[Federal Register Volume 73, Number 122 (Tuesday, June 24, 2008)]
[Proposed Rules]
[Pages 35606-35607]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-14170]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-102122-08]
RIN 1545-BH56


Guidance Under Section 956 for Determining the Basis of Property 
Acquired in Certain Nonrecognition Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations.

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SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS and the Treasury Department are issuing 
temporary regulations under section 956 of the Internal Revenue Code 
(Code) relating to the determination of basis in property acquired by a 
controlled foreign corporation in certain nonrecognition transactions 
that are intended to avoid United States income tax. Those regulations 
affect United States shareholders of a controlled foreign corporation 
that acquires United States property in certain nonrecognition 
transactions. The text of those regulations also serves as the text of 
these proposed regulations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by September 22, 2008.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-102122-08), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered between the 
hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-102122-08), Courier's 
Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., 
Washington, DC, or sent electronically, via the Federal eRulemaking 
Portal at http://www.regulations.gov (IRS REG-102122-08).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
John H. Seibert, (202) 622-3860; concerning submissions of comments 
and/or requests for a hearing, Regina Johnson, (202) 622-7180 (not 
toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register provide guidance regarding the 
determination of basis for property acquired in certain nonrecognition 
transactions that repatriate earnings and profits of a controlled 
foreign corporation but are structured with the intent to avoid an 
income inclusion by the United States shareholders of the controlled 
foreign corporation under section 951(a)(1)(B). This avoidance is 
achieved by the use of the basis rules under section 362(a) for the 
acquisition by the controlled foreign corporation of certain stock or 
obligations that constitute United States property within the meaning 
of section 956(c).
    The text of those regulations also serves as the text of these 
proposed 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. Therefore, a regulatory assessment is not required. Pursuant to 
the Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 6), it is hereby 
certified that these regulations will not have a significant economic 
impact on a substantial number of small entities. This certification is 
based on the fact that these regulations will affect primarily large 
multi-national United States corporations that own a significant 
interest in foreign corporations that acquire certain United States 
property in a transaction subject to the regulations. Accordingly, a 
regulatory flexibility analysis 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 entities.

Comments and Requests for a 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 the Treasury Department continue to consider, outside 
the context of section 956, the appropriate basis of stock or 
obligations issued by a transferor in the hands of the transferee as 
determined under section 362. The IRS and the Treasury Department are 
also considering whether any additional rules are necessary or 
appropriate to coordinate the section 956 basis

[[Page 35607]]

determinations under these regulations with basis determinations under 
other provisions of the Code or regulations. Comments are requested in 
this regard. All comments will be available for public inspection and 
copying. A public hearing may be scheduled if requested by any person 
who timely submits comments. If a public hearing is scheduled, notice 
of the date, time and place for the hearing will be published in the 
Federal Register.

Drafting Information

    The principal author of these regulations is John H. Seibert, 
Office of Associate Chief Counsel (International). However, other 
personnel from the IRS and the 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 1.956-1 is amended by adding a sentence to the end 
of paragraph (e)(1) and adding new paragraphs (e)(5), (e)(6) and (f) to 
read as follows:


Sec.  1.956-1  Shareholder's pro rata share of a controlled foreign 
corporation's increase in earnings invested in United States property.

* * * * *
    (e) * * * (1) * * * See Sec.  1.956-1T(e)(6) for a special rule for 
determining amounts attributable to United States property acquired as 
the result of certain nonrecognition transactions.

* * *
    (e)(5) [The text of the proposed amendment to Sec.  1.956-1(e)(5) 
is the same as the text for Sec.  1.956-1T(e)(5) published elsewhere in 
this issue of the Federal Register].
    (e)(6) [The text of the proposed amendment to Sec.  1.956-1(e)(6) 
is the same as the text for Sec.  1.956-1T(e)(6) published elsewhere in 
this issue of the Federal Register].
    (f) [The text of the proposed amendment to Sec.  1.956-1(f) is the 
same as the text for Sec.  1.956-1T(f) published elsewhere in this 
issue of the Federal Register].

Steven T. Miller,
Acting Deputy Commissioner for Services and Enforcement.
[FR Doc. E8-14170 Filed 6-23-08; 8:45 am]
BILLING CODE 4830-01-P