held. Accordingly, the temporary and proposed 
regulations are adopted with no substantive change by this Treasury 
decision, and the corresponding temporary regulations are removed. 
These final regulations make certain non-substantive changes to the 
December 2003 Regulations as described below.
    Section 556 was repealed by the American Jobs Creation Act, Pub. L. 
No. 108-357 (118 Stat. 1418), effective for taxable years of foreign 
corporations beginning after December 31, 2004, and effective for 
taxable years of United States shareholders with or within which such 
taxable years of foreign corporations end. The provision in the 
December 2003 Regulations eliminating an electronic filing impediment 
under section 556 applied to tax years ending before the repeal of 
section 556. Therefore, these final regulations amend section 1.556-2 
of the Income Tax Regulations despite the repeal of section 556 itself.
    These final regulations remove certain portions of section 1.1502-
21T and place such language in sections 1.1502-21(b)(3)(i) and 
(b)(3)(ii)(B), so as to eliminate impediments to the electronic filing 
of Form 1120. Other portions of that temporary regulation, however, 
predate the December 2003 Regulations or relate to matters other than 
electronic filing, and this document does not revise those portions.
    The regulations as finalized by this Treasury decision clarify that 
references in the following regulations to tax return due dates include 
extensions of such due dates: See 1.565-1(b)(3), 1.936-7(b), Q. & A. 1, 
1.1368-1(f)(5)(iii) and (g)(2)(iii) and 1.1503-2(g)(2)(i) and 
(iv)(B)(3)(iii).

January 2006 Final Regulations Facilitating Electronic Filing

    On January 23, 2006, the IRS and Treasury released TD 9243, (TD 
9243, 2006-8 I.R.B. 475 [71 FR 4276]) (the January 2006 Final 
Regulations) which, among other things, removed an impediment to 
electronic filing of Form 926. In the December 2003 Regulations, the 
IRS and Treasury had previously amended both sections 1.6038B-
1(b)(1)(i) and 1.6038B-1(b)(1)(ii) of the Income Tax Regulations to 
eliminate an impediment to electronic filing of Form 926. The January 
2006 Final Regulations amended section 1.6038B-1(b)(1)(i) and removed 
temporary regulations section 1.6038B-1T(b)(1)(i). Therefore, because 
the amendment in the December 2003 Regulations to 1.6038B-1T(b)(1)(i) 
has already been adopted in final regulations, these final regulations 
amend 1.6038B-1(b)(1)(ii) and remove 1.6038B-1T(b)(1)(ii), but do not 
address section 1.6038B-1(b)(1)(i).

May 2006 Regulations Facilitating Electronic Filing

    On May 26, 2006, the IRS and Treasury Department released TD 9264 
(the May 2006 Regulations), which contained numerous temporary 
regulations amending or replacing final regulations. Some of these 
final regulations had required taxpayers to provide detailed 
information about a transaction. In other cases, the scope of various 
reporting requirements was not clear. The May 2006 Regulations 
simplified, clarified or, in some cases, eliminated these reporting 
burdens.
    The May 2006 Regulations also eliminated regulatory impediments to 
the electronic filing of certain statements that taxpayers are required 
to include on or with their Federal income tax returns. In some cases, 
this impediment was removed by deleting the requirement that the 
taxpayer sign such statement. In other cases, where the taxpayer and a 
third party were both required to sign such statement, this impediment 
was removed by requiring each party to indicate on such statement that 
it had entered into an agreement with the other party addressing the 
substantive matters covered by the final regulations. Requiring such a 
statement from the parties in place of the dual signatures eliminates 
an e-file impediment, but to protect the Service's interests, the May 
2006 regulations require each party to keep either the original or a 
copy of the underlying agreement in its records.

Special Analyses

    It has been determined that this Treasury decision 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. It is hereby 
certified that the collection of information in these regulations will 
not have a significant economic impact on a substantial number of small 
entities. This certification is based on the fact that the collection 
of information in these regulations involves an insignificant 
expenditure of time by taxpayers, as noted above under the heading 
``Paperwork Reduction Act.'' Accordingly, a Regulatory Flexibility 
Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is 
not required. Pursuant to section 7805(f) of the Code, the December 
2003 Regulations and the December 2003 notice of proposed rulemaking 
were submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small business.

Drafting Information

    The principal author of these regulations is Nathan Rosen, Office 
of Associate Chief Counsel (Procedure and Administration), 
Administrative Provisions and Judicial Practice Division.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR parts 1, 301 and 602 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read, in 
part, as follows:

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


0
Par. 2. Section 1.170A-11 is amended by revising paragraph (b)(2) to 
read as follows:


Sec.  1.170A-11  Limitation on, and carryover of, contributions by 
corporations.

* * * * *
    (b) * * *
    (2) The election must be made at the time the return for the 
taxable year is filed, by reporting the contribution on the return. 
There shall be attached to the return when filed a written declaration 
stating that the resolution authorizing the contribution was adopted by 
the board of directors during the taxable

[[Page 71042]]

year. For taxable years beginning before January 1, 2003, the 
declaration shall be verified by a statement signed by an officer 
authorized to sign the return that it is made under penalties of 
perjury, and there shall also be attached to the return when filed a 
copy of the resolution of the board of directors authorizing the 
contribution. For taxable years beginning after December 31, 2002, the 
declaration must also include the date of the resolution, the 
declaration shall be verified by signing the return, and a copy of the 
resolution of the board of directors authorizing the contribution is a 
record that the taxpayer must retain and keep available for inspection 
in the manner required by Sec.  1.6001-1(e).
* * * * *


Sec.  1.170A-11T  [Removed]

0
Par. 3. Section 1.170A-11T is removed.

0
Par. 4. Section 1.556-2 is amended by revising paragraphs (e)(2)(vii) 
and (e)(3) to read as follows:


Sec.  1.556-2  Adjustments to taxable income.

* * * * *
    (e) * * *
    (2) * * *
    (vii) In the case of a return for a taxable year beginning before 
January 1, 2003, a copy of the contract, lease, or rental agreement;
* * * * *
    (3) If the statement described in Sec.  1.556-2(e)(2) is attached 
to a taxpayer's income tax return for a taxable year beginning after 
December 31, 2002, a copy of the applicable contract, lease or rental 
agreement is not required to be submitted with the return, but must be 
retained by the taxpayer and kept available for inspection in the 
manner required by Sec.  1.6001-1(e).
* * * * *


Sec.  1.556-2T  [Removed]

0
Par. 5. Section 1.556-2T is removed.

0
Par. 6 Section 1.565-1 is amended by revising paragraph (b)(3) to read 
as follows:


Sec.  1.565-1  General rule.

* * * * *
    (b) * * *
    (3) A consent may be filed at any time not later than the due date 
(including extensions) of the corporation's income tax return for the 
taxable year for which the dividends paid deduction is claimed. With 
such return, and not later than the due date (including extensions) 
thereof, the corporation must file Forms 972 for each consenting 
shareholder, and a return on Form 973 showing by classes the stock 
outstanding on the first and last days of the taxable year, the 
dividend rights of such stock, distributions made during the taxable 
year to shareholders, and giving all the other information required by 
the form. For taxable years beginning before January 1, 2003, the Form 
973 filed with the corporation's income tax return shall contain or be 
verified by a written declaration that is made under the penalties of 
perjury and the Forms 972 filed with the return must be duly executed 
by the consenting shareholders. For taxable years beginning after 
December 31, 2002, the Form 973 filed with the corporation's income tax 
return shall be verified by signing the return and the Forms 972 filed 
with the return must be duly executed by the consenting shareholders 
or, if unsigned, must contain the same information as the duly executed 
originals. If the corporation submits unsigned Forms 972 with its 
return for a taxable year beginning after December 31, 2002, the duly 
executed originals are records that the corporation must retain and 
keep available for inspection in the manner required by Sec.  1.6001-
1(e).
* * * * *


Sec.  1.565-1T  [Removed]

0
Par. 7. Section 1.565-1T is removed.

0
Par. 8. Section 1.936-7 is amended by revising paragraph (b), Q. & A. 
1, to read as follows:


Sec.  1.936-7  Manner of making election under section 936(h)(5); 
special election for export sales; revocation of election under section 
936(a).

* * * * *
    (b) Manner of making election.
    Q. 1: How does a possessions corporation make an election to use 
the cost sharing method or profit split method?
    A. 1: A possessions corporation makes an election to use the cost 
sharing or profit split method by filing Form 5712-A (``Election and 
Verification of the Cost Sharing or Profit Split Method Under Section 
936(h)(5)'') and attaching it to its tax return. Form 5712-A must be 
filed on or before the due date (including extensions) of the tax 
return of the possessions corporation for its first taxable year 
beginning after December 31, 1982. The electing corporation must set 
forth on the form the name and the taxpayer identification number or 
address of all members of the affiliated group (including foreign 
affiliates not required to file a U.S. tax return). All members of the 
affiliated group must consent to the election. For elections filed with 
respect to taxable years beginning before January 1, 2003, an 
authorized officer of the electing corporation must sign the statement 
of election and must declare that he has received a signed statement of 
consent from an authorized officer, director, or other appropriate 
official of each member of the affiliated group. Elections filed for 
taxable years beginning after December 31, 2002, must incorporate a 
declaration by the electing corporation that it has received a signed 
consent from an authorized officer, director, or other appropriate 
official of each member of the affiliated group and will be verified by 
signing the return. The election is not valid for a taxable year unless 
all affiliates consent. A failure to obtain an affiliate's written 
consent will not invalidate the election out if the possessions 
corporation made a good faith effort to obtain all the necessary 
consents or the failure to obtain the missing consent was inadvertent. 
Subsequently created or acquired affiliates are bound by the election. 
If an election out is revoked under section 936(h)(5)(F)(iii), a new 
election out with respect to that product area cannot be made without 
the consent of the Commissioner. The possessions corporation shall file 
an amended Form 5712-A with its timely filed (including extensions) 
income tax return to reflect any changes in the names or number of the 
members of the affiliated group for any taxable year after the first 
taxable year to which the election out applies. By consenting to the 
election out, all affiliates agree to provide information necessary to 
compute the cost sharing payment under the cost sharing method or 
combined taxable income under the profit split method, and failure to 
provide such information shall be treated as a request to revoke the 
election out under section 936(h)(5)(F)(iii).
* * * * *


Sec.  1.936-7T  [Removed]

0
Par. 9. Section 1.936-7T is removed.
0
Par. 10. Section 1.1017-1 is amended by revising paragraph 
(g)(2)(iii)(B) to read as follows:


Sec.  1.1017-1  Basis reductions following a discharge of indebtedness.

* * * * *
    (g) * * *
    (2) * * *
    (iii) * * *
    (B) Taxpayer's requirement. For taxable years beginning before 
January 1, 2003, statements described in Sec.  1.1017-1(g)(2)(iii)(A) 
must be attached to a taxpayer's timely filed (including extensions) 
Federal income tax return

[[Page 71043]]

for the taxable year in which the taxpayer has COD income that is 
excluded from gross income under section 108(a). For taxable years 
beginning after December 31, 2002, taxpayers must retain the statements 
and keep them available for inspection in the manner required by Sec.  
1.6001-1(e), but are not required to attach the statements to their 
returns.
* * * * *


Sec.  1.1017-1T  [Removed]

0
Par. 11. Section 1.1017-1T is removed.

0
Par. 12. Section 1.1368-1 is amended by revising paragraphs (f)(5)(iii) 
and (g)(2)(iii) to read as follows:


Sec.  1.1368-1  Distributions by S corporations.

* * * * *
    (f) * * *
    (5) * * *
    (iii) Corporate statement regarding elections. A corporation makes 
an election for a taxable year under Sec.  1.1368-1(f) by attaching a 
statement to a timely filed (including extensions) original or amended 
return required to be filed under section 6037 for that taxable year. 
In the statement, the corporation must identify the election it is 
making under Sec.  1.1368-1(f) and must state that each shareholder 
consents to the election. In the case of elections for taxable years 
beginning before January 1, 2003, an officer of the corporation must 
sign under penalties of perjury the statement on behalf of the 
corporation. In the case of elections for taxable years beginning after 
December 31, 2002, the statement described in this paragraph 
(f)(5)(iii) shall be verified by signing the return. A statement of 
election to make a deemed dividend under Sec.  1.1368-1(f) must include 
the amount of the deemed dividend that is distributed to each 
shareholder.
* * * * *
    (g) * * *
    (2) * * *
    (iii) Time and manner of making election. A corporation makes an 
election under Sec.  1.1368-1(g)(2)(i) for a taxable year by attaching 
a statement to a timely filed (including extensions) original or 
amended return required to be filed under section 6037 for a taxable 
year (without regard to the election under Sec.  1.1368-1(g)(2)(i)). In 
the statement, the corporation must state that it is electing for the 
taxable year under Sec.  1.1368-1(g)(2)(i) to treat the taxable year as 
if it consisted of separate taxable years. The corporation also must 
set forth facts in the statement relating to the qualifying disposition 
(e.g., sale, gift, stock issuance, or redemption), and state that each 
shareholder who held stock in the corporation during the taxable year 
(without regard to the election under Sec.  1.1368-1(g)(2)(i)) consents 
to this election. For purposes of this election, a shareholder of the 
corporation for the taxable year is a shareholder as described in 
section 1362(a)(2). A single election statement may be filed for all 
elections made under Sec.  1.1368-1(g)(2)(i) for the taxable year. An 
election made under Sec.  1.1368-1(g)(2)(i) is irrevocable. In the case 
of elections for taxable years beginning before January 1, 2003, the 
statement through which a corporation makes an election under Sec.  
1.1368-1(g)(2)(i) must be signed by an officer of the corporation under 
penalties of perjury. In the case of elections for taxable years 
beginning after December 31, 2002, the statement described in the 
preceding sentence shall be verified by signing the return.
* * * * *


Sec.  1.1368-1T  [Removed]

0
Par. 13. Section 1.1368-1T is removed.

0
Par. 14. Section 1.1377-1 is amended by revising paragraph (b)(5)(i)(C) 
to read as follows:


Sec.  1.1377-1  Pro rata share.

* * * * *
    (b) * * *
    (5) * * *
    (i) * * *
    (C) The signature on behalf of the S corporation of an authorized 
officer of the corporation under penalties of perjury, except that for 
taxable years beginning after December 31, 2002, the election statement 
described in Sec.  1.1377-1(b)(5)(i) of this section shall be verified, 
and the requirement of this paragraph (b)(5)(i)(C) is satisfied, by the 
signature on the Form 1120S filed by the S corporation.
* * * * *


Sec.  1.1377-1T  [Removed]

0
Par. 15. Section 1.1377-1T is removed.
0
Par. 16. Section 1.1502-21 is amended by revising paragraphs (b)(3)(i) 
and (b)(3)(ii)(B) to read as follows:


Sec.  1.1502-21  Net operating losses.

* * * * *
    (b) * * *
    (3) Special rules--(i) Election to relinquish carryback. A group 
may make an irrevocable election under section 172(b)(3) to relinquish 
the entire carryback period with respect to a CNOL for any consolidated 
return year. Except as provided in Sec.  1.1502-21(b)(3)(ii)(B), the 
election may not be made separately for any member (whether or not it 
remains a member), and must be made in a separate statement entitled 
``THIS IS AN ELECTION UNDER Sec.  1.1502-21(b)(3)(i) TO WAIVE THE 
ENTIRE CARRYBACK PERIOD PURSUANT TO SECTION 172(b)(3) FOR THE [insert 
consolidated return year] CNOLs OF THE CONSOLIDATED GROUP OF WHICH 
[insert name and employer identification number of common parent] IS 
THE COMMON PARENT.'' The statement must be filed with the group's 
income tax return for the consolidated return year in which the loss 
arises. If the consolidated return year in which the loss arises begins 
before January 1, 2003, the statement making the election must be 
signed by the common parent. If the consolidated return year in which 
the loss arises begins after December 31, 2002, the election may be 
made in an unsigned statement.
    (ii) * * *
    (B) Acquisition of member from another consolidated group. If one 
or more members of a consolidated group becomes a member of another 
consolidated group, the acquiring group may make an irrevocable 
election to relinquish, with respect to all consolidated net operating 
losses attributable to the member, the portion of the carryback period 
for which the corporation was a member of another group, provided that 
any other corporation joining the acquiring group that was affiliated 
with the member immediately before it joined the acquiring group is 
also included in the waiver. This election is not a yearly election and 
applies to all losses that would otherwise be subject to a carryback to 
a former group under section 172. The election must be made in a 
separate statement entitled ``THIS IS AN ELECTION UNDER Sec.  1.1502-
21(b)(3)(ii)(B)(2) TO WAIVE THE PRE-[insert first taxable year for 
which the member (or members) was not a member of another group] 
CARRYBACK PERIOD FOR THE CNOLs attributable to [insert names and 
employer identification number of members].'' The statement must be 
filed with the acquiring consolidated group's original income tax 
return for the year the corporation (or corporations) became a member. 
If the year in which the corporation (or corporations) became a member 
begins before January 1, 2003, the statement must be signed by the 
common parent and each of the members to which it applies. If the year 
in which the corporation (or corporations) became a member begins after 
December 31, 2002,

[[Page 71044]]

the election may be made in an unsigned statement.
* * * * *

0
Par. 17. Section 1.1502-21T is amended by revising paragraphs (a) 
through (b)(3)(ii)(B) to read as follows:


Sec.  1.1502-21T  Net operating losses (temporary).

    (a) through (b)(3)(ii)(B) [Reserved]. For further guidance, see 
Sec.  1.1502-21(a) through (b)(3)(ii)(B).
* * * * *
0
Par. 18. Section 1.1502-75 is amended by revising paragraph (h)(2) to 
read as follows:


Sec.  1.1502-75  Filing of consolidated returns.

* * * * *
    (h) * * *
    (2) Filing of Form 1122 for first year. If, under the provisions of 
paragraph (a)(1) of this section, a group wishes to file a consolidated 
return for a taxable year, then a Form 1122 (``Authorization and 
Consent of Subsidiary Corporation To Be Included in a Consolidated 
Income Tax Return'') must be executed by each subsidiary. For taxable 
years beginning before January 1, 2003, the executed Forms 1122 must be 
attached to the consolidated return for the taxable year. For taxable 
years beginning after December 31, 2002, the group must attach either 
executed Forms 1122 or unsigned copies of the completed Forms 1122 to 
the consolidated return. If the group submits unsigned Forms 1122 with 
its return, it must retain the signed originals in its records in the 
manner required by Sec.  1.6001-1(e). Form 1122 is not required for a 
taxable year if a consolidated return was filed (or was required to be 
filed) by the group for the immediately preceding taxable year.
* * * * *


Sec.  1.1502-75T  [Removed]

0
Par. 19. Section 1.1502-75T is removed.

0
Par. 20. Section 1.1503-2 is amended by revising paragraphs (g)(2)(i), 
(g)(2)(iv)(B)(3)(iii) and (g)(2)(vi)(B) to read as follows:


Sec.  1.1503-2  Dual consolidated loss.

* * * * *
    (g) * * *
    (2) * * *
    (i) In general. Paragraph (b) of this section shall not apply to a 
dual consolidated loss if the consolidated group, unaffiliated dual 
resident corporation, or unaffiliated domestic owner elects to be bound 
by the provisions of this paragraph (g)(2). In order to elect relief 
under this paragraph (g)(2), the consolidated group, unaffiliated dual 
resident corporation, or unaffiliated domestic owner must attach to its 
timely filed (including extensions) U.S. income tax return for the 
taxable year in which the dual consolidated loss is incurred an 
agreement described in paragraph (g)(2)(i)(A) of this section. The 
agreement must be signed under penalties of perjury by the person who 
signs the return. For taxable years beginning after December 31, 2002, 
the agreement attached to the income tax return of the consolidated 
group, unaffiliated dual resident corporation or unaffiliated domestic 
owner pursuant to the preceding sentence may be an unsigned copy. If an 
unsigned copy is attached to the return, the consolidated group, 
unaffiliated dual resident corporation, or unaffiliated domestic owner 
must retain the original in its records in the manner specified by 
Sec.  1.6001-1(e). The agreement must include the following items, in 
paragraphs labeled to correspond with the items set forth in paragraph 
(g)(2)(i)(A) through (F) of this section.
    (A) A statement that the document submitted is an election and an 
agreement under the provisions of paragraph (g)(2) of this section.
    (B) The name, address, identifying number, and place and date of 
incorporation of the dual resident corporation, and the country or 
countries that tax the dual resident corporation on its worldwide 
income or on a residence basis, or, in the case of a separate unit, 
identification of the separate unit, including the name under which it 
conducts business, its principal activity, and the country in which its 
principal place of business is located.
    (C) An agreement by the consolidated group, unaffiliated dual 
resident corporation, or unaffiliated domestic owner to comply with all 
of the provisions of Sec.  1.1503-2(g)(2)(iii)-(vii).
    (D) A statement of the amount of the dual consolidated loss covered 
by the agreement.
    (E) A certification that no portion of the dual resident 
corporation's or separate unit's losses, expenses, or deductions taken 
into account in computing the dual consolidated loss has been, or will 
be, used to offset the income of any other person under the income tax 
laws of a foreign country.
    (F) A certification that arrangements have been made to ensure that 
no portion of the dual consolidated loss will be used to offset the 
income of another person under the laws of a foreign country and that 
the consolidated group, unaffiliated dual resident corporation, or 
unaffiliated domestic owner will be informed of any such foreign use of 
any portion of the dual consolidated loss.
* * * * *
    (iv) * * *
    (B) * * *
    (3) * * *
    (iii) The unaffiliated domestic corporation or new consolidated 
group must file, with its timely filed (including extensions) income 
tax return for the taxable year in which the event described in 
paragraph (g)(2)(iv)(B)(1) or (2) of this section occurs, an agreement 
described in paragraph (g)(2)(i) of this section (new (g)(2)(i) 
agreement), whereby it assumes the same obligations with respect to the 
dual consolidated loss as the corporation or consolidated group that 
filed the original (g)(2)(i) agreement with respect to that loss. The 
new (g)(2)(i) agreement must be signed under penalties of perjury by 
the person who signs the return and must include a reference to this 
paragraph (g)(2)(iv)(B)(3)(iii). For taxable years beginning after 
December 31, 2002, the agreement attached to the return pursuant to the 
preceding sentence may be an unsigned copy. If an unsigned copy is 
attached to the return, the corporation or consolidated group must 
retain the original in its records in the manner specified by Sec.  
1.6001-1(e).
* * * * *
    (vi) * * *
    (B) Annual certification. Except as provided in Sec.  1.1503-
2(g)(2)(vi)(C), until and unless Form 1120 or the Schedules thereto 
contain questions pertaining to dual consolidated losses, the 
consolidated group, unaffiliated dual resident corporation, or 
unaffiliated domestic owner must file with its income tax return for 
each of the 15 taxable years following the taxable year in which the 
dual consolidated loss is incurred a certification that the losses, 
expenses, or deductions that make up the dual consolidated loss have 
not been used to offset the income of another person under the tax laws 
of a foreign country. For taxable years beginning before January 1, 
2003, the annual certification must be signed under penalties of 
perjury by a person authorized to sign the agreement described in Sec.  
1.1503-2(g)(2)(i). For taxable years beginning after December 31, 2002, 
the certification is verified by signing the return with which the 
certification is filed. The certification for a taxable year must 
identify the dual consolidated loss to which it pertains by setting 
forth the taxpayer's year in which the loss was incurred and the amount 
of such loss. In addition, the certification must warrant that

[[Page 71045]]

arrangements have been made to ensure that the loss will not be used to 
offset the income of another person under the laws of a foreign country 
and that the taxpayer will be informed of any such foreign use of any 
portion of the loss. If dual consolidated losses of more than one 
taxable year are subject to the rules of this paragraph (g)(2)(vi)(B), 
the certifications for those years may be combined in a single document 
but each dual consolidated loss must be separately identified.
* * * * *


Sec.  1.1503-2T  [Removed]

0
Par 21. Section 1.1503-2T is removed.
0
Par. 22. Section 1.6038B-1 is amended by revising paragraph (b)(1)(ii) 
to read as follows:


Sec.  1.6038B-1  Reporting of certain transfers to foreign 
corporations.

* * * * *
    (b) * * *
    (1) * * *
    (ii) Reporting by corporate transferor. For transfers by 
corporations in taxable years beginning before January 1, 2003, Form 
926 must be signed by an authorized officer of the corporation if the 
transferor is not a member of an affiliated group under section 
1504(a)(1) that files a consolidated Federal income tax return and by 
an authorized officer of the common parent corporation if the 
transferor is a member of such an affiliated group. For transfers by 
corporations in taxable years beginning after December 31, 2002, Form 
926 shall be verified by signing the income tax return to which the 
form is attached.
* * * * *

0
Par. 23. Section 1.6038B-1T is amended by revising paragraphs (a) 
through (b)(3) to read as follows:


Sec.  1.6038B-1T  Reporting of certain transactions to foreign 
corporations (Temporary).

    (a) through (b)(3) [Reserved]. For further guidance, see Sec.  
1.6038B-1(a) through (b)(3).
* * * * *

PART 301--PROCEDURE AND ADMINISTRATION

0
Par. 24. The authority citation for part 301 continues to read, in 
part, as follows:

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


0
Par. 25. Section 301.7701-3 is amended by revising paragraph (c)(1)(ii) 
to read as follows:


Sec.  301.7701-3  Classification of certain business entities.

* * * * *
    (c) * * * (1) * * *
    (ii) Further notification of elections. An eligible entity required 
to file a Federal tax or information return for the taxable year for 
which an election is made under Sec.  301.7701-3(c)(1)(i) must attach a 
copy of its Form 8832 to its Federal tax or information return for that 
year. If the entity is not required to file a return for that year, a 
copy of its Form 8832 (``Entity Classification Election'') must be 
attached to the Federal income tax or information return of any direct 
or indirect owner of the entity for the taxable year of the owner that 
includes the date on which the election was effective. An indirect 
owner of the entity does not have to attach a copy of the Form 8832 to 
its return if an entity in which it has an interest is already filing a 
copy of the Form 8832 with its return. If an entity, or one of its 
direct or indirect owners, fails to attach a copy of a Form 8832 to its 
return as directed in this section, an otherwise valid election under 
Sec.  301.7701-3(c)(1)(i) will not be invalidated, but the non-filing 
party may be subject to penalties, including any applicable penalties 
if the Federal tax or information returns are inconsistent with the 
entity's election under Sec.  301.7701-3(c)(1)(i). In the case of 
returns for taxable years beginning after December 31, 2002, the copy 
of Form 8832 attached to a return pursuant to this paragraph (c)(1)(ii) 
is not required to be a signed copy.
* * * * *


Sec.  301.7701-3T  [Removed]

0
Par. 26. Section 301.7701-3T is removed.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 27. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


0
Par. 28. In Sec.  602.101, paragraph (b) is amended by removing the 
entry for ``1.170A-11T'' and revising the entry for ``1.170A-11'' to 
read as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 
                                * * * * *
1.170A-11...............................................       1545-0123
                                                               1545-0074
                                                               1545-1868
 
                                * * * * *
------------------------------------------------------------------------


Linda Kroening,
Deputy Commissioner for Services and Enforcement.
    Approved: December 1, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury (Tax Policy).
 [FR Doc. E6-20734 Filed 12-7-06; 8:45 am]
BILLING CODE 4830-01-P