[Federal Register Volume 72, Number 121 (Monday, June 25, 2007)]
[Proposed Rules]
[Pages 34650-34652]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-12037]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

[REG-138707-06]

26 CFR Part 1

RIN 1545-BF90


Exclusions from Gross Income of Foreign Corporations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations 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 that modify 
final regulations issued under section 883(a) and (c) of the Internal 
Revenue Code (Code), relating to income derived by foreign corporations 
from the international operation of ships or aircraft. Those 
regulations revise Sec.  1.883-3 of the final regulations, relating to 
the treatment of controlled foreign corporations, following the repeal 
of section 954(a)(4) and (f) (foreign base company shipping provisions) 
by section 415 of the American Jobs Creation Act of 2004. In addition, 
those regulations provide guidance for foreign corporations organized 
in countries that provide an exemption from taxation solely through an 
income tax convention, and amend certain provisions in the current 
section 883 regulations. The text of those regulations 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 and requests for a public hearing 
must be received by September 24, 2007. Outlines of topics to be 
discussed at the public hearing scheduled for Wednesday, October 24, 
2007, at 10 a.m. must be received by Monday, September 24, 2007.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-138707-06), room 5203, 
Internal Revenue Service, P.O. 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-
138707-06), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at www.regulations.gov (IRS REG-138707-06).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Patricia 
A. Bray, at (202) 622-3880; concerning submissions of comments and/or 
requests for a hearing, Kelly Banks, at (202) 622-0392 (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)), and pending receipt and evaluation of public comments, 
approved by the Office of Management and Budget under control number 
1545-1667.
    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 collection of information should be received by 
August 24, 2007.
    Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden 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 start-up costs and costs of operation, maintenance, 
and purchase of service to provide information.
    The collections of information in this proposed regulation are in 
Sec. Sec.  1.883-2(f), 1.883-3(c) and (d), and 1.883-4(e). This 
information is required to enable a foreign corporation to determine if 
it is eligible to exclude its income from the international operation 
of ships or aircraft from gross income on its U.S. Federal income tax 
return. This information will also enable the IRS to monitor compliance 
with the provisions of the proposed regulations with respect to the 
stock ownership requirements of Sec.  1.883-1(c)(2), and to make a 
preliminary determination of whether the foreign corporation is 
eligible to claim such an exemption and is accurately reporting income.
    The collections of information are mandatory. The likely 
respondents are foreign corporations engaged in the international 
operation of ships or aircraft that wish to claim an exemption from 
U.S. tax under section 883, and certain of their shareholders owning 
(directly or indirectly) a majority of the value of the shares of such 
corporations.
    Estimated total annual reporting/recordkeeping burden on foreign 
corporations: 1200 hours.
    The estimated annual burden per respondent varies from 0 minutes to 
3 hours, depending on the circumstances of the foreign corporation, 
with an estimated average of one hour.
    Estimated number of respondents: 1,200.
    Estimated annual frequency of responses: Once.
    Estimated total annual reporting burden on shareholders: 925 hours.
    The estimated annual burden per respondent varies from 1 minute to 
one hour, depending on the circumstances of the shareholder or 
intermediary, with an estimated average of 30 minutes.
    Estimated number of respondents: 1850.
    Estimated annual frequency of shareholder or intermediary 
responses: Once every three years if no information changes and once a 
year if a change in ownership information occurs.
    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.

[[Page 34651]]

    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 and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend 26 CFR part 1. Those regulations 
amend the income inclusion test in Sec.  1.883-3 of the final 
regulations issued in TD 9087 (68 FR 51394). Those regulations also 
address a number of comments that have been received concerning other 
portions of the final section 883 regulations. The text of those 
regulations serves as the text of these regulations. The preamble to 
the temporary regulations explains the temporary regulations and these 
proposed regulations.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. 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. Therefore, a regulatory assessment is not required. 
It is hereby certified that the collection of information in these 
regulations will not have a significant economic impact on a 
significant number of U.S. small entities. This certification is based 
on the fact that these regulations apply solely to foreign 
corporations, and impose only a limited collection of information 
burden on shareholders of such corporations, which in some cases may 
include U.S. small entities. Therefore, 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, this regulation 
has been 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 (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.
    A public hearing has been scheduled for October 24, 2007, beginning 
at 10 a.m. in the IRS Auditorium of the 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 written or 
electronic comments by September 24, 2007 and an outline of the topics 
to be discussed and the time devoted to each topic (a signed original 
and eight (8) copies) by September 24, 2007. A period of 10 minutes 
will be allocated 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 proposed regulations is Patricia A. 
Bray of the Office of 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 continues to read in 
part as follows:

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

    Par. 2. Section 1.883-0 is amended by revising the entries for 
Sec. Sec.  1.883-1(g)(3) and (h)(3), 1.883-2(e)(2), 1.883-3, and 1.883-
5(d) and (e) to read as follows:


Sec.  1.883-0  Outline of major topics.

* * * * *


Sec.  1.883-1  Exclusion of income from the international operation of 
ships or aircraft.

* * * * *
    (g) * * *
    (3) [The text of the proposed entry for Sec.  1.883-1(g)(3) is the 
same as the text of the entry for Sec.  1.883-1T(g)(3) published 
elsewhere in this issue of the Federal Register].
* * * * *
    (h) * * *
    (3) * * *
    (i) through (iv) [The text of the proposed entries for Sec.  1.883-
1(h)(3)(i) through (iv) is the same as the text of the entries for 
Sec.  1.883-1T(h)(3)(i) through (iv) published elsewhere in this issue 
of the Federal Register].
* * * * *


Sec.  1.883-2  Treatment of publicly traded corporations.

* * * * *
    (e) * * *
    (2) [The text of the proposed entry for Sec.  1.883-2(e)(2) is the 
same as the text of the entry for Sec.  1.883-2T(e)(2) published 
elsewhere in this issue of the Federal Register].
* * * * *


Sec.  1.883-3  Treatment of controlled foreign corporations.

* * * * *
    [The text of the proposed entry for Sec.  1.883-3 is the same as 
the entry for Sec.  1.883-3T published elsewhere in this issue of the 
Federal Register].


Sec.  1.883-5  Effective/applicability dates.

* * * * *
    (d) and (e) [The text of the proposed entries for Sec.  1.883-5(d) 
and (e) is the same as the text of the entries for Sec.  1.883-5T(d) 
and (e) published elsewhere in this issue of the Federal Register].
    Par. 3. Section 1.883-1 is amended by revising paragraphs 
(c)(3)(i)(D), (c)(3)(i)(G), (c)(3)(i)(H), (c)(3)(i)(I), (c)(3)(ii), 
(g)(1)(ix), (g)(1)(x), (g)(1)(xi), (g)(3), (h)(1)(ii), and (h)(3) to 
read as follows:


Sec.  1.883-1  Exclusion of income from the international operation of 
ships or aircraft.

* * * * *
    (c) * * *
    (3) * * *
    (i) * * *
    (D) [The text of the proposed amendment to Sec.  1.883-
1(c)(3)(i)(D) is the same as the text of Sec.  1.883-1T(c)(3)(i)(D) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (G) through (I) [The text of the proposed amendments to Sec.  
1.883-1(c)(3)(i)(G) through (I) is the same as

[[Page 34652]]

the text of Sec.  1.883-1T(c)(3)(i)(G) through (I) published elsewhere 
in this issue of the Federal Register].
    (ii) [The text of the proposed amendment to Sec.  1.883-1(c)(3)(ii) 
is the same as the text of Sec.  1.883-1T(c)(3)(ii) published elsewhere 
in this issue of the Federal Register].
* * * * *
    (g) * * *
    (1) * * *
    (ix) through (xi) [The text of the proposed amendments to Sec.  
1.883-1(g)(1)(ix) through (xi) is the same as the text of Sec.  1.883-
1T(g)(1)(ix) through (xi) published elsewhere in this issue of the 
Federal Register].
* * * * *
    (3) [The text of the proposed amendment to Sec.  1.883-1(g)(3) is 
the same as the text of Sec.  1.883-1T(g)(3) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (h) * * *
    (1) * * *
    (ii) [The text of the proposed amendment to Sec.  1.883-1(h)(1)(ii) 
is the same as the text of Sec.  1.883-1T(h)(1)(ii) published elsewhere 
in this issue of the Federal Register].
    (2) * * *
    (3) [The text of the proposed amendment to Sec.  1.883-1(h)(3) is 
the same as the text of Sec.  1.883-1T(h)(3) published elsewhere in 
this issue of the Federal Register].
* * * * *
    Par. 4. Section 1.883-2 is amended by revising paragraphs (e)(2), 
(f)(3), and (f)(4)(ii) to read as follows:


Sec.  1.883-2  Treatment of publicly-traded corporations.

* * * * *
    (e) * * *
    (2) [The text of the proposed amendment to Sec.  1.883-2(e)(2) is 
the same as the text of Sec.  1.883-2T(e)(2) published elsewhere in 
this issue of the Federal Register].
    (f) * * *
    (3) [The text of the proposed amendment to Sec.  1.883-2(f)(3) is 
the same as the text of Sec.  1.883-2T(f)(3) published elsewhere in 
this issue of the Federal Register].
    (4) * * *
    (ii) [The text of the proposed amendment to Sec.  1.883-2(f)(4)(ii) 
is the same as the text of Sec.  1.883-2T(f)(4)(ii) published elsewhere 
in this issue of the Federal Register].
* * * * *
    Par. 5. Section 1.883-3 is revised to read as follows:


Sec.  1.883-3  Treatment of controlled foreign corporations.

    [The text of this proposed section is the same as the text of Sec.  
1.883-3T published elsewhere in this issue of the Federal Register].
    Par. 6. Section 1.883-4 is amended by revising paragraphs 
(d)(4)(i)(C), (d)(4)(i)(D), (e)(2), and (e)(3) to read as follows:


Sec.  1.883-4  Qualified shareholder stock ownership test.

* * * * *
    (d) * * *
    (4) * * *
    (i) * * *
    (C) and (D) [The text of the proposed amendments to Sec.  1.883-
4(d)(4)(i)(C) and (D) is the same as the text of Sec.  1.883-
4T(d)(4)(i)(C) and (D) published elsewhere in this issue of the Federal 
Register].
* * * * *
    (e) * * *
    (2) and (3) [The text of the proposed amendments to Sec.  1.883-
4(e)(2) and (3) is the same as the text of Sec.  1.883-4T(e)(2) and (3) 
published elsewhere in this issue of the Federal Register].
    Par. 7. Section 1.883-5 is amended by revising paragraphs (d) and 
(e) to read as follows:


Sec.  1.883-5  Effective/applicability dates.

* * * * *

    (d) [The text of the proposed amendment to Sec.  1.883-5(d) is the 
same as the text of Sec.  1.883-5T(d) published elsewhere in this issue 
of the Federal Register].
    (e) [The text of the proposed amendment to Sec.  1.883-5(e) is the 
same as the text of Sec.  1.883-5T(e) published elsewhere in this issue 
of the Federal Register].

Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.
 [FR Doc. E7-12037 Filed 6-22-07; 8:45 am]
BILLING CODE 4830-01-P