[Federal Register Volume 71, Number 246 (Friday, December 22, 2006)]
[Rules and Regulations]
[Pages 76902-76904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-21908]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9278]
RIN 1545-BB31, 1545-AY38, 1545-BC52


Treatment of Services Under Section 482; Allocation of Income and 
Deductions From Intangibles; Stewardship Expense; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendments.

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SUMMARY: This document contains corrections to final and temporary 
regulations (TD 9278) that was published in the Federal Register on 
Friday, August 4, 2006 (71 FR 44466) regarding the treatment of 
controlled services transactions under section 482 and the allocation 
of income from intangibles, in particular with respect to contributions 
by a controlled party to the value of an intangible owned by another 
controlled party. This document also contains corrections to final and 
temporary regulations that modify the regulations under section 861 
concerning stewardship expenses to be consistent with the changes made 
to the regulations under section 482.

DATES: Effective Date: The amendments are effective on January 1, 2007.

FOR FURTHER INFORMATION CONTACT: Thomas A. Vidano, (202) 435-5265, or 
Carol B. Tan (202) 435-5159, for matters relating to section 482, and 
David F. Bergkuist, (202) 622-3850, for matters relating to stewardship 
expenses (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    The final and temporary regulations that are the subject of these 
corrections are under sections 482 and 861 of the Internal Revenue 
Code.

Need for Correction

    As published, the final and temporary regulations (TD 9278) 
contains errors that may prove to be misleading and are in need of 
clarification.

[[Page 76903]]

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Correction of Publication

0
Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:

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 1.482-0T is amended by removing the entries for 
paragraphs (i)(1) through (i)(10), (j)(1), (j)(2) and (j)(3) from Sec.  
1.482-1T.

0
Par. 3. Section 1.482-1 is amended by revising paragraph (i) 
introductory text to read as follows:


Sec.  1.482-1  Allocation of income and deductions among taxpayers.

* * * * *
    (i) [Reserved]. For further guidance, see Sec.  1.482-1T(i) 
introductory text.
* * * * *

0
Par. 4. Section 1.482-1T is amended as follows:
0
1. Paragraphs (i)(1) through (i)(10) are added and reserved.
0
2. Paragraphs (j)(1) through (j)(5) are amended by adding ``Sec.  '' 
before the language ``1.482-1(j)(1)''.
    The addition reads as follows:


Sec.  1. 482-1T  Allocation of income and deductions among taxpayers 
(temporary).

* * * * *
    (i)(1) through (i)(10) [Reserved]. For further guidance, see Sec.  
1.482-1(i)(1) through (i)(10).
* * * * *

0
Par. 5. Section 1.482-8T is amended by revising paragraph (b) Example 
12. (iv), second sentence to read as follows:


Sec.  1.482-8T  Example of the best method rule (temporary).

* * * * *
    (b) * * *

    Example 12. (i) * * *
    (iv) * * * USP contributed the long-term endorsement contracts 
with professional athletes. * * *
* * * * *

0
Par. 6. Section 1.482-9T is amended as follows:
0
1. Paragraph (b)(6), Example 22. (vi), introductory text is revised.
0
2. Paragraph (g)(2), Example 2. (iv), fifth sentence is revised.
0
3. Paragraph (i)(2) is revised.
0
4. Paragraph (i)(5), Example 1. (iii), first sentence is revised.
0
5. Paragraph (i)(5), Example 3. (ii), first sentence is revised.
0
6. Paragraph (l)(5), Example 20. (i), second sentence is revised.
0
7. Paragraph (m)(5), Example 1. (ii), fourth sentence is revised.
    The revisions read as follows:


Sec.  1.482-9T  Methods to determine taxable income in connection with 
a controlled services transaction (temporary).

* * * * *
    (b) * * *
    (6) * * *

    Example 22. (i) * * *
    (vi) In contrast, if aggregated services AB were allocated by 
reference to the total U.S. dollar value of sales to uncontrolled 
parties (trade sales) by each company, the following results would 
obtain:
* * * * *
    (g) * * *
    (2) * * *

    Example 2. * * *
    (iv) * * * In the bid on the Country 2 contract for Level 1 
waste remediation, Company B proposes to use a multidisciplinary 
team of specialists from Company A and Company B. * * *
* * * * *
    (i) * * *
    (2) * * * For purposes of this paragraph (i), an arrangement will 
be treated as a contingent-payment arrangement if it meets all of the 
requirements in paragraph (i)(2)(i) of this section and is consistent 
with the economic substance and conduct requirement in paragraph 
(i)(2)(ii) of this section.
* * * * *
    (5) * * *

    Example 1. (i) * * *
    (iii) The years under examination are years 6 through 9. * * *
* * * * *
    Example 3. (i) * * *
    (ii) The years under examination are years 6 through 9. * * *
* * * * *
    (l) * * *
    (5) * * *
    Example 20. (i) * * * Y, a Country B corporation, is a 
distribution and marketing company that also performs clinical 
trials for X in Country B. * * *
* * * * *
    (m) * * *
    (5) * * *

    Example 1. (i) * * *
    (ii) * * * The comparable profits method may provide the most 
reliable measure of an arm's length result if uncontrolled parties 
are identified that perform similar, combined functions of 
maintaining and providing spare parts for similar equipment. * * *
* * * * *

0
Par. 7. Section 1.861-8T is amended as follows:
0
1. Paragraph (b)(3) is revised.
0
2. Paragraph (g), paragraph (i) following Example 30. (i)(C) is 
redesignated as paragraph (ii) and the paragraph designation for 
Example 30. (i)(C) is removed.
0
3. Paragraph (h)(1), first three sentences are revised.
0
4. Paragraph (h)(3) is revised.
    The revisions read as follows:


Sec.  1.861-8T  Computation of taxable income from sources within the 
United States and from other sources and activities (temporary).

* * * * *
    (b) * * *
    (3) Supportive functions. Deductions which are supportive in nature 
(such as overhead, general and administrative, and supervisory 
expenses) may relate to other deductions which can more readily be 
allocated to gross income. In such instance, such supportive deductions 
may be allocated and apportioned along with the deductions to which 
they relate. On the other hand, it would be equally acceptable to 
attribute supportive deductions on some reasonable basis directly to 
activities or property which generate, have generated or could 
reasonably be expected to generate gross income. This would ordinarily 
be accomplished by allocating the supportive expenses to all gross 
income or to another broad class of gross income and apportioning the 
expenses in accordance with paragraph (c)(1) of this section. For this 
purpose, reasonable departmental overhead rates may be utilized. For 
examples of the application of the principles of this paragraph (b)(3) 
to expenses other than expenses attributable to stewardship activities, 
see Examples 19 through 21 of paragraph (g) of this section. See 
paragraph (e)(4)(ii) of this section for the allocation and 
apportionment of deductions attributable to stewardship expenses. 
However, supportive deductions that are described in Sec.  1.861-
14T(e)(3) shall be allocated and apportioned in accordance with the 
rules of Sec.  1.861-14T and shall not be allocated and apportioned by 
reference only to the gross income of a single member of an affiliated 
group of corporations as defined in Sec.  1.861-14T(d).
* * * * *
    (h) * * * (1) * * * In general, the rules of this section, as well 
as the rules of Sec. Sec.  1.861-9T, 1.861-10T, 1.861-11T, 1.861-12T, 
and 1.861-14T apply for taxable years beginning after December 31, 
1986, except for paragraphs (a)(5)(ii), (b)(3), (e)(4), (f)(4)(i), and 
paragraph (g) Example 17, Example 18, and Example 30 of this section, 
which are generally applicable for taxable years beginning after 
December 31, 2006. Also, see Sec. Sec.  1.861-8(e)(12)(iv) and 1.861-
14(e)(6)

[[Page 76904]]

for rules concerning the allocation and apportionment of deductions for 
charitable contributions. In the case of corporate taxpayers, 
transition rules set forth in Sec.  1.861-13T provide for the gradual 
phase-in of certain provisions of this and the foregoing sections. * * 
*
    (3) Expiration date. The applicability of the paragraphs 
(a)(5)(ii), (b)(3), (e)(4), (f)(4)(i), and paragraph (g) Example 17, 
Example 18, and Example 30 of this section, expires on or before July 
31, 2009.

0
Par. 8. Section 1.6662-6T is amended by revising paragraph 
(d)(2)(ii)(B), first sentence to read as follows:


Sec.  1.6662-6T  Transactions between parties described in section 482 
and net section 482 transfer price adjustments (temporary).

* * * * *
    (d)(2)(ii)(B) A taxpayer's selection of the services cost method 
for certain services, described in Sec.  1.482-9T(b), and its 
application of that method to a controlled services transaction will be 
considered reasonable for purposes of the specified method requirement 
only if the taxpayer reasonably allocated and apportioned costs in 
accordance with Sec.  1.482-9T(k), reasonably concluded that the 
controlled services transaction meets the conditions of Sec.  1.482-
9T(b)(3), and reasonably concluded that the controlled services 
transaction is not described in Sec.  1.482-9T(b)(2). * * *
* * * * *

Cynthia Grigsby,
Senior Federal Register Liaison Officer, Legal Processing Division, 
Associate Chief Counsel (Procedure and Administration).
 [FR Doc. E6-21908 Filed 12-21-06; 8:45 am]
BILLING CODE 4830-01-P