[Federal Register Volume 72, Number 121 (Monday, June 25, 2007)]
[Rules and Regulations]
[Pages 34600-34609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-12039]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9332]
RIN 1545-BG00


Exclusions From Gross Income of Foreign Corporations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations under 
section 883(a) and (c) of the Internal Revenue Code (Code), relating to 
the exclusion from gross income of income derived by certain foreign 
corporations engaged in the international operation of ships or 
aircraft. These regulations revise Sec.  1.883-3 of the final 
regulations, relating to the eligibility of controlled foreign 
corporations for the exclusion under section 883, 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, 
these regulations provide certain additional guidance under section 
883(a) and (c), including for foreign corporations that are organized 
in countries providing an exemption from taxation for certain shipping 
and air transport income solely through an income tax convention. The 
text of these temporary regulations also serves as the text of the 
proposed regulations (REG-138707-06) set forth in the Proposed Rules 
section in this issue of the Federal Register.

DATES: Effective Date: These regulations are effective on June 25, 
2007.
    Applicability Date: For dates of applicability, see Sec.  1.883-5T.

FOR FURTHER INFORMATION CONTACT: Patricia A. Bray, at (202) 622-3880 
(not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    These regulations are being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collections of information contained in these 
regulations has been reviewed, and pending receipt and evaluation of 
public comments, approved by the Office of Management and Budget under 
control number 1545-1667. Responses to these collections 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 it displays a valid 
control number assigned by the Office of Management and Budget.
    For further information concerning these collections of 
information, where to submit comments on the collections of information 
and the accuracy of the estimated burden, and suggestions for reducing 
this burden, please refer to the preamble to the cross-referencing 
notice of proposed rulemaking published in the Proposed Rules section 
of this issue of the Federal Register.
    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

1. Section 883 and the Final Regulations

    Sections 883(a)(1) and (a)(2) of the Code generally provide that 
income from the international operation of ships or aircraft derived by 
a foreign corporation will be excluded from gross income and exempt 
from U.S. taxation if the foreign country in which the corporation is 
organized grants an equivalent exemption to corporations organized in 
the United States. Section 883(c)(1) provides that a foreign 
corporation cannot qualify for the section 883(a) exemption if 50 
percent or more of the value of its stock is owned by individuals who 
are not residents of a country that grants an equivalent exemption to 
U.S. corporations. However, under section 883(c)(2), section 883(c)(1) 
does not apply to a foreign corporation that is a controlled foreign 
corporation as defined in section 957(a)(CFC). In addition, under 
section 883(c)(3), section 883(c)(1) does not apply to a foreign 
corporation whose stock is primarily and regularly traded on an 
established securities market in the

[[Page 34601]]

United States or in a foreign country that grants an equivalent 
exemption to U.S. corporations.
    On August 26, 2003, the IRS and the Treasury Department issued 
final regulations under section 883 in TD 9087 (68 FR 51394). The final 
regulations provide, in general, that a foreign corporation organized 
in a qualified foreign country and engaged in the international 
operation of ships or aircraft may exclude qualified income from gross 
income for purposes of U.S. Federal income taxation provided that the 
corporation can satisfy certain ownership and related substantiation 
and reporting requirements. A foreign corporation that meets these 
requirements is a ``qualified foreign corporation.'' A foreign country 
that grants U.S. corporations an equivalent exemption from gross income 
is a ``qualified foreign country.'' The final regulations also provide 
definitions of the terms ``qualified income'' and ``equivalent 
exemption.'' In addition, the final regulations specify how a foreign 
corporation can satisfy the ownership and related substantiation and 
reporting requirements, and the information that the foreign 
corporation must include on its U.S. income tax return in order to 
claim an exemption.
    In general, a foreign corporation must own or lease an entire ship 
or aircraft, and the ship or aircraft must carry cargo or passengers 
for hire, in order for the foreign corporation to be engaged in the 
operation of a ship or aircraft for this purpose. Section 1.883-1(e). 
Section 1.883-1(f) provides rules for determining whether income is 
derived from the international operation of a ship or aircraft. Section 
1.883-1(g)(1) provides rules for determining whether certain activities 
of a foreign corporation that is engaged in the international operation 
of ships or aircraft are so closely related to that operation as to be 
considered incidental to the international operation of ships or 
aircraft. The final regulations provide a nonexclusive list of 
activities that are considered incidental to the international 
operation of ships or aircraft. Income from these incidental activities 
is deemed to be income derived from the international operation of a 
ship or aircraft for purposes of the exclusion under section 883. 
Section 1.883-1(g)(2) also provides a nonexclusive list of activities 
that are not incidental to the international operation of ships or 
aircraft. The final regulations reserve on whether services, including 
ground services, maintenance, catering, and other services, are 
considered incidental to the international operation of ships or 
aircraft.
    Section 1.883-1(h) provides that an equivalent exemption may exist 
if a foreign country generally imposes no tax on income or specifically 
provides a domestic tax law exemption for income derived from the 
international operation of ships or aircraft. Alternatively, a foreign 
country may exchange a diplomatic note, or enter into an agreement, 
with the United States that provides for a reciprocal exemption for 
purposes of section 883. Section 1.883-1(h)(3)(i) generally provides 
that a foreign country that grants an exemption from taxation for 
income from the international operation of ships or aircraft solely 
through an income tax convention with the United States is not 
considered to grant an equivalent exemption. Thus, a corporation 
organized in such a country may not claim an exclusion under section 
883, and can only claim available treaty benefits to exempt income 
derived from international transport.
    The final regulations require that a foreign corporation must 
satisfy one of three stock ownership tests to satisfy the ownership 
requirements of section 883(c): A publicly-traded test in Sec.  1.883-
2(a), a CFC stock ownership test in Sec.  1.883-3(a), or a qualified 
shareholder stock ownership test in Sec.  1.883-4(a). Under Sec.  
1.883-3(a), a foreign corporation satisfies the CFC stock ownership 
test if it meets an ``income inclusion test'' and satisfies certain 
substantiation and reporting requirements under Sec.  1.883-3(c) and 
(d). The income inclusion test requires that more than 50 percent of 
the CFC's adjusted net foreign base company income (as defined in Sec.  
1.954-1(d) and as increased or decreased by section 952(c)) derived 
from the international operation of ships or aircraft be includible in 
the gross income of one or more U.S. citizens, individual residents of 
the United States, or domestic corporations. Section 1.883-3(b). This 
rule prevents individuals residing in foreign countries that do not 
grant an equivalent exemption to U.S. corporations from benefiting from 
the section 883 exemption by owning a CFC through a domestic 
partnership, estate or trust.
    Section 1.883-4 of the final regulations provides rules for when a 
foreign corporation satisfies the qualified shareholder stock ownership 
test. To satisfy this test, qualified shareholders must own (applying 
the attribution rules of Sec.  1.883-4(c)) more than 50 percent of the 
value of a foreign corporation's outstanding shares for half the number 
of days in the corporation's taxable year. The foreign corporation must 
also meet the substantiation and reporting requirements of Sec.  1.883-
4(d) and (e). Under the reporting requirements of Sec.  1.883-4(e), a 
foreign corporation must attach a statement with certain information to 
its Form 1120-F, ``U.S. Income Tax Return of a Foreign Corporation,'' 
including the names and addresses of individual shareholders with large 
shareholdings (at least 5 percent) in the foreign corporation.

2. Elimination of Foreign Base Company Shipping Income

    Section 415 of the American Jobs Creation Act of 2004 (Pub. L. 108-
357 (118 Stat. 1418) (AJCA) repealed section 954(a)(4) and (f), 
eliminating foreign base company shipping income as a type of foreign 
base company income, and therefore, as subpart F income. The repeal is 
effective for taxable years of foreign corporations beginning after 
December 31, 2004, and for taxable years of United States shareholders 
with or within which such taxable years of foreign corporations end. 
Section 423 of AJCA also delayed the applicability date of the final 
regulations under section 883(a) and (c) for one year, until taxable 
years beginning after September 24, 2004.
    Commentators noted that the repeal of the foreign base company 
shipping provisions created uncertainty about the application of the 
income inclusion test for CFCs that no longer have foreign base company 
income.
    On August 5, 2005, the IRS and the Treasury Department issued TD 
9218 (70 FR 45529) to conform the applicability date of the final 
regulations in light of section 423 of AJCA. The preamble to TD 9218 
also acknowledged commentators' concerns regarding the application of 
the income inclusion test after the repeal of the foreign base company 
shipping provisions. The preamble stated that a CFC that satisfied the 
income inclusion test prior to the effective date of section 415 of 
AJCA would continue to satisfy that test after the effective date of 
the legislation, provided the CFC is able to demonstrate that if the 
foreign base company shipping provisions had not been repealed, more 
than 50 percent of the its current earnings and profits derived from 
the international operation of ships or aircraft would have been 
attributable to amounts includible in the gross income of one or more 
U.S. citizens, individual residents of the United States, or domestic 
corporations (pursuant to section 951(a)(1)(A) or another provision of 
the Code) for the

[[Page 34602]]

taxable years of such persons in which the taxable year of the CFC 
ends.
    The preamble to TD 9218 also stated that the IRS and the Treasury 
Department would issue regulations to clarify the application of the 
income inclusion test, and invited further comments on the most 
appropriate way to accomplish a clarification consistent with the 
principles of the existing section 883 regulations, and the repeal of 
the foreign base company shipping provisions.

3. Issuance of Notice 2006-43

    The IRS and the Treasury Department received a number of comments 
in response to the preamble language in TD 9218 dealing with the income 
inclusion test. Generally, commentators stated that to require CFCs to 
calculate hypothetical amounts of subpart F income as though the 
foreign base company shipping provisions had not been repealed was too 
complex an approach to administer properly. Commentators proposed 
several alternative approaches they viewed as simpler to the approach 
described in TD 9218.
    After considering these comments, the IRS and the Treasury 
Department issued Notice 2006-43, ``Interim Guidance With Respect to 
the Application of Treas. Reg. Sec.  1.883-3,'' (2006-21 IRB 921 (May 
22, 2006)), which announced a new approach. Under the Notice, a CFC 
would satisfy the stock ownership test of Sec.  1.883-1(c)(2) if it met 
a ``qualified U.S. person ownership test'' and satisfied revised 
substantiation and reporting requirements. To satisfy the qualified 
U.S. person ownership test, a corporation would be required to be a CFC 
for more than half the days of its taxable year, and more than 50 
percent of the total value of the CFC's outstanding stock would have to 
be owned (within the meaning of section 958(a) as modified by the 
Notice) by one or more qualified U.S. persons for more than half the 
days of its taxable year. See Sec.  601.601(d)(2).
    These temporary regulations incorporate the rules of Notice 2006-
43, with certain amendments, and respond to comments that have been 
received concerning other portions of the existing section 883 
regulations.

4. Additional Comments

    The following additional comments were received regarding the final 
regulations.
A. Ground Services
    The final regulations reserved on whether the performance of a 
variety of ground services should be treated as activities that are 
incidental to the international operation of ships or aircraft. Section 
1.883-1(g)(3). The IRS and the Treasury Department have received a 
number of comments from the air transport industry requesting guidance 
under section 883 on the treatment of ground services, including cargo 
handling, maintenance services, catering, and customer service. 
Commentators have pointed to recent changes in the Commentaries to 
Article 8 (Shipping, Inland Waterways Transport and Air Transport) of 
the Model Tax Convention on Income and on Capital published by the 
Organisation for Economic Co-operation and Development (the OECD Model 
Convention) that clarify the circumstances under which certain services 
performed by an enterprise engaged in the operation of ships or 
aircraft in international traffic may be either ancillary or directly 
related to such operations, and thereby covered services for purposes 
of Article 8 of the OECD Model Convention.
B. U.S. Income Tax Conventions as Equivalent Exemptions
    Commentators have also suggested that countries that provide an 
exemption to U.S. corporations only through an income tax convention 
with the United States should be treated as granting an equivalent 
exemption for purposes of section 883. In support of their position, 
commentators cite the Senate Committee Report to the Tax Reform Act of 
1986 (Pub. L. 99-514 (100 Stat. 2085)), which states:

    The committee intends that a country which, as a result of a 
treaty with the United States, exempts U.S. citizens and domestic 
corporations from tax in the country on income derived from the 
operation of ships or aircraft, has an equivalent exemption, even 
though the treaty technically contains certain additional 
requirements other than residence, such as U.S. registration or 
documentation of the ship or aircraft.

(S. Rep. No. 99-313, at 343-44 (1986))

    Prior to 2001, a foreign country that provided an exemption from 
taxation for income from the international operation of ships or 
aircraft through an income tax convention was treated as granting an 
equivalent exemption for purposes of section 883. See Rev. Rul. 89-42 
(1989-1 CB 234); Rev. Rul. 97-31 (1997-2 CB 77) (supplementing Rev. 
Rul. 89-42). In 2001, however, the IRS and the Treasury Department 
reconsidered this position, and concluded that an exemption under an 
income tax convention could not constitute an equivalent exemption for 
purposes of section 883(a) because the Code and income tax conventions 
have different eligibility requirements, and provide exemptions that 
vary in scope. See Rev. Rul. 2001-48 (2001-2 CB 324) (modifying and 
superseding Rev. Rul. 97-31). The position taken in Rev. Rul. 2001-48 
was incorporated into Sec.  1.883-1(h)(3)(i) of the final regulations. 
See Sec.  601.601(d)(2).
C. Reporting Requirements Related to Qualified Shareholder Stock 
Ownership Test
    In connection with the substantiation and reporting requirements 
for the qualified shareholder stock ownership test under Sec.  1.883-
4(a), the IRS and the Treasury Department have continued to receive 
comments expressing concern over the requirement that the names and 
addresses of individual shareholders with large shareholdings (at least 
5 percent) in corporations relying on this ownership test be disclosed 
on Form 1120-F. Recent comments have suggested that in lieu of 
providing such names and addresses, taxpayers should be permitted to 
submit a sworn statement by a U.S. tax practitioner subject to Circular 
230 with their return that states that the taxpayer satisfies the 
qualified shareholder stock ownership test, and that the names and 
addresses of shareholders with large shareholdings are available for 
inspection by the IRS at the office of that such practitioner.

Explanation of Provisions

    These temporary regulations incorporate the rules of Notice 2006-43 
and also address a number of comments that have been received 
concerning other portions of the existing section 883 regulations.

1. Modifications to the Income Inclusion Test

    These temporary regulations generally adopt the qualified U.S. 
person ownership test contained in Notice 2006-43. A CFC meets the 
qualified U.S. person ownership test in Sec.  1.883-3T(b)(1) only if 
more than 50 percent of the total value of all the outstanding stock of 
the CFC is owned (within the meaning of section 958(a), as modified in 
Sec.  1.883-3T(b)(4)), by one or more qualified U.S. persons. The term 
qualified U.S. person means a U.S. citizen, resident alien, domestic 
corporation, or domestic trust described in section 501(a). For 
purposes of applying the qualified U.S. person ownership test, the 
value of the stock of the CFC that is owned (directly or indirectly) 
through bearer shares is not taken into account in the numerator, but 
is taken into account in the denominator to determine the portion of 
the overall

[[Page 34603]]

stock value that is owned by qualified U.S. persons. Section 1.883-
3T(b)(3).
    For purposes of applying the qualified U.S. person ownership test, 
the attribution rules of section 958(a) will apply to determine the 
ownership interests of qualified U.S. persons held through foreign 
entities. In addition, the temporary regulations extend the attribution 
rules of section 958(a) to domestic partnerships, domestic trusts not 
described in section 501(a), and domestic estates. In the case of these 
domestic entities, stock will be treated as owned proportionately by 
the partners, beneficiaries, grantors, or other interest holders in 
such entities, respectively, applying the rules of section 958(a) as if 
the domestic partnership, estate, or trust were a foreign partnership, 
estate, or trust, respectively. The regulations also contain conforming 
changes to the substantiation and reporting provisions in this section 
to reflect the new qualified U.S. person ownership test for CFCs. A CFC 
that fails this test will not be a qualified foreign corporation unless 
it meets either the publicly-traded test of Sec.  1.883-2(a) or the 
qualified shareholder stock ownership test of Sec.  1.883-4(a).

2. Activities Incidental to the International Operation of Ships or 
Aircraft

    The IRS and the Treasury Department recognize that guidance is 
needed on the extent to which ground services that are conducted by 
foreign corporations engaged in the international operation of ships or 
aircraft are so closely related to such operation that they are 
considered activities incidental to the international operation of 
ships or aircraft. Section 1.883-1T(g)(1)(xi) treats the provision of 
goods and services by engineers, ground and equipment maintenance 
staff, cargo handlers, catering staff, and customer services personnel, 
and the provision of facilities such as passenger lounges, counter 
space, ground handling equipment, and hanger facilities as activities 
incidental to the international operation of a ship or aircraft. The 
regulations also make clear that such services will be treated as 
incidental, whether provided to another enterprise as part of a pooling 
arrangement, alliance, or other joint venture.

3. Countries Providing an Exemption Only Through an Income Tax 
Convention

    In response to comments and further study, the IRS and the Treasury 
Department believe that it is appropriate to provide additional 
guidance on when a country that only provides for an exemption by means 
of an income tax convention with the United States will be considered 
as granting an equivalent exemption for purposes of section 883(a). 
Section 1.883-1(h)(1), which sets forth the various bases on which 
equivalent exemptions may be claimed, is broadened by Sec.  1.883-
1T(h)(1)(ii) to include a domestic tax law exemption by income tax 
convention. Section 1.883-1T(h)(3) sets out the conditions under which 
an exemption under an income tax convention may constitute an 
equivalent exemption.
    If a foreign country provides an exemption from tax under a 
shipping and air transport or gains article of an income tax convention 
with the United States, and it does not otherwise provide an equivalent 
exemption through a diplomatic note, domestic statutory law, or by 
generally not imposing income tax on foreign corporations engaged in 
the international operation of ships or aircraft, a corporation 
organized in that country may treat that income tax convention as 
providing an equivalent exemption for purposes of section 883, but only 
if the foreign corporation meets all the conditions for claiming 
benefits with respect to such income under the income tax convention, 
and the category of income for which the convention grants benefits is 
also described in Sec.  1.883-1(h)(2).
    For example, if a foreign corporation is seeking an exemption with 
respect to non-incidental container-related income, it may not treat an 
exemption provided by an income tax convention for that type of income 
as an equivalent exemption, because that category of income is not 
listed in Sec.  1.883-1(h)(2). Equivalent exemptions are determined 
separately with respect to each category of income listed in Sec.  
1.883-1(h)(2). As a result, the foreign corporation may treat an 
exemption under an income tax convention with respect to another 
category of income that is listed in Sec.  1.883-1(h)(2) (for example, 
incidental bareboat charter income) as an equivalent exemption for 
purposes of section 883.
    A foreign corporation that is entitled to treat an income tax 
convention as providing an equivalent exemption with respect to a 
particular category of income under Sec.  1.883-1T(h)(1)(ii) will not 
always qualify for an exclusion from gross income under section 883. 
For example, a corporation that is a resident of a foreign country for 
purposes of an income tax convention because that is where it is 
managed and controlled is not a qualified foreign corporation under 
Sec.  1.883-1(c)(1), and may not claim an exclusion from gross income 
under section 883, if it is not also organized in that country. 
Similarly, a foreign corporation that does not meet one of the stock 
ownership tests described in Sec.  1.883-1(c)(2) is not a qualified 
foreign corporation under Sec.  1.883-1(c)(1), and may not claim an 
exclusion from gross income under section 883, even though it would 
satisfy the limitation on benefits article under the relevant 
convention.

4. Countries That Provide an Exemption Through an Income Tax Convention 
and by Other Means

    As provided in the final regulations, a foreign corporation that 
qualifies for an exemption from tax under an income tax convention and 
an equivalent exemption under section 883 through a diplomatic note, 
domestic statutory law, or by generally imposing no income tax on 
foreign corporations engaged in the international operation of ships or 
aircraft will continue to have the choice of whether to claim an 
exemption under the income tax convention or under section 883. Section 
1.883-1T(h)(3)(ii)(A). If a foreign corporation chooses to claim an 
exemption under an income tax convention, it may also choose to claim 
an exemption under section 883 for any category of income listed in 
Sec.  1.883-1(h)(2), to the extent that such income is also exempt 
under an income tax convention. Section 1.883-1T(h)(3)(ii)(B).
    The rules provided in Sec.  1.883-1(h)(3)(iii) of the final 
regulations for certain joint ventures also continue in modified form. 
A foreign corporation resident in a country that only provides an 
exemption through an income tax convention with the United States, and 
that participates in a joint venture entity that is fiscally 
transparent for U.S. tax purposes but not under the law of the treaty 
jurisdiction, will not be able to take advantage of the new rules on 
equivalent exemptions under income tax conventions, and must rely on 
Sec.  1.883-1T(h)(3)(iii).

5. Reporting Requirements Related to Qualified Shareholder Stock 
Ownership Test

    Upon further study and review, the IRS and the Treasury Department 
have decided to bring the disclosure required under each of the stock 
ownership tests provided in Sec.  1.883-1(c)(2) into greater accord 
with the disclosure required for comparable stock ownership tests with 
similar tax policy objectives. For example, reporting in conjunction 
with the stock ownership tests found in the branch profits tax 
regulations and limitation on benefits articles in U.S.

[[Page 34604]]

income tax conventions does not require the disclosure of certain 
shareholder names and addresses to the IRS. See Sec.  1.884-5 and Form 
8833, ``Treaty-Based Return Position Disclosure Under Section 6114 or 
7701(b).'' Consequently, these regulations have eliminated the 
requirement that the names and addresses of shareholders in 
corporations relying on the various stock ownership tests in Sec.  
1.883-1(c)(1) (that is, under the closely held exception to the 
publicly-traded test, the CFC stock ownership test, and the qualified 
shareholder stock ownership test) be disclosed on Form 1120-F. See 
Sec. Sec.  1.883-2T(e), 1.883-3T(c), and 1.883-4T(d).
    Foreign corporations will continue to have to report on Form 1120-F 
certain summary information regarding the shareholdings that are relied 
upon to satisfy the applicable stock ownership test (for example, 
aggregate percentage of interests held by shareholders by country of 
residence). Under new Sec.  1.883-1T(c)(3)(i)(G), they also will have 
to report whether any shareholder whose stock holdings are relied upon 
to meet an ownership test holds such stock either directly or 
indirectly through bearer shares. In addition, each qualified 
shareholder and intermediary (if any) must declare under penalties of 
perjury that its ownership interest in the foreign corporation or any 
corporate intermediary is not held through bearer shares. Conforming 
amendments to the substantiation and documentation requirements in 
Sec. Sec.  1.883-2T(e) and 1.883-4T(d)(4) have been made.
    Commentators suggested alternative methods for making the names and 
addresses of 5-percent shareholders available to the IRS. However, 
these methods were not adopted due to the complexity of the regimes 
proposed, and questions as to whether such approaches would in fact 
address the commentators' concerns. Instead, the IRS and the Treasury 
Department chose to rely on procedures already in place in Sec.  1.883-
1(c)(3) and as modified by Sec.  1.883-1T(c)(3), which requires, among 
other things, that a foreign corporation obtain ownership statements to 
document and substantiate all representations it has made on Form 1120-
F, and that it provide substantiating documentation in response to a 
written request from the Commissioner. Such information must be 
provided to the IRS within 30 days (rather than the 60 days allowed by 
Sec.  1.883-1(c)(3)) of a written request by the Commissioner, because 
the names and addresses of relevant shareholders will no longer be 
provided on the Form 1120-F by taxpayers. See Sec.  1.883-1T(c)(3).
    The IRS and the Treasury Department believe that these revised 
reporting rules will simultaneously reduce disclosure concerns raised 
by taxpayers and encourage greater reporting of the information the IRS 
needs to administer section 883. The IRS and the Treasury Department 
also believe these changes, in conjunction with the remaining reporting 
requirements in Sec. Sec.  1.883-2(f), 1.883-2T(f), 1.883-3T(d), 1.883-
4(e), and 1.883-4T(e), will provide sufficient information to ensure 
the sound and efficient administration of section 883.

Effective Dates

    See Sec.  1.883-5T(d) for effective date of these temporary 
regulations and Sec.  1.883-5T(e) for applicability dates that apply to 
these temporary regulations.

Effect on Other Documents

    The following publications are modified as of June 25, 2007:

Notice 2006-43 (2006-21 IRB 921 (May 22, 2006))
Rev. Rul. 2001-48 (2001-2 CB 324)

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 has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. For 
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), 
please refer to the Special Analyses section of the preamble to the 
cross-reference notice of proposed rulemaking published elsewhere in 
this issue of the Federal Register. Pursuant to section 7805(f) of the 
Code, these regulations 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 Patricia A. Bray of 
the Office of Associate Chief Counsel (International). However, other 
personnel from the IRS and the Treasury Department participated in 
their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR parts 1 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 1.883-0 is amended by:
0
1. Revising the entries for Sec.  1.883-1(g)(3) and (h)(3).
0
2. Revising the entry for Sec.  1.883-2(e)(2).
0
3. Revising the entry for Sec.  1.883-3.
0
4. Adding the entries for Sec.  1.883-5(d) and (e).
    The revisions and additions 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) [Reserved]. For further guidance, see the entry for Sec.  
1.883-1T(g)(3).
* * * * *
    (h) * * *
    (3) [Reserved]. For further guidance, see the entries for Sec.  
1.883-1T(h)(3).
* * * * *


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

* * * * *
    (e)(2) [Reserved]. For further guidance, see the entry for Sec.  
1.883-2T(e)(2).
* * * * *


Sec.  1.883-3  Treatment of controlled foreign corporations.

    [Reserved]. For further guidance, see the entry for Sec.  1.883-3T.
* * * * *


Sec.  1.883-5  Effective/applicability dates.

* * * * *
    (d) [Reserved]. For further guidance, see the entry for Sec.  
1.883-5T(d).
    (e) [Reserved]. For further guidance, see the entry for Sec.  
1.883-5T(e).

0
Par. 3. Section 1.883-0T is added to read as follows:


Sec.  1.883-0T  Outline of major topics (temporary).

    This section lists the major paragraphs contained in Sec. Sec.  
1.883-1T through 1.883-5T.

[[Page 34605]]

Sec.  1.883-1T Exclusion of income from the international operation 
of ships or aircraft (temporary).

    (a) through (c)(3)(i) [Reserved]. For further guidance, see 
entries for Sec.  1.883-1(a) through (c)(3)(i).
    (ii) Further documentation.
    (A) General rule.
    (B) Names and addresses of certain shareholders.
    (c)(4) through (g)(2) [Reserved]. For further guidance, see 
entries for Sec.  1.883-1(c)(4) through (g)(2).
    (3) Other services. [Reserved].
    (g)(4) through (h)(2) [Reserved]. For further guidance, see 
entries for Sec.  1.883-1(g)(4) through (h)(2).
    (3) Special rules with respect to income tax conventions.
    (i) Countries with only an income tax convention.
    (ii) Countries with both an income tax convention and an 
equivalent exemption.
    (A) General rule.
    (B) Special rule for simultaneous benefits under section 883 and 
an income tax convention.
    (iii) Participation in certain joint ventures.
    (iv) Independent interpretation of income tax conventions.
    (h)(4) through (j) [Reserved]. For further guidance, see entries 
for Sec.  1.883-1(h)(4) through (j).

Sec.  1.883-2T Treatment of publicly-traded corporations 
(temporary).

    (a) through (e)(1) [Reserved]. For further guidance, see entries 
for Sec.  1.883-2(a) through (e)(1).
    (2) Availability and retention of documents for inspection.
    (f) [Reserved]. For further guidance, see entry for Sec.  1.883-
2(f).

Sec.  1.883-3T Treatment of controlled foreign corporations 
(temporary).

    (a) General rule.
    (b) Qualified U.S. person ownership test.
    (1) General rule.
    (2) Qualified U.S. person.
    (3) Treatment of bearer shares.
    (4) Attribution of ownership through certain domestic entities.
    (5) Examples.
    (c) Substantiation of CFC stock ownership.
    (1) In general.
    (2) Ownership statements from qualified U.S. persons.
    (3) Ownership statements from intermediaries.
    (4) Three-year period of validity.
    (5) Availability and retention of documents for inspection.
    (d) Reporting requirements.

Sec.  1.883-5T Effective/applicability dates (temporary).

    (a) through (c) [Reserved]. For further guidance, see entries 
for Sec.  1.883-5(a) through (c).
    (d) Effective date.
    (e) Applicability dates.
    (f) Expiration date.

0
Par. 4. Section 1.883-1 is amended by:
0
1. Revising paragraphs (c)(3)(i)(D), (c)(3)(ii), (g)(1)(ix), (g)(1)(x), 
(g)(3), (h)(1)(ii), and (h)(3).
0
2. Revising paragraphs (c)(3)(i)(G) and (H).
0
3. Adding new paragraph (c)(3)(i)(I).
0
4. Adding paragraph (g)(1)(xi).
0
5. Revising paragraph (g)(3).
    The revisions and additions read as follows:


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

* * * * *
    (c) * * *
    (3) * * *
    (i) * * *
    (D) [Reserved]. For further guidance, see Sec.  1.883-
1T(c)(3)(i)(D).
* * * * *
    (G) through (I) [Reserved]. For further guidance, see Sec.  1.883-
1T(c)(3)(i)(G) through (I).
    (ii) [Reserved]. For further guidance, see Sec.  1.883-
1T(c)(3)(ii).
* * * * *
    (g) * * *
    (1) * * *
    (ix) through (xi) [Reserved]. For further guidance, see Sec.  
1.883-1T(g)(1)(ix) through (xi).
    (2) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.883-1T(g)(3).
* * * * *
    (h) * * *
    (1) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.883-
1T(h)(1)(ii).
* * * * *
    (3) [Reserved]. For further guidance, see Sec.  1.883-1T(h)(3).
* * * * *

0
Par. 5. Section 1.883-1T is added to read as follows:


Sec.  1.883-1T  Exclusion of income from the international operation of 
ships or aircraft (temporary).

    (a) through (c)(3)(i)(C) [Reserved]. For further guidance, see 
Sec.  1.883-1(a) through (c)(3)(i)(C).
    (D) The applicable authority for an equivalent exemption, for 
example, the citation of a statute in the country where the corporation 
is organized, a diplomatic note between the United States and such 
country, or an income tax convention between the United States and such 
country in the case of a corporation described in paragraphs (h)(3)(i) 
through (iii) of this section;
    (c)(3)(i)(E) through (F) [Reserved]. For further guidance, see 
Sec.  1.883-1(c)(3)(i)(E) through (F).
    (G) A statement that none of the foreign corporation's shares or 
shares of any intermediary entity, if any, that are held by qualified 
shareholders and relied on to satisfy any of the stock ownership tests 
described in Sec.  1.883-1(c)(2) are issued in bearer form;
    (H) Any other information required under Sec.  1.883-2(f), Sec.  
1.883-2T(f), Sec.  1.883-3T(d), Sec.  1.883-4(e), or Sec.  1.883-4T(e), 
as applicable; and
    (I) Any other relevant information specified in Form 1120-F, ``U.S. 
Income Tax Return of a Foreign Corporation,'' and its accompanying 
instructions.
    (ii) Further documentation--(A) General rule. Except as provided in 
this paragraph (c)(3)(ii)(B), if the Commissioner requests in writing 
that the foreign corporation document or substantiate representations 
made under paragraph (c)(3)(i) of this section, or under Sec.  1.883-
2(f), Sec.  1.883-2T(f), Sec.  1.883-3T(d), Sec.  1.883-4(e), or Sec.  
1.883-4T(e), as applicable, the foreign corporation must provide the 
documentation or substantiation within 60 days following the written 
request. If the foreign corporation does not provide the documentation 
and substantiation requested within the 60-day period, but demonstrates 
that the failure was due to reasonable cause and not willful neglect, 
the Commissioner may grant the foreign corporation a 30-day extension. 
Whether a failure to obtain the documentation or substantiation in a 
timely manner was due to reasonable cause and not willful neglect shall 
be determined by the Commissioner after considering all the facts and 
circumstances.
    (B) Names and addresses of certain shareholders. If the 
Commissioner requests the names and permanent addresses of individual 
qualified shareholders of a foreign corporation, as represented on each 
such individual's ownership statement, to substantiate the requirements 
of the exception to the closely-held test in the publicly-traded test 
in Sec.  1.883-2(e), the qualified shareholder stock ownership test in 
Sec.  1.883-4(a), or the qualified U.S. person ownership test in Sec.  
1.883-3T(b), the foreign corporation must provide the documentation and 
substantiation within 30 days following the written request. If the 
foreign corporation does not provide the documentation and 
substantiation within the 30-day period, but demonstrates that the 
failure was due to reasonable cause and not willful neglect, the 
Commissioner may grant the foreign corporation a 30-day extension. 
Whether a failure to obtain the documentation or substantiation in a 
timely manner was due to reasonable cause and not willful neglect shall 
be determined by the Commissioner after considering all the facts and 
circumstances.

[[Page 34606]]

    (c)(4) through (g)(1)(viii) [Reserved]. For further guidance see 
Sec.  1.883-1(c)(4) through (g)(1)(viii).
    (ix) Arranging by means of a space or slot charter for the carriage 
of cargo listed on a bill of lading or airway bill or similar document 
issued by the foreign corporation on the ship or aircraft of another 
corporation engaged in the international operation of ships or 
aircraft;
    (x) The provision of containers and related equipment by the 
foreign corporation in connection with the international carriage of 
cargo for use by its customers, including short-term use within the 
United States immediately preceding or following the international 
carriage of cargo (and for this purpose, a period of five days or less 
shall be presumed to be short-term); and
    (xi) The provision of goods and services by engineers, ground and 
equipment maintenance staff, cargo handlers, catering staff, and 
customer services personnel, and the provision of facilities such as 
passenger lounges, counter space, ground handling equipment, and hanger 
facilities.
    (2) [Reserved]. For further guidance, see Sec.  1.883-1(g)(2).
    (3) Other services. [Reserved].
    (g)(4) through (h)(1)(i) [Reserved]. For further guidance, see 
Sec.  1.883-1(g)(4) through (h)(1)(i).
    (ii) Specifically provides a domestic law tax exemption for income 
derived from the international operation of ships or aircraft, either 
by statute, decree, income tax convention, or otherwise; or
    (h)(1)(iii) and (h)(2) [Reserved]. For further guidance, see Sec.  
1.883-1(h)(1)(iii) and (h)(2).
    (3) Special rules with respect to income tax conventions--(i) 
Countries with only an income tax convention. If a foreign country only 
provides an exemption from tax for profits from the operation of ships 
or aircraft in international transport or international traffic under 
the shipping and air transport or gains article of an income tax 
convention with the United States, a foreign corporation organized in 
that country may treat that exemption as an equivalent exemption for 
purposes of section 883, but only if--
    (A) The foreign corporation meets all the conditions for claiming 
benefits with respect to such profits under the income tax convention; 
and
    (B) The profits that are exempt pursuant to the income tax 
convention also fall within a category of income described in 
paragraphs (h)(2)(i) through (viii) of this section.
    (ii) Countries with both an income tax convention and an equivalent 
exemption--(A) General rule. If a foreign country provides an exemption 
from tax for profits from the operation of ships or aircraft in 
international transport or international traffic under the shipping and 
air transport or gains article of an income tax convention, and that 
foreign country also provides an equivalent exemption under section 883 
by some other means for one or more categories of income under 
paragraph (h)(2) of this section, the foreign corporation may choose 
annually whether to claim an exemption under section 883 or the income 
tax convention. Except as provided in this paragraph (h)(3)(ii)(B), any 
such choice will apply with respect to all categories of qualified 
income of the foreign corporation and cannot be made separately with 
respect to different categories of income. If a foreign corporation 
bases its claim for an exemption on section 883, it must satisfy all of 
the requirements of this section to qualify for an exemption from U.S. 
income tax. If the foreign corporation bases its claim for an exemption 
on an income tax convention, it must satisfy all of the requirements 
for claiming benefits under the income tax convention. See Sec.  1.883-
4(b)(3) for rules about satisfying the stock ownership test of Sec.  
1.883-1(c)(2) using shareholders resident in a foreign country that 
offers an exemption under an income tax convention.
    (B) Special rule for simultaneous benefits under section 883 and an 
income tax convention. If a foreign corporation is organized in a 
foreign country that offers an exemption from tax under an income tax 
convention and also by some other means, such as by diplomatic note or 
domestic statutory law, with respect to the same category of income, 
and the foreign corporation chooses to claim an exemption under an 
income tax convention under paragraph (h)(3)(ii)(A) of this section, it 
may simultaneously claim an exemption under section 883 with respect to 
a category of income exempt from tax by such other means if it 
satisfies the requirements of paragraphs (h)(3)(i)(A) and (B) of this 
section for each category of income, satisfies one of the stock 
ownership tests of paragraph (c)(2) of this section, and complies with 
the substantiation and reporting requirements in paragraph (c)(3) of 
this section.
    (iii) Participation in certain joint ventures. A foreign 
corporation resident in a foreign country that provides an exemption 
only through an income tax convention will not be precluded from 
treating that exemption as an equivalent exemption if it derives income 
through a participation, directly or indirectly, in a pool, 
partnership, strategic alliance, joint operating agreement, code-
sharing arrangement, or other joint venture described in Sec.  1.883-
1(e)(2), and the foreign corporation would be ineligible to claim 
benefits under the convention for that category of income solely 
because the joint venture was not fiscally transparent, within the 
meaning of Sec.  1.894-1(d)(3)(iii)(A), with respect to that category 
of income under the income tax laws of the foreign corporation's 
country of residence.
    (iv) Independent interpretation of income tax conventions. Nothing 
in Sec. Sec.  1.883-1 through 1.883-5, or in this section and 
Sec. Sec.  1.883-2T through 1.883-5T, affects the rights or obligations 
under any income tax convention. The definitions provided in Sec. Sec.  
1.883-1 through 1.883-5, or in this section and Sec. Sec.  1.883-2T 
through 1.883-5T, shall not give meaning to similar terms used in any 
income tax convention, or provide guidance regarding the scope of any 
exemption provided by such convention, unless the income tax convention 
entered into force after August 26, 2003, and it, or its legislative 
history, explicitly refers to section 883 and guidance promulgated 
under that section for its meaning.

0
Par. 6. 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) [Reserved]. For further guidance, see Sec.  1.883-2T(e)(2).
    (f) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.883-2T(f)(3).
    (4) * * *
    (ii) [Reserved]. For further guidance, see Sec.  1.883-
2T(f)(4)(ii).
* * * * *

0
Par. 7. Section 1.883-2T is added to read as follows:


Sec.  1.883-2T  Treatment of publicly-traded corporations (temporary).

    (a) through (e)(1) [Reserved]. For further guidance, see Sec.  
1.883-2(a) through (e)(1).
    (2) Availability and retention of documents for inspection. The 
documentation described in Sec.  1.883-2(e)(1) must be retained by the 
corporation seeking qualified foreign corporation status until the 
expiration of the statute of limitations for the taxable year of the 
foreign corporation to which the documentation relates. Such 
documentation must be made available for inspection by the Commissioner 
at such time and such place as the

[[Page 34607]]

Commissioner may request in writing in accordance with Sec.  1.883-
1T(c)(3)(ii)(A) or (B), as applicable.
    (f) through (f)(2) [Reserved]. For further guidance, see Sec.  
1.883-2(f) through (f)(2).
    (3) A description of each class of stock relied upon to meet the 
requirements of Sec.  1.883-2(d), including whether the class of stock 
is issued in registered or bearer form, the number of issued and 
outstanding shares in that class of stock as of the close of the 
taxable year, and the value of each class of stock in relation to the 
total value of all the corporation's shares outstanding as of the close 
of the taxable year;
    (4) and (4)(i) [Reserved]. For further guidance, see Sec.  1.883-
2(f)(4) and (f)(4)(i).
    (ii) With respect to all qualified shareholders who own directly, 
or by application of the attribution rules in Sec.  1.883-4(c), stock 
in the closely-held block of stock upon which the corporation intends 
to rely to satisfy the exception to the closely-held test of Sec.  
1.883-2(d)(3)(ii)--
    (A) The total number of qualified shareholders, as defined in Sec.  
1.883-4(b)(1);
    (B) The total percentage of the value of the shares owned, directly 
or indirectly, by such qualified shareholders by country of residence, 
determined under Sec.  1.883-4(b)(2) (residence of individual 
shareholders) or Sec.  1.883-4(d)(3) (special rules for residence of 
certain shareholders); and
    (C) The days during the taxable year of the corporation that such 
qualified shareholders owned, directly or indirectly, their shares in 
the closely held block of stock.
    (5) [Reserved]. For further guidance, see Sec.  1.883-2(f)(5).

0
Par. 8. Section 1.883-3 is revised to read as follows:


Sec.  1.883-3  Treatment of controlled foreign corporations.

    [Reserved]. For further guidance, see Sec.  1.883-3T.

0
Par. 9. Section 1.883-3T is added to read as follows:


Sec.  1.883-3T  Treatment of controlled foreign corporations 
(temporary).

    (a) General rule. A foreign corporation satisfies the stock 
ownership test of Sec.  1.883-1(c)(2) if it is a controlled foreign 
corporation (as defined in section 957(a)), satisfies the qualified 
U.S. person ownership test in paragraph (b) of this section, and 
satisfies the substantiation and reporting requirements of paragraphs 
(c) and (d) of this section, respectively. A CFC that fails the 
qualified U.S. person ownership test of paragraph (b) of this section 
will not satisfy the stock ownership test of Sec.  1.883-1(c)(2) unless 
it meets either the publicly-traded test of Sec.  1.883-2(a) or the 
qualified shareholder stock ownership test of Sec.  1.883-4(a).
    (b) Qualified U.S. person ownership test--(1) General rule. A 
foreign corporation will satisfy the requirements of the qualified U.S. 
person ownership test only if it--
    (i) Is a CFC for more than half the days in the corporation's 
taxable year; and
    (ii) More than 50 percent of the total value of its outstanding 
stock is owned (within the meaning of section 958(a) and paragraph 
(b)(4) of this section) by one or more qualified U.S. persons for more 
than half the days of the CFC's taxable year, provided such days of 
ownership are concurrent with the time period during which the foreign 
corporation satisfies the requirement in paragraph (b)(1)(i) of this 
section.
    (2) Qualified U.S. person. For purposes of this section, the term 
qualified U.S. person means a U.S. citizen, resident alien, domestic 
corporation, or domestic trust described in section 501(a), but only if 
the person provides the CFC with an ownership statement as described in 
paragraph (c)(2) of this section, and the CFC meets the reporting 
requirements of paragraph (d) of this section with respect to that 
person.
    (3) Treatment of bearer shares. For purposes of applying the 
qualified U.S. person ownership test, the value of the stock of a CFC 
that is owned (directly or indirectly) through bearer shares by 
qualified U.S. persons is not taken into account in the numerator of 
the fraction, but is taken into account in the denominator to determine 
the portion of the value of stock owned by qualified U.S. persons.
    (4) Attribution of ownership through certain domestic entities. For 
purposes of applying the qualified U.S. person ownership test of 
paragraph (b)(1) of this section, stock owned, directly or indirectly, 
by or for a domestic partnership, domestic trust not described in 
section 501(a), or domestic estate, shall be treated as owned 
proportionately by its partners, beneficiaries, grantors, or other 
interest holders, respectively, applying the rules of section 958(a) as 
if such domestic entity were a foreign entity. Stock considered to be 
owned by a person by reason of the preceding sentence shall, for 
purposes of applying such sentence, be treated as actually owned by 
such person.
    (5) Examples. The qualified U.S. person ownership test of paragraph 
(b)(1) of this section is illustrated in the following examples:

    Example 1. Ship Co is a CFC for more than half the days of Ship 
Co's taxable year. Ship Co is organized in a qualified foreign 
country. All of its shares are owned by a domestic partnership for 
the entire taxable year. All of the partners in the domestic 
partnership are citizens and residents of foreign countries. Ship Co 
fails the qualified U.S. person ownership test of paragraph (b)(1) 
of this section because none of the value of Ship Co's stock is 
owned, applying the attribution rules of paragraph (b)(4) of this 
section, for at least half the number of days of Ship Co's taxable 
year, by one or more qualified U.S. persons. Therefore, Ship Co must 
satisfy the qualified shareholder stock ownership test of Sec.  
1.883-4(a) in order to satisfy the stock ownership test of Sec.  
1.883-1(c)(2), and be considered a qualified foreign corporation.
    Example 2. Ship Co is a CFC for more than half the days of its 
taxable year. Ship Co is organized in a qualified foreign country. 
Corp A, a foreign corporation whose stock is owned by a citizen and 
resident of a foreign country, owns 40 percent of the value of the 
stock of Ship Co for the entire taxable year. X, a domestic 
partnership, owns the remaining 60 percent of the value of the stock 
of Ship Co for Ship Co's entire taxable year. X is owned by 20 
partners, all of whom are U.S. citizens and each of whom has owned a 
5-percent interest in X for the entire taxable year of Ship Co. Ship 
Co satisfies the qualified U.S. person ownership test of paragraph 
(b)(1) of this section because 60 percent of the value of the stock 
of Ship Co is owned, applying the attribution of ownership rules of 
paragraph (b)(4) of this section, for at least half the number of 
days of Ship Co's taxable year by the partners of X, who are all 
qualified U.S. persons as defined in paragraph (b)(2) of this 
section. If Ship Co satisfies the substantiation and reporting 
requirements of paragraphs (c) and (d) of this section, it will meet 
the stock ownership test of Sec.  1.883-1(c)(2).

    Example 3. Ship Co is a foreign corporation organized in a 
qualified foreign country. Ship Co has two classes of stock, Class A 
representing 60 percent of the vote and value of all the shares 
outstanding of Ship Co, and Class B representing the remaining 40 
percent of the vote and value of Ship Co. A, a U.S. citizen, holds 
for the entire taxable year all of the Class A stock, which is 
issued in bearer form, and B, a nonresident alien, owns all the 
Class B stock, which is in registered form. Ship Co cannot satisfy 
the qualified U.S. person ownership test of paragraph (b)(1) of this 
section because A's bearer shares cannot be taken into account as 
being owned by a qualified U.S. person in determining if the 
qualified U.S. person ownership test has been met; the shares are, 
however, taken into account in determining the total value of Ship 
Co's outstanding shares.

    (c) Substantiation of CFC stock ownership--(1) In general. A 
foreign

[[Page 34608]]

corporation that relies on this CFC test to satisfy the stock ownership 
test of Sec.  1.883-1(c)(2) must establish all the facts necessary to 
demonstrate to the Commissioner that it satisfies the qualified U.S. 
person ownership test of paragraph (b)(1) of this section. 
Specifically, the CFC must obtain a written ownership statement, signed 
under penalties of perjury by an individual authorized to sign that 
person's Federal tax or information return, from--
    (i) Each qualified U.S. person upon whose stock ownership it relies 
to meet this test; and
    (ii) Each domestic intermediary described in paragraph (b)(4) of 
this section, each foreign intermediary (including a foreign 
corporation, partnership, trust, or estate), and mere legal owners or 
record holders acting as nominees standing in the chain of ownership 
between each such qualified U.S. person and the CFC, if any.
    (2) Ownership statements from qualified U.S. persons. A qualified 
U.S. person ownership statement must contain the following information:
    (i) The qualified U.S. person's name, permanent address, and 
taxpayer identification number.
    (ii) If the qualified U.S. person owns shares directly in the CFC, 
the number of shares of each class of stock of the CFC owned by the 
qualified person, the period of time during the taxable year of the CFC 
when the person owned the stock, and a representation that its interest 
in the CFC is not held through bearer shares.
    (iii) If the qualified person owns an indirect interest in the CFC 
through an intermediary described in paragraph (c)(1)(ii) of this 
section, the name of that intermediary, the amount and nature of the 
interest in the intermediary, the period of time during the taxable 
year of the CFC when the person held such interest, and, in the case of 
an interest in a foreign corporate intermediary, a representation that 
such interest is not held through bearer shares.
    (iv) Any other information as specified in guidance published by 
the Internal Revenue Service (see Sec.  601.601(d)(2) of this chapter).
    (3) Ownership statements from intermediaries. An intermediary 
ownership statement required of an intermediary described in paragraph 
(c)(1)(ii) of this section must contain the following information:
    (i) The intermediary's name, permanent address, and taxpayer 
identification number, if any.
    (ii) If the intermediary directly owns stock in the CFC, the number 
of shares of each class of stock of the CFC owned by the intermediary, 
the period of time during the taxable year of the CFC when the 
intermediary owned the stock, and a representation that such interest 
is not held through bearer shares.
    (iii) If the intermediary indirectly owns the stock of the CFC, the 
name and address of each intermediary standing in the chain of 
ownership between it and the CFC, the period of time during the taxable 
year of the CFC when the intermediary owned the interest, the 
percentage of interest it holds indirectly in the CFC, and, in the case 
of a foreign corporate intermediary, a representation that its interest 
is not held through bearer shares.
    (iv) Any other information as specified in guidance published by 
the Internal Revenue Service (see Sec.  601.601(d)(2) of this chapter).
    (4) Three-year period of validity. The rules of Sec.  1.883-
4(d)(2)(ii) apply for purposes of determining the validity of the 
ownership statements required under paragraph (c)(2) of this section.
    (5) Availability and retention of documents for inspection. The 
documentation described in this paragraph (c) must be retained by the 
corporation seeking qualified foreign corporation status (the CFC) 
until the expiration of the statute of limitations for the taxable year 
of the CFC to which the documentation relates. Such documentation must 
be made available for inspection by the Commissioner at such place as 
the Commissioner may request in writing in accordance with Sec.  1.883-
1T(c)(3)(ii).
    (d) Reporting requirements. A foreign corporation that relies on 
the CFC test of this section to satisfy the stock ownership test of 
Sec.  1.883-1(c)(2) must provide the following information in addition 
to the information required by Sec.  1.883-1(c)(3) to be included in 
its Form 1120-F, ``U.S. Income Tax Return of a Foreign Corporation,'' 
for the taxable year. The information must be based upon the 
documentation received by the foreign corporation pursuant to paragraph 
(c) of this section and must be current as of the end of the 
corporation's taxable year--
    (1) The percentage of the value of the shares of the CFC that is 
owned by all qualified U.S. persons identified in paragraph (c)(2) of 
this section, applying the attribution of ownership rules of paragraph 
(b)(4) of this section;
    (2) The period during which such qualified U.S. persons held such 
stock;
    (3) The period during which the foreign corporation was a CFC;
    (4) A statement that the CFC is directly held by qualified U.S. 
persons and does not have any bearer shares outstanding or, in the 
alternative, that it is not relying on direct or indirect ownership of 
such shares to meet the qualified U.S. person ownership test; and
    (5) Any other relevant information specified by Form 1120-F, and 
its accompanying instructions, or in guidance published by the Internal 
Revenue Service (see Sec.  601.601(d)(2) of this chapter).

0
Par. 10. Section 1.883-4 is amended by:
0
1. Revising paragraphs (d)(4)(i)(C) and (d)(4)(i)(D).
0
2. Removing paragraph (e)(2).
0
3. Redesignating paragraphs (e)(3) and (e)(4) as paragraphs (e)(2) and 
(e)(3), respectively, and revising them.
    The revisions read as follows:


Sec.  1.883-4  Qualified shareholder stock ownership test.

* * * * *
    (d) * * *
    (4) * * *
    (i) * * *
    (C) and (D) [Reserved]. For further guidance, see Sec.  1.883-
4T(d)(4)(i)(C) and (D).
    (e) * * *
    (2) and (3) [Reserved]. For further guidance, see Sec.  1.883-
4T(e)(2) and (3).

0
Par. 11. Section 1.883-4T is added to read as follows:


Sec.  1.883-4T  Qualified shareholder stock ownership test (temporary).

    (a) through (d)(4)(i)(B) [Reserved]. For further guidance see Sec.  
1.883-4(a) through (d)(4)(i)(B).
    (C) If the individual directly owns stock in the corporation 
seeking qualified foreign corporation status, the name of the 
corporation, the number of shares in each class of stock of the 
corporation that are so owned, with a statement that such shares are 
not issued in bearer form, and the period of time during the taxable 
year of the foreign corporation when the individual owned the stock;
    (D) If the individual directly owns an interest in a corporation, 
partnership, trust, estate, or other intermediary that directly or 
indirectly owns stock in the corporation seeking qualified foreign 
corporation status, the name of the intermediary, the number and class 
of shares or the amount and nature of the interest of the individual in 
such intermediary, and, in the case of a corporate intermediary, a 
statement that such shares are not held in bearer form, and the period 
of time during the taxable year of the foreign corporation seeking 
qualified foreign corporation status when the individual held such 
interest;

[[Page 34609]]

    (d)(4)(i)(E) through (e)(1) [Reserved]. For further guidance see 
Sec.  1.883-4(d)(4)(i)(E) through (e)(1).
    (2) With respect to all qualified shareholders relied upon to 
satisfy the 50 percent ownership test of Sec.  1.883-4(a), the total 
number of such qualified shareholders as defined in Sec.  1.883-
4(b)(1); the total percentage of the value of the outstanding shares 
owned, applying the attribution rules of Sec.  1.883-4(c), by such 
qualified shareholders by country of residence or organization, 
whichever is applicable; and the period during the taxable year of the 
foreign corporation that such stock was held by qualified shareholders; 
and
    (3) Any other relevant information specified by the Form 1120-F, 
``U.S. Income Tax Return of a Foreign Corporation,'' and its 
accompanying instructions, or in guidance published by the Internal 
Revenue Service (see Sec.  601.601(d)(2) of this chapter).
0
Par. 12. Section 1.883-5 is amended by revising the heading and adding 
paragraphs (d) and (e) to read as follows:


Sec.  1.883-5  Effective/applicability dates.

* * * * *
    (d) through (e) [Reserved]. For further guidance, see Sec.  1.883-
5T(d) through (e).

0
Par. 13. Section 1.883-5T is added to read as follows:


Sec.  1.883-5T  Effective/applicability dates (temporary).

    (a) through (c) [Reserved]. For further guidance, see Sec.  1.883-
5(a) through (c).
    (d) Effective date. These regulations are effective on June 25, 
2007.
    (e) Applicability dates. Sections 1.883-1T, 1.883-2T, 1.883-3T, and 
1.883-4T are applicable to taxable years of the foreign corporation 
beginning after June 25, 2007. Taxpayers may elect to apply Sec.  
1.883-3T to any open taxable years of the foreign corporation beginning 
on or after December 31, 2004.
    (f) Expiration date. The applicability of Sec. Sec.  1.883-1T, 
1.883-2T, 1.883-3T, and 1.883-4T expires on or before June 22, 2010.

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

0
Par. 14. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


0
Par. 15. In Sec.  602.101, paragraph (b) is amended by adding entries 
in numerical order to the table to read as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                            Current OMB
   CFR part or section where identified and described       Control No.
------------------------------------------------------------------------
 
                                * * * * *
Sec.   1.883-1T.........................................       1545-1667
Sec.   1.883-2T.........................................       1545-1667
Sec.   1.883-3T.........................................       1545-1667
Sec.   1.883-4T.........................................       1545-1667
Sec.   1.883-5T.........................................       1545-1667
 
                                * * * * *
------------------------------------------------------------------------


Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.
    Approved: June 14, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
 [FR Doc. E7-12039 Filed 6-22-07; 8:45 am]
BILLING CODE 4830-01-P