[Federal Register Volume 78, Number 21 (Thursday, January 31, 2013)]
[Proposed Rules]
[Pages 6772-6781]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-01749]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-140649-11]
RIN 1545-BK65


Failure To File Gain Recognition Agreements and Other Required 
Filings

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations that would amend 
the existing rules governing the consequences to U.S. persons for 
failing to file gain recognition agreements (GRAs) and related 
documents, or to satisfy other reporting obligations, associated with 
certain transfers of property to foreign corporations in nonrecognition 
exchanges. These regulations affect U.S. persons that transfer property 
to foreign corporations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by April 1, 2013.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-140649-11), room 5203, 
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
140649-11), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC 20224, or sent electronically via the 
Federal Rulemaking Portal at http://www.regulations.gov (IRS REG-
140649-11).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Mary W. Lyons, (202) 622-3860; concerning submission of comments and to 
request a hearing, Oluwafunmilayo (Funmi) Taylor, (202) 622-7180 (not 
toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in the regulations have 
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 1545-1487.
    The collections of information are in Sec. Sec.  1.367(a)-3(f)(2), 
1.367(a)-8(p)(2), 1.367(e)-2(f)(2), 1.6038B-1(c)(4)(ii), and 1.6038B-
1(e)(4). The collections of information are mandatory. The likely 
respondents are domestic corporations.
    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.
    Books and records relating to a collection of information must be 
retained as long as their contents might 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

A. Sections 367(a) and 6038B

    Section 367(a)(1) provides that if, in connection with any exchange 
described in section 332, 351, 354, 356, or 361, a United States person 
(U.S. transferor) transfers property to a foreign corporation 
(transferee foreign corporation), the transferee foreign corporation 
shall not, for purposes of determining the extent to which gain shall 
be recognized on such transfer, be considered to be a corporation. 
Sections

[[Page 6773]]

367(a)(2), (3), and (6) provide exceptions to the general rule of 
section 367(a)(1) and grant regulatory authority to the Secretary to 
provide additional exceptions and to limit the statutory exceptions.
    Section 1.367(a)-3 provides exceptions to the general rule of 
section 367(a)(1) for certain transfers by a U.S. transferor of stock 
or securities to a foreign corporation. In some cases, these exceptions 
require the U.S. transferor to file a GRA and other related documents 
under the provisions of Sec.  1.367(a)-8 (section 367(a) GRA 
regulations) in order to avoid the recognition of gain under section 
367(a)(1). See Sec.  1.367(a)-3(b), (c), and (e) (addressing transfers 
of foreign stock or securities, transfers of domestic stock or 
securities, and transfers in certain section 361 exchanges, 
respectively). Under the terms of a GRA, the U.S. transferor agrees to 
include in income the gain realized but not recognized on the initial 
transfer of the stock or securities and pay interest on any additional 
tax due if a gain recognition event, as defined in Sec.  1.367(a)-
8(b)(1)(iv), occurs during the term of the GRA (generally 60 months 
following the close of the taxable year in which the initial transfer 
occurs). See Sec.  1.367(a)-8(c)(1)(i) and (v).
    One of the gain recognition events enumerated is a failure to 
comply in any material respect with any requirement of the section 
367(a) GRA regulations or with the terms of an existing GRA (failure to 
comply). See Sec.  1.367(a)-8(j)(8). An example of such a failure to 
comply is the failure to file an annual certification. The section 
367(a) GRA regulations provide that if there is a failure to comply, 
the U.S. transferor must recognize the full amount of gain realized on 
the initial transfer of stock or securities unless the U.S. transferor 
demonstrates that the failure was due to reasonable cause and not 
willful neglect under the procedure that is described in Sec.  
1.367(a)-8(p). Similarly, if there is a failure to timely file a GRA in 
connection with the initial transfer, the U.S. transferor must 
recognize gain with respect to the transfer unless the reasonable cause 
exception is satisfied.
    In addition to the section 367(a) GRA regulations, other 
regulations under section 367(a) require certain other statements to be 
filed in connection with a transfer of stock or securities by a U.S. 
person to a foreign corporation. A domestic target corporation in 
certain cases must file statements in connection with the transfer by 
its shareholders or security holders of stock or securities in the 
domestic target corporation to a foreign corporation under Sec.  
1.367(a)-3(c). See Sec.  1.367(a)-3(c)(6) and (7). Also, a domestic 
target corporation must file a statement when its assets are 
transferred to a foreign acquiring corporation in a section 361 
exchange and all or a portion of those assets are subsequently 
transferred to a domestic subsidiary of the foreign acquiring 
corporation in a transaction treated as an indirect stock transfer 
under Sec.  1.367(a)-3(d). See Sec.  1.367(a)-3(d)(2)(vi)(B)(1)(ii).
    In addition, a U.S. person who transfers certain property to a 
foreign corporation in certain nonrecognition transactions is subject 
to the reporting requirements of section 6038B and the regulations. See 
Sec. Sec.  1.6038B-1 and -1T. In general, the U.S. transferor must file 
IRS Form 926 ``Return by a U.S. Transferor of Property to a Foreign 
Corporation,'' identifying the transferee foreign corporation and 
describing the property transferred. The penalty for failure to satisfy 
the section 6038B reporting requirement is equal to ten percent of the 
fair market value of the property at the time of the exchange, but not 
to exceed $100,000 unless the failure was due to intentional disregard 
of the reporting obligation. If, however, the U.S. transferor 
demonstrates that the failure was due to reasonable cause and not 
willful neglect, no penalty is imposed.
    Section 1.6038B-1T(c)(4)(ii) provides that if stock or securities 
are transferred, the U.S. transferor must provide information about the 
stock or securities on Form 926. Section 1.6038B-1(f)(2)(i) provides 
that a failure to comply with the reporting requirements of the 
regulations includes the failure to provide material information about 
the property transferred. Thus, the failure to provide the required 
information about the stock or securities transferred could result in a 
section 6038B penalty. The current section 6038B regulations have a 
rule coordinating the obligations to file a GRA and complete Form 926. 
Specifically, Sec.  1.6038B-1(b)(2) relieves a U.S. transferor of the 
obligation to report a transfer of stock or securities on Form 926 and 
from the section 6038B penalty if the U.S transferor has properly filed 
a GRA.
    On the other hand, a U.S. transferor who transfers stock or 
securities for which a GRA must be properly filed to avoid recognizing 
gain under section 367(a)(1) and who neither properly files a GRA nor a 
Form 926 with respect to the transfer is potentially subject both to 
the penalty under section 6038B and full gain recognition under section 
367(a)(1). Both of these provisions have a reasonable cause exception 
for a failure to file, and a U.S. transferor who cannot establish 
reasonable cause is subject to both provisions.
    The Deficit Reduction Act of 1984 (1984 Act) (Public Law 98-369, 98 
Stat 494 (1984)) amended section 367(a) and enacted section 6038B. The 
legislative history to the 1984 Act indicates that Congress intended 
sections 367 and 6038B to operate in tandem, with section 6038B serving 
as a notification requirement for transfers under section 367(a). H.R. 
Rep. No. 432, Pt. 2, 98th Cong., 2d Sess., March 5, 1984 at 1325; S. 
Rep. No. 169, Vol. 1, 98th Cong., 2d Sess., Apr. 2, 1984 at 370.
    Temporary regulations were published on May 16, 1986 (TD 8087, 
1986-1 CB 175, 51 FR 17936), addressing GRAs and reporting under 
section 6038B (1986 temporary regulations). The 1986 temporary 
regulations imposed both full gain recognition under section 367(a)(1) 
for failure to comply with the regulations under section 367(a) as well 
as the penalty under section 6038B for failure to comply with the 
section 6038B reporting requirements. Both rules have been retained in 
later-issued guidance under sections 367(a) and 6038B.
    In addition, the current final regulations under Sec.  1.367(a)-
8(p)(1) allow a U.S. transferor to obtain relief from gain recognition 
caused by a failure to file a GRA or a failure to comply in any 
material respect with the regulations by requesting relief and 
establishing that a failure to file or comply was due to reasonable 
cause and not willful neglect. When a U.S. transferor requests relief 
from full gain recognition under this section, the regulations provide 
that the appropriate IRS examination official (Director) shall notify 
the U.S. transferor in writing if it is determined that the U.S. 
transferor's failure was not due to reasonable cause, or if additional 
time will be needed to make a determination. This notification is to be 
made within the 120-day period that begins on the date that the IRS 
notifies the U.S. transferor in writing that its request for relief has 
been received and assigned for review. If the U.S. transferor is not so 
notified before the close of this 120-day period, the U.S. transferor 
is deemed to have established that the failure to file or failure to 
comply was due to reasonable cause and not willful neglect.

B. Section 367(e)(2)

    Section 367(e)(2) provides generally that in a liquidation to which 
section 332 applies, except as provided in regulations, subsections (a) 
and (b)(1) of section 337 shall not apply when the 80-percent 
distributee (as defined in section 337(c)) is a foreign corporation.

[[Page 6774]]

As a result, if a domestic liquidating corporation liquidates into a 
foreign parent corporation (an outbound liquidation), or if a foreign 
liquidating corporation liquidates into a foreign parent corporation (a 
foreign-to-foreign liquidation), the liquidating corporation generally 
must recognize gain or loss on the distribution as if such property 
were sold to the distributee at its fair market value. Section 
1.367(e)-2(b)(1) provides that a domestic liquidating corporation must 
recognize gain or loss on an outbound liquidation, subject to an 
overall loss limitation, except to the extent it satisfies one of the 
exceptions provided under Sec.  1.367(e)-2(b)(2). These exceptions are 
for distributions of: (i) Property used in the conduct of a trade or 
business in the United States (a U.S. trade or business); (ii) a U.S. 
real property interest; or (iii) stock of a domestic subsidiary 
corporation that is at least 80-percent owned by the domestic 
liquidating corporation.
    The regulations also address foreign-to-foreign liquidations and 
provide that a foreign liquidating corporation generally is not 
required to recognize gain or loss on the distribution, except in the 
case of certain distributions of property used in a U.S. trade or 
business or formerly used in a U.S. trade or business. See Sec.  
1.367(e)-2(c).
    Other than the exception for a distribution of a U.S. real property 
interest, the exceptions provided under Sec.  1.367(e)-2 require the 
filing of certain statements or schedules by the liquidating 
corporation and the distributee corporation. In addition, a domestic 
liquidating corporation that distributes property to a foreign 
corporation in a transaction subject to section 367(e)(2) must file a 
Form 926 with respect to the distribution. See Sec.  1.6038B-1(e).

Explanation of Provisions

A. Proposed Amendments to the Section 367(a) GRA Regulations

    Under current law, if a U.S. transferor fails to timely file an 
initial GRA, or fails to comply in any material respect with the 
section 367(a) GRA regulations with respect to an existing GRA (for 
example, because it fails to timely file an annual certification), the 
U.S. transferor is subject to full gain recognition under section 
367(a)(1) unless the U.S. transferor later discovers the failure, 
promptly files the GRA or other required information with the IRS, and 
demonstrates that its failure was due to reasonable cause and not 
willful neglect. The existing reasonable cause standard, given its 
interpretation under the case law, may not be satisfied by U.S. 
transferors in many common situations even though the failure was not 
intentional and not due to willful neglect. Based on the current 
operation of the section 367(a) GRA regulations, the Internal Revenue 
Service (IRS) and the Department of the Treasury (Treasury Department) 
believe that full gain recognition under section 367(a)(1) should apply 
only if a failure to timely file an initial GRA or a failure to comply 
with the section 367(a) GRA regulations with respect to an existing GRA 
is willful. The IRS and the Treasury Department believe that the 
penalty imposed by section 6038B generally should be sufficient to 
encourage proper reporting and compliance.
    Accordingly, the proposed regulations would revise the section 
367(a) GRA regulations to provide that a U.S. transferor seeking either 
to (i) avoid recognizing gain under section 367(a)(1) on the initial 
transfer as a result of a failure to timely file an initial GRA, or 
(ii) avoid triggering gain as a result of a failure to comply in all 
material respects with the section 367(a) GRA regulations or the terms 
of an existing GRA, must demonstrate that the failure was not a willful 
failure. For this purpose, willful is to be interpreted consistent with 
the meaning of that term in the context of other civil penalties (for 
example, section 6672), which would include a failure due to gross 
negligence, reckless disregard, or willful neglect.
    Whether a failure is willful will be determined based on all the 
relevant facts and circumstances. The proposed regulations illustrate 
the application of this standard through a series of examples. For 
example, the section 367(a) GRA regulations require a GRA to include 
information about the adjusted basis and fair market value of the 
property transferred. Filing a GRA and intentionally not providing such 
information, including noting on the GRA that this information is 
``available upon request,'' would be a willful failure.
    In addition, the proposed regulations modify the process through 
which requests for relief from a failure to file or a failure to comply 
are evaluated by eliminating the requirement for the IRS to respond to 
such relief requests within 120 days. While the IRS is committed to 
processing requests promptly, the IRS and the Treasury Department do 
not believe that the IRS's processing time with respect to a relief 
request should be determinative of whether a U.S. transferor has 
satisfied its obligations under the section 367(a) GRA regulations.
    The proposed regulations also provide guidance clarifying when an 
initial GRA is considered timely filed, and what gives rise to a 
failure to comply in any material respect with the requirements of the 
section 367(a) GRA regulations or the terms of an existing GRA. In 
general, an initial GRA is timely filed only if each document that is 
required to be filed as part of an initial GRA is timely filed and 
completed in all material respects. Similarly, in general, there is a 
failure to comply in a material respect with the section 367(a) GRA 
regulations or the terms of an existing GRA if a document (such as an 
annual certification) that is required to be filed is not timely filed, 
or is not completed in all material respects. The examples provided in 
the proposed regulations also illustrate the application of the 
``completed in all material respects'' requirement of the current final 
regulations.
    The proposed regulations also clarify that the section 6038B 
penalty will apply to a failure to comply in any material respect with 
the section 367(a) GRA regulations or the terms of an existing GRA, 
such as a failure to properly file a gain recognition agreement 
document (including an annual certification or new GRA). Under the 
proposed regulations, a failure to comply has the same meaning for 
purposes of the section 367(a) GRA regulations and the section 6038B 
regulations; however, the current reasonable cause standard continues 
to apply to U.S. transferors seeking relief from the section 6038B 
penalty.
    In addition, the section 6038B penalty continues to apply, as 
provided under the current section 6038B regulations, if both a Form 
926 is not filed with respect to the initial transfer and there is a 
failure to file an initial GRA. In this case, the current reasonable 
cause standard continues to apply to U.S. transferors seeking relief 
from the section 6038B penalty.
    The proposed regulations modify the information that must be 
reported with respect to a transfer of stock or securities on Form 926. 
Specifically, the U.S. transferor must include on Form 926 the basis 
and fair market value of the property transferred. Finally, the 
proposed regulations require that a Form 926 be filed in all cases in 
which a GRA is filed, but provide that only Part I and Part II of the 
Form 926 must be completed if the only asset transferred is stock or 
securities.

B. Proposed Amendments to the Section 367(e)(2) Regulations

    The section 367(e)(2) regulations governing liquidating 
distributions to foreign parent corporations contain several rules that 
condition

[[Page 6775]]

nonrecognition treatment upon the timely filing of statements or other 
documents, or complying with the requirements of those regulations. 
These documents are functionally similar to GRAs in certain respects. 
The current section 367(e)(2) regulations provide no explicit guidance 
regarding the treatment of taxpayers who fail to file these documents 
or report the required information, and also provide no mechanism to 
obtain relief for such failures. As discussed in this preamble, the 
section 6038B regulations also require that a Form 926 be filed with 
respect to liquidating distributions by a domestic corporation to a 
foreign parent corporation.
    The IRS and the Treasury Department believe that the changes made 
by the proposed regulations in the case of section 367(a) transfers are 
also appropriate for failures to file or failures to comply for 
purposes of the section 367(e)(2) regulations and the related section 
6038B regulations. Accordingly, the proposed regulations provide rules 
similar to the rules under the section 367(a) GRA regulations and 
related section 6038B regulations for failures to file the required 
documents or statements and failures to comply under the section 
367(e)(2) regulations and related section 6038B regulations. Finally, 
the proposed regulations modify the information that must be reported 
with respect to one or more liquidating distributions of property, 
including the addition of the requirement to report the basis and fair 
market value of the property distributed.

C. Other Reporting Under Section 1.367(a)-3

    The section 367(a) regulations currently do not address a 
taxpayer's failure to file certain other statements required under 
Sec.  1.367(a)-3 in connection with certain transfers of stock or 
securities. These include the statements required to be filed by a 
domestic target corporation in connection with a transfer of stock or 
securities of such corporation to a foreign corporation as described in 
Sec. Sec.  1.367(a)-3(c)(6) and (7), and the statement required to be 
filed by a domestic target corporation in connection with the transfer 
of its assets to a foreign corporation in an exchange described in 
section 361 and the subsequent transfer of those assets to a domestic 
subsidiary in a transaction described in Sec.  1.367(a)-
3(d)(2)(vi)(B)(1)(ii). The IRS and the Treasury Department believe that 
failures to timely file these statements or failures to comply in all 
material respects with these regulations should be treated similarly to 
failures to file or failures to comply with the section 367(a) GRA 
regulations. Accordingly, these proposed regulations incorporate 
similar rules with respect to these other filing obligations.

Proposed Effective/Applicability Date

    These regulations are proposed to apply with respect to documents 
or statements required under the section 367(a) GRA regulations, Sec.  
1.367(a)-3(c) or (d) of the regulations, or the section 367(e) 
regulations that are required to be filed with a timely filed return on 
or after the date that final regulations are published in the Federal 
Register, as well as with respect to any requests for relief for 
failures to file documents and statements required under these 
regulations, or failures to comply, if such requests are submitted on 
or after the date that final regulations are published in the Federal 
Register.

Special Analyses

    It has been determined that this proposed regulation is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It also has been determined that section 
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does 
not apply to these regulations. It is hereby certified that these 
regulations will not have a significant impact on a substantial number 
of small entities. This certification is based on the fact that these 
regulations merely provide for a change in the standard, or clarify or 
provide the standard, that will be used to determine whether a taxpayer 
that has failed to file, or comply with the terms of, a gain 
recognition agreement or other related document, a Sec.  1.367(a)-3 
statement, or a document or statement required under Sec.  1.367(e)-2 
will be entitled to avoid full gain recognition under section 367(a)(1) 
or 367(e)(2), as applicable. Accordingly 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, these 
regulations have been submitted to the Chief Counsel for Advocacy of 
the Small Business Administration for comment on their impact on small 
business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be 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 request comments on the 
clarity of the proposed regulations and how they may be made easier to 
understand. All comments will be available for public inspection and 
copying. A public hearing may be scheduled if requested in writing by 
any person who timely submits written or electronic comments. If a 
public hearing is scheduled, notice of the date, time, and place of the 
hearing will be published in the Federal Register.

Drafting Information

    The principal author of these proposed regulations is Mary W. Lyons 
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 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

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 1.367(a)-3 is amended:
0
1. By revising paragraph (c)(6)(ii).
0
2. In paragraph (d)(2)(vi)(B)(1)(ii) by removing the language ``its 
U.S. income tax return'' and adding the language ``its timely filed 
U.S. income tax return'' in its place.
0
3. By adding paragraph (f).
0
4. By adding paragraph (g)(1)(ix).
    The additions and revisions read as follows:


Sec.  1.367(a)-3.  Treatment of transfers of stock or securities to 
foreign corporations.

* * * * *
    (c) * * *
    (6) * * *
    (ii) Except as provided in paragraph (f) of this section, for 
purposes of this paragraph (c)(6), an income tax return will be 
considered timely filed if such return is filed, together with the 
statement required by this paragraph (c)(6), on or before the last date 
for filing a Federal income tax return (taking into account any 
extensions of time therefor) for the taxable year in which the transfer 
occurs.
* * * * *

[[Page 6776]]

    (f) Failure to file statements--(1) Consequences of a failure to 
file. Except as provided in paragraph (f)(2) of this section, if there 
is a failure to file a statement described in paragraph (c)(6), (c)(7), 
or (d)(2)(vi)(C) of this section, then the exceptions to the 
application of section 367(a)(1) provided in paragraphs (c) and 
(d)(2)(vi)(B)(1)(ii) of this section will not apply. For this purpose, 
there is a failure to file the statement if the statement is not filed 
with a timely filed return or is not completed in all material 
respects.
    (2) Relief for certain failures to file that are not willful--(i) 
In general. A failure to file described in paragraph (f)(1) of this 
section will be deemed not to have occurred for purposes of satisfying 
the requirements of the applicable regulation if the taxpayer is able 
to demonstrate that the failure was not willful using the procedure set 
forth in this paragraph (f)(2). For this purpose, willful is to be 
interpreted consistent with the meaning of that term in the context of 
other civil penalties, which would include a failure due to gross 
negligence, reckless disregard, or willful neglect. Whether a failure 
to file was a willful failure will be determined by the Director of 
Field Operations International, Large Business & International (or any 
successor to the roles and responsibilities of such position, as 
appropriate) (Director) based on all the facts and circumstances.
    The taxpayer shall submit a request for relief and an explanation 
as provided in paragraph (f)(2)(ii) of this section. Although a 
taxpayer whose failure to file is determined not to be willful will 
avoid gain recognition under this section, the taxpayer will be subject 
to a penalty under section 6038B if the taxpayer fails to satisfy the 
reporting requirements, if any, under that section and does not 
demonstrate that the failure was due to reasonable cause and not 
willful neglect. See Sec.  1.6038B-1(f). The determination of whether 
the failure to file was willful under this section has no effect on any 
request for relief made under Sec.  1.6038B-1(f).
    (ii) Time of submission. A taxpayer's statement that the failure to 
file was not willful will be considered only if, promptly after the 
taxpayer becomes aware of the failure, an amended return is filed for 
the taxable year to which the failure relates that includes the 
required statement and a written statement explaining the reasons for 
the failure. The amended return must be filed with the applicable 
Internal Revenue Service Center with which the taxpayer filed its 
original return for such taxable year. The taxpayer may also submit a 
request for relief from the penalty of section 6038B as part of the 
same submission.
    (iii) Notice requirement. In addition to the requirements of 
paragraph (f)(2)(ii) of this section, the taxpayer must comply with the 
notice requirements of this paragraph (f)(2)(iii). If any taxable year 
of the taxpayer is under examination when the amended return is filed, 
a copy of the amended return and any information required to be 
included with such return must be delivered to the Internal Revenue 
Service personnel conducting the examination. If no taxable year of the 
taxpayer is under examination when the amended return is filed, a copy 
of the amended return and any information required to be included with 
such return must be delivered to the Director.
    (3) For illustrations of the application of the willfulness 
standard, see the examples in Sec.  1.367(a)-8(p)(3).
    (g) * * *
    (1) * * *
    (ix) Paragraphs (c)(6)(ii), (d)(2)(vi)(B)(1)(ii) and (f) of this 
section will apply to statements that are required to be filed with a 
timely filed U.S. income tax return on or after the date of publication 
of the Treasury decision adopting these rules as final regulations in 
the Federal Register, as well as to any requests for relief for 
failures to file statements, if such requests are submitted on or after 
the date of publication of the Treasury decision adopting these rules 
as final regulations in the Federal Register.
* * * * *
0
Par. 3. Section 1.367(a)-8 is amended:
0
1. By revising the eleventh sentence of paragraph (a).
0
2. In paragraph (b)(1) by
0
a. Redesignating definitions (xii) through (xv) as (xiv) through 
(xvii).
0
b. Redesignating definition (xi) as (xiii).
0
c. Redesignating definitions (v) through (x) as (vii) through (xii).
0
d. Redesignating definition (iv) as (v).
0
e. Adding new definitions (iv) and (vi).
0
f. Revising redesignated definitions (xiii), (xiv), and (xv).
0
3. By revising paragraph (d)(1).
0
4. By revising paragraph (j)(8).
0
5. By revising paragraph (p).
0
6. By adding a sentence at the end of paragraph (r)(1)(i).
    The revisions and addition read as follows:


Sec.  1.367(a)-8  Gain recognition agreement requirements--(a) Scope. * 
* * Paragraph (p) of this section provides relief for certain failures 
to file an initial gain recognition agreement or to comply with the 
requirements of this section with respect to an existing gain 
recognition agreement. * * *

    (b) * * *
    (1) * * *
    (iv) A gain recognition agreement document means any agreement, 
statement, schedule, or form required to be filed under this section, 
including an initial gain recognition agreement, a new gain recognition 
agreement described in paragraph (c)(5) of this section, a Form 8838 
extending the period of limitations on assessment of tax described in 
paragraph (f) of this section, and an annual certification described in 
paragraph (g) of this section.
* * * * *
    (vi) An initial gain recognition agreement means the gain 
recognition agreement entered into under paragraph (c) of this section 
with respect to the initial transfer.
* * * * *
    (xiii) A timely filed return is a Federal income tax return filed 
by the due date set forth in section 6072(a) or (b), plus any extension 
of time to file such return granted under section 6081.
    (xiv) Transferee foreign corporation. Except as provided in this 
paragraph (b)(1)(xiv), the transferee foreign corporation is the 
foreign corporation to which the transferred stock or securities are 
transferred in an initial transfer. In the case of an indirect stock 
transfer, the transferee foreign corporation has the meaning set forth 
in Sec.  1.367(a)-3(d)(2)(i). The transferee foreign corporation also 
includes a corporation designated as the transferee foreign corporation 
in the case of a new gain recognition agreement entered into under this 
section.
    (xv) Transferred corporation. Except as provided in this paragraph 
(b)(1)(xv), the transferred corporation is the corporation the stock or 
securities of which are transferred in the initial transfer. In the 
case of an indirect stock transfer, the transferred corporation has the 
meaning set forth in Sec.  1.367(a)-3(d)(2)(ii). The transferred 
corporation also includes a corporation designated as the transferred 
corporation in the case of a new gain recognition agreement entered 
into under this section.
* * * * *
    (d) Filing requirements--(1) General rule. An initial gain 
recognition agreement must be timely filed in order for the U.S. 
transferor to avoid

[[Page 6777]]

recognizing gain under section 367(a)(1) with respect to the 
transferred stock or securities by reason of the applicable exceptions 
provided under Sec.  1.367(a)-3. Except as provided in paragraph (p) of 
this section, an initial gain recognition agreement is timely filed 
only if--
    (i) The initial gain recognition agreement and any other gain 
recognition agreement document required to be filed with the initial 
gain recognition agreement are included with a timely filed return of 
the U.S. transferor for the taxable year during which the initial 
transfer occurs; and
    (ii) Each gain recognition agreement document identified in 
paragraph (d)(1)(i) of this section is completed in all material 
respects.
* * * * *
    (j) * * *
    (8) Failure to comply. A U.S. transferor fails to comply in any 
material respect with any requirement of this section, or the terms of 
the gain recognition agreement as described in paragraph (c)(1) of this 
section. A failure to comply under this paragraph (j)(8) will extend 
the period of limitations on assessment of tax until the close of the 
third full taxable year ending after the date on which the Director of 
Field Operations International, Large Business & International (or any 
successor to the roles and responsibilities of such person) (Director) 
receives actual notice of the failure to comply from the U.S. 
transferor. Except as provided in paragraph (p) of this section, for 
purposes of this paragraph (j)(8), a failure to comply includes--
    (i) If there is a gain recognition event in a taxable year, a 
failure to report gain or pay any additional tax or interest due under 
the terms of the gain recognition agreement; and
    (ii) A failure to file a gain recognition agreement document, other 
than an initial gain recognition agreement or a document required to be 
filed with the initial gain recognition agreement. For this purpose, 
there is a failure to file a gain recognition agreement document if--
    (A) The gain recognition agreement document is not timely filed as 
required under this section, or
    (B) The gain recognition agreement document is not completed in all 
material respects.
* * * * *
    (p) Relief for certain failures to file or failures to comply that 
are not willful--(1) In general. This paragraph (p) provides relief if 
there is a failure to file an initial gain recognition agreement as 
required under paragraph (d)(1) of this section (failure to file), or a 
failure to comply that is a triggering event under paragraph (j)(8) of 
this section (failure to comply). A failure to file or failure to 
comply will be deemed not to have occurred for purposes of paragraph 
(d)(1) of this section or paragraph (j)(8) of this section if the U.S. 
transferor is able to demonstrate that the failure was not willful 
using the procedure set forth in this paragraph (p). For this purpose, 
willful is to be interpreted consistent with the meaning of that term 
in the context of other civil penalties, which would include a failure 
due to gross negligence, reckless disregard, or willful neglect. 
Whether a failure to file or failure to comply was willful will be 
determined by the Director based on all the facts and circumstances.
    The taxpayer shall submit a request for relief and an explanation 
as provided in paragraph (p)(2)(i) of this section. Although a U.S. 
transferor whose failure to file or failure to comply, as applicable, 
is determined not to be willful will avoid gain recognition under 
paragraph (b), (c), or (e) of Sec.  1.367(a)-3, or paragraph (c)(1) of 
this section, as applicable, the U.S. transferor will be subject to a 
penalty under section 6038B if the U.S. transferor fails to satisfy the 
reporting requirements under that section and does not demonstrate that 
the failure was due to reasonable cause and not willful neglect. See 
Sec.  1.6038B-1(b)(2) and (f). The determination of whether the failure 
to file or failure to comply was willful under this section has no 
effect on any request for relief made under Sec.  1.6038B-1(f).
    (2) Procedures for establishing that a failure to file or failure 
to comply was not willful--(i) Time of submission. A U.S. transferor's 
statement that a failure to file or failure to comply was not willful 
will be considered only if, promptly after the U.S. transferor becomes 
aware of the failure, an amended return is filed for the taxable year 
to which the failure relates that includes the information that should 
have been included with the original return for such taxable year or 
that otherwise complies with the rules of this section, and that 
includes a written statement explaining the reasons for the failure to 
file or failure to comply. The U.S. transferor must file, with the 
amended return, a Form 8838 extending the period of limitations on 
assessment of tax with respect to the gain realized but not recognized 
on the initial transfer to the later of (1) the close of the eighth 
full taxable year following the taxable year during which the initial 
transfer occurred, or (2) three years from the date the required 
information is provided to the IRS. The amended return and Form 8838 
must be filed with the applicable Internal Revenue Service Center with 
which the U.S. transferor filed its original return for such taxable 
year. The U.S. transferor may submit a request for relief from the 
penalty under section 6038B as part of the same submission. See Sec.  
1.6038B-1(f).
    (ii) Notice requirement. In addition to the requirements of 
paragraph (p)(2)(i) of this section, the U.S. transferor must comply 
with the notice requirements of this paragraph (p)(2)(ii). If any 
taxable year of the U.S. transferor is under examination when the 
amended return is filed, a copy of the amended return and any 
information required to be included with such return must be delivered 
to the Internal Revenue Service personnel conducting the examination. 
If no taxable year of the U.S. transferor is under examination when the 
amended return is filed, a copy of the amended return and any 
information required to be included with such return must be delivered 
to the Director.
    (3) Examples. The following examples illustrate the application of 
this paragraph (p). All of the examples are based solely on the 
following facts and any additional facts stated in the particular 
example. DC, a domestic corporation, wholly owns FS and FA, each a 
foreign corporation. In Year 1, pursuant to a transaction qualifying 
both as a reorganization under section 368(a)(1)(B) and an exchange 
under section 351, DC transferred all the FS stock to FA solely in 
exchange for voting stock of FA (FS Transfer). The fair market value of 
the FS stock exceeded DC's tax basis in the stock. Absent the 
application of section 367 to the transaction, DC's exchange of the FS 
stock for the stock of FA qualified as a tax-free exchange under 
section 354. Immediately after the transaction, both FA and FS were 
controlled foreign corporations (as defined in section 957). 
Furthermore, DC was a section 1248 shareholder (as defined in Sec.  
1.367(b)-2(b)) with respect to FA and FS, and a 5-percent shareholder 
with respect to FA for purposes of Sec.  1.367(a)-3(b)(ii). Thus, DC 
was required to recognize gain under section 367(a)(1) by reason of the 
FS Transfer unless DC timely filed an initial gain recognition 
agreement (GRA) as required by paragraph (d)(1) of this section and 
complied in all material respects with the requirements of this section 
throughout the term of the GRA. The application of section 6038B is not 
addressed in these examples. DC may be subject to a penalty under 
section 6038B even if DC demonstrates under this section that a failure 
to file or failure to

[[Page 6778]]

comply was not willful. See Sec. Sec.  1.6038B-1(b) and (f) for the 
application of section 6038B.

    Example 1. Taxpayer failed to file a GRA due to accidental 
oversight. (i) Additional facts. DC filed its tax return for the 
year of the FS Transfer, reporting no gain with respect to the 
exchange of the FS stock. DC, through its tax department, was aware 
of the requirement to file a GRA in order for DC to avoid 
recognizing gain with respect to the FS Transfer under section 
367(a)(1), and had the experience and competency to properly prepare 
the GRA. DC had filed many GRAs over the years and had never failed 
to timely file a GRA. However, although DC prepared the GRA with 
respect to the FS Transfer, it was not filed with DC's tax return 
for the year of the FS Transfer due to an accidental oversight. 
During the preparation of the following year's tax return, DC 
discovered that the GRA was not filed. DC filed an amended return to 
file the GRA and complied with the procedures set forth under 
paragraph (p)(2) of this section promptly after it became aware of 
the failure.
    (ii) Result. Because DC failed to file a GRA with its timely 
filed tax return for the year of the FS Transfer, there is a failure 
to timely file the GRA as required by paragraph (d)(1) of this 
section. However, based on the facts of this Example 1, including 
that the failure to timely file the GRA was an isolated oversight, 
the failure to timely file is not a willful failure to file. 
Accordingly, the timely filed requirement of paragraph (d)(1) of 
this section is considered to be satisfied, and DC is not required 
to recognize the gain realized on the FS Transfer under section 
367(a)(1).
    Example 2. Taxpayer's course of conduct is taken into account in 
determination. (i) Additional facts. DC filed its tax return for the 
year of the FS Transfer, reporting no gain with respect to the 
exchange of the FS stock, but failed to file a GRA. DC, through its 
tax department, was aware of the requirement to file a GRA in order 
for DC to avoid recognizing gain with respect to the FS Transfer 
under section 367(a)(1). DC had not consistently and in a timely 
manner filed GRAs in the past, and also had an established history 
of failing to timely file other tax and information returns for 
which it was subject to penalties. In a year subsequent to Year 1, 
DC transferred stock of another foreign subsidiary with respect to 
which DC had a built-in gain (FS2) to FA in a transaction that 
qualified as both a reorganization under section 368(a)(1)(B) and an 
exchange described under section 351 (FS2 Transfer). DC was required 
to recognize gain on the FS2 Transfer under section 367(a)(1) unless 
DC timely filed a GRA as required by paragraph (d)(1) of this 
section and complied with the requirements of this section during 
the term of the GRA. DC reported no gain on the FS2 Transfer on its 
tax return, but failed to file a GRA. At the time of the FS2 
Transfer, DC was already aware of its failure to file the GRA 
required for the prior FS Transfer, but had not implemented any 
safeguards to ensure that it would timely file GRAs for future 
transactions. DC filed an amended return to file the GRA for the FS2 
Transfer and complied with the procedures set forth under paragraph 
(p)(2) of this section promptly after it became aware of the 
failure. DC asserts that its failure to timely file a GRA with 
respect to the FS2 Transfer was due to an isolated oversight similar 
to the one that occurred with respect to the FS Transfer. At issue 
is DC's failure to timely file a GRA for the FS2 Transfer.
    (ii) Result. Because DC failed to file a GRA with its timely 
filed tax return for the year of the FS2 Transfer, there is a 
failure to timely file the GRA as required by paragraph (d)(1) of 
this section. DC's course of conduct is taken into account in 
determining whether its failure to timely file a GRA for the FS2 
Transfer was willful. Based on the facts of this Example 2, 
including DC's history of failing to file required tax and 
information returns in general and GRAs in particular, and its 
failure to implement safeguards to ensure that it would timely file 
GRAs, the failure to timely file a GRA with respect to the FS2 
Transfer rises to the level of a willful failure to timely file. 
Accordingly, the timely filed requirement of paragraph (d)(1) of 
this section is not satisfied, and DC must recognize the full amount 
of the gain realized on the FS2 Transfer.
    Example 3. GRA not completed in all material respects. (i) 
Additional facts. DC timely filed its tax return for the year of the 
FS Transfer, reporting no gain with respect to the exchange of the 
FS stock. DC was aware of the requirement to file a GRA to avoid 
recognizing gain under section 367(a)(1), including the requirement 
to provide the basis and fair market value of the transferred stock. 
However, DC filed a purported GRA that did not contain the fair 
market value of the FS stock. Instead, the GRA was filed with the 
statement that the fair market value information was ``available 
upon request.'' Other than the omission of the fair market value of 
the FS stock, the GRA contained all other information required by 
this section.
    (ii) Result. Because DC omitted the fair market value of the FS 
stock from the GRA, the GRA was not completed in all material 
respects. Accordingly, there is a failure to timely file the GRA. 
Furthermore, because DC knowingly omitted such information, DC's 
omission is a willful failure to timely file a GRA. Accordingly, the 
GRA is not considered timely filed for purposes of paragraph (d)(1) 
of this section, and DC must recognize the full amount of the gain 
realized on the FS Transfer. A similar result would arise if DC had 
included the fair market value of the FS stock, but omitted its tax 
basis from the GRA.
    Example 4. GRA filed as a result of hindsight. (i) Additional 
facts. At the time that DC filed its tax return for the tax year of 
the FS Transfer, DC anticipated selling Business A in the following 
tax year, which was expected to produce a capital loss that could be 
carried back to fully offset the gain recognized on the FS Transfer. 
DC chose not to file a GRA but to recognize the gain from the FS 
Transfer under section 367(a)(1), which it reported on its timely 
filed tax return. However, a large class action lawsuit was filed 
against Business A at the end of the following year, and DC was 
unable to sell the business. As a result, DC did not realize the 
expected capital loss, and was not able to offset the gain from the 
FS Transfer. DC now seeks to file a GRA for the FS Transfer.
    (ii) Result. Because DC failed to file a GRA with its timely 
filed tax return for the year of the FS Transfer, there is a failure 
to timely file the GRA as required by paragraph (d)(1) of this 
section. Furthermore, because DC knowingly chose not to file a GRA 
for the FS Transfer, its actions constitute a willful failure to 
timely file a GRA. Accordingly, the GRA is not considered timely 
filed for purposes of paragraph (d)(1) of this section, and DC must 
recognize the full amount of the gain realized on the FS Transfer.
* * * * *
    (r) Effective/applicability date--(1) General rule--(i) Transfers 
occurring on or after March 13, 2009. * * * The eleventh sentence of 
paragraph (a) and paragraphs (b)(1)(iv), (b)(1)(vi), (b)(1)(xiii), 
(d)(1), (j)(8), and (p) of this section will apply to gain recognition 
agreement documents that are required to be filed with a timely filed 
return on or after the date of publication of the Treasury decision 
adopting these rules as final regulations in the Federal Register, as 
well as to any requests for relief for failures to file gain 
recognition agreement documents, or failures to comply, if such 
requests are submitted on or after the date of publication of the 
Treasury decision adopting these rules as final regulations in the 
Federal Register.
* * * * *
0
Par. 4. Section 1.367(e)-2 is amended:
0
1. By revising the ninth sentence and adding two new sentences before 
the last sentence of paragraph (a).
0
2. By revising paragraph (b)(1)(i).
0
3. In paragraph (b)(2)(i)(A)(2) by removing the language ``its U.S. 
income tax returns'' and adding the language ``its timely filed U.S. 
income tax returns'' in its place.
0
4. In paragraph (b)(2)(i)(A)(3) by removing the language ``its U.S. 
income tax return'' and adding the language ``its timely filed U.S. 
income tax return'' in its place.
0
5. In the first sentence of paragraph (b)(2)(i)(E)(3) by removing the 
language ``its U.S. income tax return'' and adding the language ``its 
timely filed U.S. income tax return'' in its place.
0
6. In paragraph (b)(2)(i)(E)(4)(ii) by removing the language ``its U.S. 
income tax return'' and adding the language ``its timely filed U.S. 
income tax return'' in its place.
0
7. In paragraph (b)(2)(i)(E)(5)(ii) by removing the language ``its U.S. 
income tax return'' and adding the language ``its timely filed U.S. 
income tax return'' in its place.
0
8. In the first sentence of paragraph (b)(2)(iii)(A) by removing the 
language ``its U.S. income tax return'' and adding

[[Page 6779]]

the language ``its timely filed U.S. income tax return'' in its place.
0
9. In paragraph (c)(2)(i)(B)(3) by removing the language ``their U.S. 
income tax returns'' and adding the language ``their timely filed U.S. 
income tax returns'' in its place.
0
10. By revising paragraph (e).
0
11. By adding paragraphs (f) and (g).
    The revisions and additions read as follows:
    Sec.  1.367(e)-2. Distributions described in section 367(e)(2)--(a) 
Purpose and scope--(1) In general. * * * Paragraph (e) of this section 
provides rules regarding failures to file statements or other documents 
required under this section or failures to comply with the requirements 
of this section. Paragraph (f) of this section provides relief for 
certain failures to file or comply. Finally, paragraph (g) of this 
section specifies the effective/applicability date for the rules of 
this section. * * *
* * * * *
    (b) Distribution by a domestic corporation--(1) General rule--(i) 
Recognition of gain and loss. If a domestic corporation (domestic 
liquidating corporation) makes a distribution of property in complete 
liquidation under section 332 to a foreign corporation (foreign 
distributee corporation) that meets the stock ownership requirements of 
section 332(b) with respect to stock in the domestic liquidating 
corporation, then--
    (A) Pursuant to section 367(e)(2), section 337(a) and (b)(1) shall 
not apply; and
    (B) The domestic liquidating corporation shall recognize gain or 
loss on the distribution of property to the foreign distributee 
corporation, except as provided in paragraph (b)(2) of this section.
* * * * *
    (e) Failures to file or failures to comply--(1) Scope. This 
paragraph (e) provides rules regarding a failure to file an initial 
liquidation document with respect to one or more liquidating 
distributions by a domestic liquidating corporation that, absent such 
failure, would qualify for nonrecognition treatment under paragraph 
(b)(2)(i) or (iii) of this section, or with respect to one or more 
liquidating distributions by a foreign liquidating corporation that, 
absent such failure, would qualify for nonrecognition treatment under 
paragraph (c)(2)(i)(B) of this section (failure to file). This 
paragraph (e) also provides rules regarding failures to comply in all 
material respects with the terms of this section with respect to one or 
more liquidating distributions for which nonrecognition treatment was 
initially claimed under paragraph (b)(2)(i), (b)(2)(iii), or 
(c)(2)(i)(B) of this section, as applicable (failure to comply).
    (2) Definitions. The following definitions apply for purposes of 
this section.
    (i) An initial liquidation document means any statement, schedule, 
or form required to be filed under this section in order for the 
domestic liquidating corporation or foreign liquidating corporation, as 
applicable, to initially qualify to claim nonrecognition treatment with 
respect to one or more liquidating distributions described in this 
section, including--
    (A) The statement and attachments described in paragraph 
(b)(2)(i)(C) of this section;
    (B) The statement described in paragraph (b)(2)(iii)(D) of this 
section; and
    (C) The statement and attachments described in paragraph 
(c)(2)(i)(C) of this section.
    (ii) A subsequent liquidation document means any statement, 
schedule, or form (other than an initial liquidation document) required 
to be filed under this section in order for the domestic liquidating 
corporation or foreign liquidating corporation, as applicable, to 
continue to qualify for nonrecognition treatment with respect to one or 
more liquidating distributions described in this section, including--
    (A) The schedule described in paragraph (b)(2)(i)(E)(3) of this 
section;
    (B) The schedule described in paragraph (b)(2)(i)(E)(4)(ii) of this 
section; and
    (C) The statement and attachments described in paragraph 
(b)(2)(i)(E)(5) of this section.
    (iii) A timely filed U.S. income tax return means a Federal income 
tax return filed by the due date set forth in section 6072, plus any 
extension of time to file such return granted under section 6081.
    (3) Failure to file--(i) General rule. For purposes of this section 
and except as provided in paragraph (e)(5) or (f) of this section, 
there is a failure to file an initial liquidation document if--
    (A) An initial liquidation document is not filed with the timely 
filed U.S. income tax return specified under this section, or
    (B) An initial liquidation document is not completed in all 
material respects.
    (ii) Consequences of a failure to file. If there is a failure to 
file an initial liquidation document, then nonrecognition treatment 
under paragraph (b)(2)(i), (b)(2)(iii), or (c)(2)(i)(B) of this section 
(as appropriate) will not apply.
    (4) Failure to comply--(i) General rule. For purpose of this 
section and except as provided in paragraph (e)(5) or (f) of this 
section, a failure to comply includes--
    (A) A failure to report gain, or pay any additional tax or interest 
due, in accordance with the requirements under this section; and
    (B) A failure to file a subsequent liquidation document, as 
determined applying paragraph (e)(3)(i) of this section, but replacing 
the term ``initial liquidation document'' with the term ``subsequent 
liquidation document.''
    (ii) Consequences of a failure to comply. If there is a failure to 
comply in any material respect with the terms of paragraph (b)(2)(i), 
(b)(2)(iii), or (c)(2)(i) of this section, as applicable, then--
    (A) Any gain (but not loss) that was not previously recognized by 
the domestic liquidating corporation or foreign liquidating 
corporation, as applicable, under paragraph (b)(2)(i), (b)(2)(iii), or 
(c)(2)(i)(B) of this section must be recognized; and
    (B) The period of limitations on assessment of tax is extended 
until the close of the third full taxable year ending after the date on 
which the Director of Field Operations International, Large Business & 
International (or any successor to the roles and responsibilities of 
such position, as appropriate) (Director) is provided written 
notification that specifically references the failure to comply, or a 
tax return is filed reporting the gain that was not recognized by the 
domestic liquidating corporation or the foreign liquidating 
corporation, as applicable, by reason of paragraph (b)(2)(i), 
(b)(2)(iii), or (c)(2)(i)(B) of this section.
    (f) Relief for certain failures to file or failures to comply that 
are not willful--(1) In general. This paragraph (f) provides relief if 
there is a failure to file an initial liquidation document as described 
in paragraph (e)(3)(i) of this section (failure to file), or a failure 
to comply in any material respect with the terms of this section as 
described in paragraph (e)(4)(i) of this section (failure to comply), 
respectively. The failure to file or a failure to comply, as 
applicable, is deemed not to have occurred for purposes of paragraph 
(e)(3)(ii) or (e)(4)(ii) of this section if the taxpayer is able to 
demonstrate that the failure was not willful using the procedure set 
forth in this paragraph (f). For this purpose, willful is to be 
interpreted consistent with the meaning of that term in the context of 
other civil penalties, which

[[Page 6780]]

would include a failure due to gross negligence, reckless disregard, or 
willful neglect. Whether a failure to file or failure to comply, as 
applicable, was willful will be determined by the Director based on all 
the facts and circumstances.
    The taxpayer shall submit a request for relief and an explanation 
as provided in paragraph (f)(2)(i) of this section. Although a taxpayer 
whose failure to file or failure to comply, as applicable, is 
determined not to be willful will avoid gain or loss recognition under 
this section, the taxpayer will be subject to a penalty under section 
6038B if the taxpayer fails to satisfy the reporting requirements under 
that section and does not demonstrate that the failure was due to 
reasonable cause and not willful neglect. See Sec.  1.6038B-1(e)(4) and 
(f). The determination of whether the failure to file or failure to 
comply was willful under this section has no effect on any request for 
relief made under Sec.  1.6038B-1(f).
    (2) Procedures for establishing that a failure to file or comply 
was not willful--(i) Time of submission. A taxpayer's statement that 
the failure to file or failure to comply, as applicable, was not 
willful will be considered only if, promptly after the taxpayer becomes 
aware of the failure, an amended return is filed for the taxable year 
to which the failure relates that includes the information that should 
have been included with the original return for such taxable year or 
that otherwise complies with the rules of this section, and that 
includes a written statement explaining the reasons for the failure. In 
the case of a liquidating distribution described in paragraph (b)(2)(i) 
or (c)(2)(i)(B) of this section, the taxpayer must file, with the 
amended return, a Form 8838 extending the period of limitations on the 
assessment of tax with respect to the gain realized but not recognized 
with respect to the liquidating distribution to the later of the date 
provided in paragraph (b)(2)(i)(C)(5), taking into account paragraph 
(c)(2)(i)(C) and (D), as applicable, or three years from the date the 
required information is provided to, or the required gain or loss is 
reported to, as applicable, the IRS. In the case of a liquidating 
distribution described in paragraph (b)(2)(iii) of this section, the 
taxpayer must file, with the amended return, a Form 8838 extending the 
period of limitations on assessment of tax with respect to the gain 
realized but not recognized with respect to the liquidating 
distribution to three years from the date the required information is 
provided to the IRS, or the required gain or loss is reported to the 
IRS. The amended return and Form 8838 must be filed with the applicable 
Internal Revenue Service Center with which the taxpayer filed its 
original return for such taxable year. The taxpayer may also submit a 
request for relief from the penalty of section 6038B as part of the 
same submission.
    (ii) Notice requirement. In addition to the requirements of 
paragraph (f)(2)(i) of this section, the taxpayer must comply with the 
notice requirements of this paragraph (f)(2)(ii). If any taxable year 
of the taxpayer is under examination when the amended return is filed, 
a copy of the amended return and any information required to be 
included with such return must be delivered to the Internal Revenue 
Service personnel conducting the examination. If no taxable year of the 
taxpayer is under examination when the amended return is filed, a copy 
of the amended return and any information required to be included with 
such return must be delivered to the Director.
    (3) For an illustration of the application of the willfulness 
standard, see the examples in Sec.  1.367(a)-8(p)(3).
    (g) Effective/applicability dates. The ninth, tenth, and eleventh 
sentences of paragraph (a) of this section, and paragraphs (b)(1)(i), 
(b)(2)(i)(A)(2), (b)(2)(i)(A)(3), (b)(2)(i)(E)(3), (b)(2)(i)(E)(4)(ii), 
(b)(2)(i)(E)(5)(ii), (b)(2)(iii)(A), (c)(2)(i)(B)(3), (e), and (f) of 
this section will apply to liquidation documents that are required to 
be filed with a timely filed U.S. income tax return on or after the 
date of publication of the Treasury decision adopting these rules as 
final regulations in the Federal Register, as well as to any requests 
for relief for failures to file liquidation documents, or failures to 
comply, if such requests are submitted on or after the date of 
publication of the Treasury decision adopting these rules as final 
regulations in the Federal Register.
0
Par. 5. Section 1.6038B-1 is amended by:
0
1. Adding a sentence after the first sentence in paragraph (b)(1)(i).
0
2. Revising paragraph (b)(2)(i)(B)(1).
0
3. Adding paragraph (b)(2)(iii).
0
4. Adding paragraph (b)(2)(iv).
0
5. Revising paragraph (c).
0
6. Revising paragraph (e)(4).
0
7. Adding paragraph (f)(2)(iii).
0
8. Adding paragraph (f)(2)(iv).
0
9. Adding paragraph (g)(5).
    The revisions and additions read as follows:


Sec.  1.6038B-1  Reporting of certain transfers to foreign 
corporations.

* * * * *
    (b) Time and manner of reporting--(1) In general--(i) Reporting 
procedure. * * * In addition, if the U.S. person files a statement 
under Sec.  1.367(a)-3(d)(2)(vi)(C), a gain recognition agreement under 
Sec.  1.367(a)-8, or a liquidation document under Sec.  1.367(e)-2(b), 
such person must comply in all material respects with the requirements 
of such section pursuant to the terms of the statement, gain 
recognition agreement, or liquidation document, as applicable, in order 
to satisfy a reporting obligation under section 6038B. * * *
* * * * *
    (2) * * *
    (i) * * *
    (B) * * *
    (1) Except as provided in paragraph (b)(2)(iii) of this section, 
the U.S. transferor (or one or more successors) filed an initial gain 
recognition agreement under Sec.  1.367(a)-8, and filed Form 926 in 
accordance with paragraph (b)(2)(iv) of this section; or
* * * * *
    (ii) * * *
    (iii) Timely filed initial gain recognition agreement. Paragraph 
(b)(2)(i)(B)(1) of this section will not apply unless the initial gain 
recognition agreement is timely filed as determined under Sec.  
1.367(a)-8(d)(1), but for purposes of this section, determined without 
regard to Sec.  1.367(a)-8(p). However, see paragraph (f)(3) of this 
section for certain relief that may be available.
    (iv) Satisfaction of section 6038B reporting if a gain recognition 
agreement is filed. If the U.S. transferor is described in paragraph 
(b)(2)(i)(B)(1) of this section and is not otherwise required to file a 
Form 926 with respect to a transfer of assets other than the stock or 
securities to the transferee foreign corporation, the requirements of 
this section are satisfied with respect to the transfer of the stock or 
securities by completing Part I and Part II of Form 926, noting in Part 
III that the information required by Form 926 with respect to the 
transfer of stock or securities is contained in a gain recognition 
agreement filed pursuant to Sec.  1.367(a)-8, and attaching a signed 
copy of the Form 926 to its U.S. income tax return for the year of the 
transfer. If the U.S. transferor is required to file Form 926 with 
respect to a transfer of assets in addition to the stock or securities, 
the requirements of this section are satisfied with respect to the 
transfer of the stock or securities by noting in Part III that the 
information required by Form 926 with respect to the transfer of stock 
or securities is contained in a gain recognition

[[Page 6781]]

agreement filed pursuant to Sec.  1.367(a)-8.
* * * * *
    (c) * * *
    (1) through (4)(i) [Reserved]. For further guidance, see Sec.  
1.6038B-1T(c)(1) through (4)(i).
    (ii) Stock or securities. Describe any stock or securities that are 
transferred, including the adjusted tax basis and fair market value of 
the stock or securities, the class or type, amount, and characteristics 
of the stock or securities, and the name, address, place of 
incorporation, and general description of the corporation issuing the 
stock or securities. In addition, if any provision of Sec.  1.367(a)-3 
applies to except the transfer of the stock or securities from section 
367(a)(1), provide information supporting the claimed application of 
such provision. However, see paragraph (b)(2) of this section for 
certain exceptions and special rules for reporting transfers of stock 
or securities under section 367(a).
    (5) [Reserved]. For further guidance, see Sec.  1.6038B-1T(c)(5).
* * * * *
    (e) * * *
    (4) Reporting rules for section 367(e)(2) distributions by domestic 
liquidating corporations--(i) General rule. Except as provided in 
paragraph (e)(4)(ii) of this section, if the distributing corporation 
makes a distribution of property in complete liquidation under section 
332 to a foreign distributee corporation that meets the stock ownership 
requirements of section 332(b) with respect to the stock of the 
distributing corporation, then the distributing corporation shall 
complete a Form 926 and attach a signed copy of such form to its timely 
filed U.S. income tax return for the taxable years that include one or 
more liquidating distributions. The property description contained in 
Part III of the Form 926 shall contain a description, including the 
adjusted tax basis and fair market value, of all property distributed 
by the distributing corporation (regardless of whether the distribution 
of the property qualifies for nonrecognition treatment). The 
description shall also identify the items of property for which 
nonrecognition treatment is claimed under Sec.  1.367(e)-2(b)(2)(ii) or 
(iii), as applicable.
    (ii) Special rule. Except as provided in paragraph (e)(4)(iii) of 
this section, if the distributing corporation distributes items of 
property that will be used by the foreign distributee corporation in 
the conduct of a trade or business in the United States and the 
distributing corporation does not recognize gain or loss on such 
distribution under Sec.  1.367(e)-2(b)(2)(i) with respect to such 
property, then the distributing corporation may satisfy the 
requirements of this section by completing Part I and Part II of Form 
926, noting in Part III that the information required by Form 926 is 
contained in a statement required by Sec.  1.367(e)-2(b)(2)(i)(C)(2), 
and attaching a signed copy of Form 926 to its timely filed U.S. income 
tax return for the taxable years that include one or more distributions 
in liquidation. In addition, if the distributing corporation 
distributes stock of a domestic subsidiary corporation and does not 
recognize gain or loss on such distribution under Sec.  1.367(e)-
2(b)(2)(iii) with respect to such stock, then the distributing 
corporation may satisfy the requirements of this section by completing 
Part I and Part II of Form 926, noting in Part III that the information 
required by Form 926 is contained in a statement required by Sec.  
1.367(e)-2(b)(2)(iii)(D), and attaching a signed copy of Form 926 to 
its timely filed U.S. income tax return for the taxable years that 
include one or more distributions of domestic subsidiary stock.
    (iii) Properly filed statement. Paragraph (e)(4)(ii) will not apply 
if there is a failure to file an initial liquidation document as 
determined under Sec.  1.367(e)-2(e)(3)(i), but for purposes of this 
section, determined without regard to Sec.  1.367(e)-2(f). However, see 
paragraph (f)(3) of this section for certain relief that may be 
available.
    (f) * * *
    (2) * * *
    (iii) With respect to an initial gain recognition agreement filed 
under Sec.  1.367(a)-8, a failure to comply as determined under Sec.  
1.367(a)-8(j)(8), but for purposes of this section, determined without 
regard to the application of Sec.  1.367(a)-8(p).
    (iv) With respect to an initial liquidation document filed under 
Sec.  1.367(e)-2(b)(1), a failure to comply as determined under Sec.  
1.367(e)-2(e)(4)(i), but for purposes of this section, determined 
without regard to the application of Sec.  1.367(e)-2(f).
* * * * *
    (g) * * *
    (5) The second sentence of paragraph (b)(1)(i) and paragraphs 
(b)(2)(i)(B)(1), (b)(2)(iii), (b)(2)(iv), (c), (e)(4), (f)(2)(iii), and 
(f)(2)(iv) of this section will apply to documents required to be filed 
with a timely filed return on or after the date of publication of the 
Treasury decision adopting these rules as final regulations in the 
Federal Register, as well as to any requests for relief for failures to 
file documents, or failures to comply, if such requests are submitted 
on or after the date of publication of the Treasury decision adopting 
these rules as final regulations in the Federal Register.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2013-01749 Filed 1-30-13; 8:45 am]
BILLING CODE 4830-01-P