[Federal Register Volume 74, Number 2 (Monday, January 5, 2009)]
[Proposed Rules]
[Pages 236-238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-30712]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 74, No. 2 / Monday, January 5, 2009 / 
Proposed Rules  

[[Page 236]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[REG-144615-02]
RIN 1545-BI47


Section 482: Methods To Determine Taxable Income in Connection 
With a Cost Sharing Arrangement

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations, notice of proposed rulemaking, 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 provide 
further guidance and clarification regarding methods under section 482 
to determine taxable income in connection with a cost sharing 
arrangement in order to address issues that have arisen in 
administering the current regulations. These temporary regulations 
potentially affect controlled taxpayers within the meaning of section 
482 that enter into cost sharing arrangements as defined therein. The 
text of those temporary regulations also serves as the text of these 
proposed regulations. This document also provides notice of a public 
hearing on those proposed regulations.

DATES: Written or electronic comments must be received by April 6, 
2009. Outline of topics to be discussed at the public hearing scheduled 
for April 21, 2009 must be received by April 6, 2009.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-144615-02), Room 
5203, Internal Revenue Service, PO 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-
144615-02), 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-144615-02).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Kenneth P. Christman, (202) 435-5265; concerning submissions of 
comments, the hearing, and/or to be placed on the building access list 
to attend the hearings, Oluwafunmilayo Taylor, (202) 622-7180 (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.
    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.
    The collection of information requirements are in proposed Sec.  
1.482-7(b)(2) and (k). Responses to the collections of information are 
required by the IRS to monitor compliance of controlled taxpayers with 
the provisions applicable to cost sharing arrangements.
    Estimated total annual reporting and/or recordkeeping burden: 9350 
hours.
    Estimated average annual burden hours per respondent and/or 
recordkeeper: 18.7 hours.
    Estimated number of respondents and/or recordkeepers: 500.
    Estimated frequency of responses: On Occasion and Annually.
    Comments on the collection 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 
March 6, 2009.
    Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
information will have practical utility; The accuracy of the estimated 
burden associated with the proposed collection of information (see 
above); How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information-
technology; and Estimates of capital or start-up costs and costs of 
operation, maintenance, and purchase of services to provide 
information.
    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 and Explanation of Provisions

    Temporary regulations In the Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating to section 482. The temporary regulations provide 
guidance regarding methods under section 482 to determine taxable 
income in connection with a cost sharing arrangement. These temporary 
regulations potentially affect controlled taxpayers within the meaning 
of section 482 that enter into cost sharing arrangements as defined 
therein. The text of those temporary regulations also serves as the 
text of these proposed regulations. The preamble to the temporary 
regulations explains the amendments.

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. It has been 
determined also 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 collections of information in these regulations will 
not have a significant economic impact on a substantial number of small 
entities. This certification is based on the fact that this rule 
applies to U.S. businesses and foreign affiliates that enter into cost 
sharing agreements. Few small entities

[[Page 237]]

are expected to enter into cost sharing agreements, as defined by these 
regulations. Accordingly, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. 
Pursuant to section 7805(f), this notice of proposed rulemaking will be 
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 given to any written comments (a signed original and 
eight (8) copies) or electronic comments that are submitted timely to 
the IRS. The IRS and the Treasury Department specifically request 
comments on the clarity of the proposed rule and how it may be made 
easier to understand. All comments will be available for public 
inspection and copying.
    A public hearing has been scheduled for April 21, 2009, beginning 
at 10 a.m., in the IRS Auditorium, 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)(93) apply to the hearing. Persons 
who wish to present oral comments at the hearing must submit written 
comments by April 6, 2009 and an outline of the topics to be discussed 
and the time to be devoted to each topic (signed original and eight (8) 
copies) by April 6, 2009. A period of 10 minutes will be allotted to 
each person for making comments. An agenda showing the schedule 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 Kenneth P. 
Christman of the Office of Chief Counsel (International). However, 
other personnel from the Treasury Department and the IRS participated 
in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendment to the Regulations

    Accordingly, 26 CFR parts 1 and 301 are 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 1.367(a)-1 is revised to read as follows:


Sec.  1.367(a)-1  Transfers to foreign corporations subject to section 
367(a): In general.

    (a) through (d)(2) [Reserved].
    (3) Transfer. For purposes of section 367 and regulations 
thereunder, the term transfer means any transaction that constitutes a 
transfer for purposes of section 332, 351, 354, 355, 356, or 361, as 
applicable. A person's entering into a cost sharing arrangement under 
Sec.  1.482-7 or acquiring rights to intangible property under such an 
arrangement shall not be considered a transfer of property described in 
section 367(a)(1). See Sec.  1.6038B-1T(b)(4) for the date on which the 
transfer is considered to be made.
    (d)(4) through (g) [Reserved].
    Par. 3. Section 1.482-0 is amended by revising the entries for 
Sec. Sec.  1.482-1(b)(2)(iii), 1.482-2(e) and (f), 1.482-4(g) and (h), 
1.482-7, and 1.482-9 to read as follows:


Sec.  1.482-0  Outline of regulations under section 482.

* * * * *


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

* * * * *
    (b) * * *
    (2) * * *
    (iii) Coordination of methods applicable to certain intangible 
development arrangements.


Sec.  1.482-2  Determination of taxable income in specific situations.

* * * * *
    (e) Cost sharing arrangement.
    (f) Effective/applicability date.
    (1) In general.
    (2) Election to apply paragraph (b) of this section to earlier 
taxable years.


Sec.  1.482-4  Methods to determine taxable income in connection with a 
transfer of intangible property.

* * * * *
    (g) Coordination with rules governing cost sharing arrangements.
    (h) Effective/applicability date.
    (1) In general.
    (2) Election to apply regulation to earlier taxable years.
* * * * *


Sec.  1.482-7  Methods to determine taxable income in connection with a 
cost sharing arrangement.

    [The text of the proposed entries for Sec.  1.482-7 is the same as 
the entries for Sec.  1.482-7T in Sec.  1.482-0T published elsewhere in 
this issue of the Federal Register].
* * * * *


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

* * * * *
    (a) through (m)(2) [Reserved]
    (3) [The text of the proposed entry for Sec.  1.482-9(m)(3) is the 
same as the entry for Sec.  1.482-9T(m)(3) in Sec.  1.482-0T published 
elsewhere in this issue of the Federal Register].
    (m)(4) through (n)(3) [Reserved]
    Par. 4. Section 1.482-1 is amended by:
    1. Revising paragraph (b)(2)(i) and the last sentence of paragraph 
(j)(6)(i).
    2. Adding a new paragraph (b)(2)(iii).
    The addition and revisions read as follows:


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

* * * * *
    (b) * * *
    (2) * * *
    (i) [The text of the proposed amendment to Sec.  1.482-1(b)(2)(i) 
is the same as the text of Sec.  1.482-1T(b)(2)(i) published elsewhere 
in this issue of the Federal Register].
* * * * *
    (iii) [The text of the proposed Sec.  1.482-1(b)(2)(iii) is the 
same as the text of Sec.  1.482-1T(b)(2)(iii) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (j) * * *
    (6) * * *
    (i) * * * . [The text of the proposed amendment to Sec.  1.482-
1(j)(6)(i) is the same as the text of the amendment to Sec.  1.482-
1T(j)(6)(i) published elsewhere in this issue of the Federal Register].
    Par. 5. Section 1.482-2 is amended as follows:

[[Page 238]]

    1. Paragraph (e) is redesignated as paragraph (f) and newly-
designated paragraphs (f)(1) and (f)(2) are revised.
    2. New paragraph (e) is added.
    The addition and revision reads as follows:


Sec.  1.482-2  Determination of taxable income in specific situations.

* * * * *
    (e) [The text of proposed Sec.  1.482-2(e) is the same as the text 
of Sec.  1.482-2T(e) published elsewhere in this issue of the Federal 
Register].
    (f) * * * (1) [The text of the proposed amendment to Sec.  1.482-
2(f)(1) is the same as the text of Sec.  1.482-2T(f)(1) published 
elsewhere in this issue of the Federal Register].
    (2) [The text of the proposed amendment to Sec.  1.482-2(f)(2) is 
the same as the text of Sec.  1.482-2T(f)(2) published elsewhere in 
this issue of the Federal Register].
* * * * *
    Par. 6. Section 1.482-4 is amended as follows:
    1. Paragraph (f)(3)(i)(B) is revised.
    2. Paragraph (f)(7) is removed.
    3. New paragraphs (g) and (h) are added.
    The additions and revision reads as follows:


Sec.  1.482-4  Methods to determine taxable income in connection with a 
transfer of intangible property.

* * * * *
    (f) * * *
    (3) * * *
    (i) * * *
    (B) [The text of the proposed amendment to Sec.  1.482-
4(f)(3)(i)(B) is the same as the text of Sec.  1.482-4T(f)(3)(i)(B) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (g) [The text of proposed Sec.  1.482-4(g) is the same as the text 
of Sec.  1.482-4T(g) published elsewhere in this issue of the Federal 
Register].
    (h) [The text of proposed Sec.  1.482-4(h) is the same as the text 
of Sec.  1.482-4T(h) published elsewhere in this issue of the Federal 
Register].
    Par. 7. Section 1.482-7 is revised to read as follows:


Sec.  1.482-7  Methods to determine taxable income in connection with a 
cost sharing arrangement.

    [The text of the proposed Sec.  1.482-7 is the same as the text of 
Sec.  1.482-7T(a) through (m) published elsewhere in this issue of the 
Federal Register].
    Par. 8. Section 1.482-8 is amended by revising paragraph (b) 
Examples 13, 14, 15, 16, 17 and 18 to read as follows:


Sec.  1.482-8  Examples of the best method rule.

* * * * *
    (b) * * *
    Examples 13 through 18. [The text of the proposed Sec.  1.482-8(b) 
Examples 13 through 18 is the same as the text of Sec.  1.482-8T(b) 
Examples 13 through 18 published elsewhere in this issue of the Federal 
Register].
* * * * *
    Par. 9. Section 1.482-9 is added to read as follows:


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

    (a) through (m)(2) [Reserved].
    (3) [The text of the proposed amendment to Sec.  1.482-9(m)(3) is 
the same as the text of Sec.  1.482-9T(m)(3) published elsewhere in 
this issue of the Federal Register].
    (m)(4) through (n)(3) [Reserved].

L E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E8-30712 Filed 12-31-08; 11:15 am]
BILLING CODE 4830-01-P