[Federal Register Volume 72, Number 134 (Friday, July 13, 2007)]
[Rules and Regulations]
[Pages 38475-38477]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-13587]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9338]
RIN 1545-BG11


Information Returns Required with Respect to Certain Foreign 
Corporations and Certain Foreign-Owned Domestic Corporations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations that provide guidance 
under sections 6038 and 6038A of the Internal Revenue Code (Code). The 
final regulations clarify the information required to be furnished 
regarding certain related party transactions of certain foreign 
corporations and certain foreign-owned domestic corporations. The final 
regulations also increase the amount of certain penalties, and make 
certain other changes, to reflect the statutory changes made by the 
Taxpayer Relief Act of 1997.

DATES: Effective Date: These regulations are effective July 13, 2007.
    Applicability Date: For dates of applicability, see Sec. Sec.  
1.6038-2(m) and 1.6038A-2(h).

FOR FURTHER INFORMATION CONTACT: Kate Y. Hwa (202) 622-3840 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-2020. Responses to this collection 
of information are mandatory.
    The collection of information is in Sec.  1.6038-2(f)(11). This 
information is required by the IRS pursuant to section 6038 of the 
Code. The likely recordkeepers are business or other for-profit 
institutions. The estimated burden is as follows:
    Estimated total annual reporting and/or recordkeeping burden: 1250 
hours.
    Estimated average annual burden per respondent: 15 minutes.
    Estimated number of respondents: 5,000.
    Estimated annual frequency of responses: once.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number assigned by the Office of 
Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains final amendments to the Income Tax 
Regulations (26 CFR part 1) under sections 6038 and 6038A of the Code. 
On June 21, 2006, final and temporary regulations (TD 9268, 2006-30 IRB 
94) under sections 6038 and 6038A were published in the Federal 
Register (71 FR 35524). On the same day, a notice of proposed 
rulemaking (REG-109512-05, 2006-30 IRB 100) was published by cross-
reference to the temporary regulations in the Federal Register (71 FR 
35592). The preamble of TD 9268 includes background information and an 
explanation of provisions regarding these regulations.
    The IRS received no comments in response to the notice of proposed 
rulemaking. No requests to speak at a public hearing were received and 
no hearing was held. Accordingly, the proposed regulations are adopted 
without change by this Treasury decision and the corresponding 
temporary regulations are removed or removed and reserved.
    The Treasury Department, however, is considering additional 
information reporting pursuant to section 6038A of the Code regarding 
section 163(j) to further the administration of the earning stripping 
rules.

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. It is hereby 
certified that the collection of information in these regulations will 
not have a significant economic impact on a substantial number of small 
entities. This certification is based upon the fact that these 
regulations only affect entities with significant foreign operations 
and any burden on small entities is minimal. 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, 
the notice of proposed rulemaking preceding these final regulations was 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Drafting Information

    The principal author of these regulations is Kate Y. Hwa, Office of 
the Associate Chief Counsel (International). However, other personnel 
from the IRS and Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is 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 1.6038-2 is amended as follows:
0
1. Paragraphs (a)(1) and (a)(2) are revised.
0
2. Paragraphs (f)(11), (f)(12), (k)(1) and (m) are revised.
0
3. Paragraph (k)(5) is amended by adding Examples 3 and 4.
    The revisions and additions read as follows:

[[Page 38476]]

Sec.  1.6038-2  Information returns required of United States persons 
with respect to annual accounting periods of certain foreign 
corporations beginning after December 31, 1962.

    (a) * * *
    (1) Form 2952, ``Information Return with Respect to Controlled 
Foreign Corporations,'' if such taxable year ends before December 31, 
1982;
    (2) Form 5471, ``Information Return of U.S. Persons with Respect to 
Certain Foreign Corporations,'' if such taxable year ends on or after 
December 31, 1983; or
* * * * *
    (f) * * *
    (11) Transactions with certain related parties. (i) A summary 
showing the total amount of each of the following types of transactions 
of the corporation, which took place during the annual accounting 
period, with the person required to file this return, any other 
corporation or partnership controlled by that person, or any United 
States person owning at the time of the transaction 10 percent or more 
in value of any class of stock outstanding of the foreign corporation, 
or of any corporation controlling that foreign corporation--
    (A) Sales and purchases of stock in trade;
    (B) Sales and purchases of tangible property other than stock in 
trade;
    (C) Sales and purchases of patents, inventions, models, or designs 
(whether or not patented), copyrights, trademarks, secret formulas or 
processes, or any other similar property rights;
    (D) Compensation paid and compensation received for the rendition 
of technical, managerial, engineering, construction, scientific, or 
like services;
    (E) Commissions paid and commissions received;
    (F) Rents and royalties paid and rents and royalties received;
    (G) Amounts loaned and amounts borrowed (except open accounts 
resulting from sales and purchases reported under other items listed in 
this paragraph (f)(11) that arise and are collected in full in the 
ordinary course of business);
    (H) Dividends paid and dividends received;
    (I) Interest paid and interest received; and
    (J) Premiums paid and premiums received for insurance or 
reinsurance.
    (ii) Special rule for banks. For purposes of this paragraph 
(f)(11), if the United States person is a bank, as defined in section 
581, or is controlled within the meaning of section 368(c) by a bank, 
the term transactions shall not, as to a corporation with respect to 
which a return is filed, include banking transactions entered into on 
behalf of customers; in any event, however, deposits in accounts 
between a foreign corporation, controlled (within the meaning of 
paragraph (b) of this section) by a United States person, and a person 
described in this paragraph (f)(11) and withdrawals from such accounts 
shall be summarized by reporting end-of-month balances.
    (12) Accrued payments and receipts. For purposes of the required 
summary under paragraph (f)(11) of this section, a corporation that 
uses an accrual method of accounting shall use accrued payments and 
accrued receipts for purposes of computing the total amount of each of 
the types of transactions listed.
* * * * *
    (k) Failure to furnish information--(1) Dollar amount penalty--(i) 
In general. If any person required to file Form 5471 under section 6038 
and this section fails to furnish any information described in 
paragraphs (f) and (g) of this section within the time prescribed by 
paragraph (i) of this section, such person shall pay a penalty of 
$10,000 for each annual accounting period of each foreign corporation 
with respect to which such failure occurs.
    (ii) Increase in penalty for continued failure after notification. 
If a failure described in paragraph (k)(1)(i) of this section continues 
for more than 90 days after the date on which the Director of Field 
Operations, Area Director, or Director of Compliance Campus Operations 
mails notice of such failure to the person required to file Form 5471, 
such person shall pay a penalty of $10,000, in addition to the penalty 
imposed by section 6038(b)(1) and paragraph (k)(1)(i) of this section, 
for each 30-day period (or a fraction of) during which such failure 
continues after such 90-day period has expired. The additional penalty 
imposed by section 6038(b)(2) and this paragraph (k)(1)(ii) shall be 
limited to a maximum of $50,000 for each failure.
* * * * *
    (5) * * *

    Example 3. A, a U.S. person, owns 100 percent of the stock of 
FC. On April 15, 2008, A timely filed its 2007 income tax return but 
did not file Form 5471 with respect to FC's 2007 annual accounting 
period. On June 1, 2008, the Director of Field Operations mailed a 
notice to A of A's failure to file Form 5471 for 2007 with respect 
to FC. On August 1, 2008, A submits a written statement asserting 
facts for reasonable cause for failure to file the 2007 Form 5471 
for FC. Based on A's statement and discussions with A, the Director 
of Field Operations agrees that A had reasonable cause for failure 
to file FC's 2007 Form 5471 and determined that it is reasonable for 
A to file FC's 2007 Form 5471 by September 15, 2008. The time 
prescribed for furnishing information under paragraph (i) of this 
section is September 15, 2008, and the 90-day period described under 
paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this section begins on 
that same date. Thus, if A files a completed Form 5471 by September 
15, 2008, A is not subject to the penalties under paragraphs (k)(1) 
and (k)(2) of this section. If A does not file a completed Form 5471 
by December 14, 2008, in addition to the penalties under paragraphs 
(k)(1) and (k)(2) of this section, A will also be subject to the 
penalties for continued failure under paragraphs (k)(1)(ii) and 
(k)(2)(iv)(A) of this section.
    Example 4. The facts are the same as in Example 3 except A 
submits the written statement to the Director before a notice of 
failure to furnish information is mailed to A. The notice is mailed 
to A on September 7, 2008. Under these facts, the time prescribed 
for furnishing information under paragraph (i) of this section is 
September 15, 2008, and the 90-day period after mailing of notice of 
failure under paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this 
section begins on that same date.
* * * * *
    (m) Effective/applicability dates. Except as otherwise provided, 
this section applies with respect to information for annual accounting 
periods beginning on or after June 21, 2006. Paragraphs (k)(1) and 
(k)(5) Examples 3 and 4 of this section apply June 21, 2006.


Sec.  1.6038-2T  [Amended]

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Par. 3. In Sec.  1.6038-2T, paragraphs (e) through (m) are revised to 
read as follows:


Sec.  1.6038-2T  Information returns required of United States persons 
with respect to annual accounting periods of certain foreign 
corporations (temporary).

* * * * *
    (e) through (l) [Reserved]. For further guidance, see Sec.  1.6038-
2(e) through (l).
    (m) Effective/applicability date. Paragraph (d) of this section 
shall apply for taxable years ending after October 22, 2004.

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Par. 4. Section 1.6038A-2 is amended by revising paragraphs (b)(8) and 
(h) to read as follows:


Sec.  1.6038A-2  Requirement of return.

* * * * *
    (b) * * *
    (8) Accrued payments and receipts. For purposes of this section, a 
reporting corporation that uses an accrual method of accounting shall 
use accrued payments and accrued receipts for purposes of computing the 
total amount of each of the types of transactions listed in this 
section.
* * * * *

[[Page 38477]]

    (h) Effective/applicability date. Except as otherwise provided, for 
applicability dates for this section for certain reporting 
corporations, see Sec.  1.6038A-1(n). Paragraph (b)(8) of this section 
applies with respect to information for annual accounting periods 
beginning on or after June 21, 2006.

Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.
    Approved: July 2, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E7-13587 Filed 7-12-07; 8:45 am]
BILLING CODE 4830-01-P