[Federal Register Volume 86, Number 188 (Friday, October 1, 2021)]
[Rules and Regulations]
[Pages 54367-54368]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21175]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9922]
RIN 1545-BP21; 1545-BP22


Guidance Related to the Allocation and Apportionment of 
Deductions and Foreign Taxes, Foreign Tax Redeterminations, Foreign Tax 
Credit Disallowance Under Section 965(g), Consolidated Groups, Hybrid 
Arrangements and Certain Payments Under Section 951A; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendments.

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SUMMARY: This document contains corrections to the final regulations 
(Treasury Decision 9922) that were published in the Federal Register on 
Thursday, November 12, 2020. Treasury Decision 9922 provided guidance 
relating to the allocation and apportionment of deductions and 
creditable foreign taxes, the definition of financial services income, 
foreign tax redeterminations, availability of foreign tax credits under 
the transition tax, the application of the foreign tax credit 
limitation to consolidated groups, adjustments to hybrid deduction 
accounts to take into account certain inclusions in income by a United 
States shareholder, conduit financing arrangements involving hybrid 
instruments, and the treatment of certain payments under the global 
intangible low-taxed income provisions.

DATES: Effective on October 1, 2021, and applicable as of November 12, 
2020.

FOR FURTHER INFORMATION CONTACT: Concerning Sec. Sec.  1.861-8 and 
1.861-17, Jeffrey P. Cowan, (202) 317-4924; concerning Sec. Sec.  
1.861-20, 1.904-4, and 1.904-6, Suzanne M. Walsh, (202) 317-4908; 
concerning Sec.  1.881-3, Richard F. Owens, (202) 317-6501; concerning 
Sec.  1.904(g)-3, Jeffrey L. Parry, (202) 317 4916; concerning Sec.  
1.905-4T, Corina Braun, (202) 317-5004 (not toll-free numbers).

Background

    The final regulations (TD 9922) that are the subject of this 
correction are issued under sections 861, 881, 904, and 905 of the 
Internal Revenue Code.

Need for Correction

    As published on Thursday, November 12, 2020 (85 FR 71998), the 
final regulations (TD 9922) contain errors that need to be corrected.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Correction of Publication

    Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:

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 1.861-8 is amended by revising the last sentence of 
paragraph (e)(5)(ii) and the first and second sentences of paragraph 
(e)(8)(ii) to read as follows:


Sec.  1.861-8  Computation of taxable income from sources within the 
United States and from other sources and activities.

* * * * *
    (e) * * *
    (5) * * *
    (ii) * * * The deductions are apportioned among the statutory and 
residual groupings on the basis of the relative values (as determined 
under the asset method in Sec.  1.861-9 for purposes of allocating and 
apportioning the taxpayer's interest expense) of the assets that were 
involved in the event or (if the taxpayer no longer owns the assets 
involved in the event) the assets that are used to produce or sell 
products or services in the relevant class in each grouping; such 
values are determined in the year the deductions are allowed.
* * * * *
    (8) * * *
    (ii) * * * A net operating loss taken as a deduction in computing 
taxable income for a particular taxable year as allowed under section 
172 is allocated and apportioned to statutory and residual groupings by 
reference to the statutory and residual groupings of the components of 
the net operating loss (as determined under paragraph (e)(8)(i) of this 
section) that is deducted in the taxable year. Except as provided under 
the rules for an operative section, if the full net operating loss 
carryover is not taken as a deduction in a taxable year, the partial 
net operating loss deduction is treated as ratably comprising the 
components of a net operating loss. * * *
* * * * *

0
Par. 3. Section 1.861-17 is amended in paragraph (d)(4)(iv), by 
revising the first sentence and adding a sentence at the end of the 
paragraph to read as follows:


Sec.  1.861-17   Allocation and apportionment of research and 
experimental expenditures.

* * * * *
    (d) * * *
    (4) * * *
    (iv) * * * If the controlled party has entered into a cost sharing 
arrangement, in accordance with the provisions of Sec.  1.482-7, with 
the taxpayer for the purpose of developing intangible property, then 
ordinarily the controlled party is not reasonably expected to acquire 
rights in intangible property that would arise from the taxpayer's 
share of the R&E expenditures with respect to the cost shared 
intangibles as defined in Sec.  1.482-7(j)(1)(i); acquire products in 
which such intangible property is embedded or used in connection with 
the manufacture or sale of such products; or receive services that 
incorporate or directly or indirectly benefit from such intangible 
property. * * * However, the rule in this paragraph (d)(4)(iv) does not 
apply, and the controlled party's sales are taken into account, to the 
extent the taxpayer licenses, or has licensed, to the controlled party 
intangible property resulting from a cost sharing arrangement with the 
controlled party.
* * * * *

0
 Par. 4. Section 1.861-20 is amended by revising the first sentence of 
paragraph (d)(3)(i)(B)(2) to read as follows:


Sec.  1.861-20   Allocation and apportionment of foreign income taxes.

* * * * *
    (d) * * *
    (3) * * *
    (i) * * *
    (B) * * *
    (2) * * * The foreign dividend amount is, to the extent of the U.S. 
dividend amount, assigned to the same statutory and residual grouping 
(or ratably to the groupings) to which a distribution of the U.S. 
dividend amount is assigned under Federal income tax law. * * *
* * * * *


Sec.  1.881-3   [Amended]

0
 Par. 5. For each entry in Sec.  1.881-3 in the ``Paragraph Heading'' 
column, remove the language in ``Remove'' column and add in its place 
the

[[Page 54368]]

language in the ``Add'' column as set forth below:

------------------------------------------------------------------------
        Paragraph heading                Remove               Add
------------------------------------------------------------------------
Paragraph (e)(5).................  Example 4.........  Example 5
Paragraph (e)(6).................  Example 5.........  Example 6
Paragraph (e)(7).................  Example 6.........  Example 7
Paragraph (e)(8).................  Example 7.........  Example 8
Paragraph (e)(9).................  Example 8.........  Example 9
Paragraph (e)(10)................  Example 9.........  Example 10
Paragraph (e)(11)................  Example 10........  Example 11
Paragraph (e)(12)................  Example 11........  Example 12
Paragraph (e)(13)................  Example 12........  Example 13
Paragraph (e)(14)................  Example 13........  Example 14
Paragraph (e)(15)................  Example 14........  Example 15
Paragraph (e)(16)................  Example 15........  Example 16
Paragraph (e)(17)................  Example 16........  Example 17
Paragraph (e)(18)................  Example 17........  Example 18
Paragraph (e)(19)................  Example 18........  Example 19
Paragraph (e)(20)................  Example 19........  Example 20
Paragraph (e)(21)................  Example 20........  Example 21
Paragraph (e)(22)................  Example 21........  Example 22
Paragraph (e)(23)................  Example 22........  Example 23
Paragraph (e)(24)................  Example 23........  Example 24
Paragraph (e)(25)................  Example 24........  Example 25
Paragraph (e)(26)................  Example 25........  Example 26
Paragraph (e)(27)................  Example 26........  Example 27
------------------------------------------------------------------------

Sec.  1.904-4   [Amended]

0
Par. 6. Section 1.904-4 is amended by removing the language ``and (3)'' 
from paragraph (q)(1).
0
Par. 7. Section 1.904-6 is amended by revising the first and second 
sentences of paragraph (f) to read as follows:


Sec.  1.904-6   Allocation and apportionment of foreign income taxes.

* * * * *
    (f) * * * Some or all of the foreign gross income of a United 
States shareholder of a controlled foreign corporation, or of a U.S. 
person that owns the United States shareholder (the ``U.S. owner''), 
that is attributable to foreign law inclusion regime income with 
respect to a foreign law CFC described in Sec.  1.861-20(d)(3)(iii) or 
foreign law pass-through income from a reverse hybrid described in 
Sec.  1.861-20(d)(3)(i)(C) is assigned to the section 951A category if, 
were the controlled foreign corporation the taxpayer that recognizes 
the foreign gross income, the foreign gross income would be assigned to 
the controlled foreign corporation's tested income group (as defined in 
Sec.  1.960-1(b)(33)) within the general category to which an inclusion 
under section 951A is attributable. The amount of the United States 
shareholder's, or the U.S. owner's, foreign gross income that is 
assigned to the section 951A category (or a specified separate category 
associated with the section 951A category) is based on the inclusion 
percentage (as defined in Sec.  1.960-2(c)(2)) of the United States 
shareholder. * * *
* * * * *

0
Par. 8. Section 1.904(g)-3 is amended by revising paragraphs (b)(2) and 
(3) to read as follows:


Sec.  1.904 (g)-3  Ordering rules for the allocation of net operating 
losses, net capital losses, U.S. source losses, and separate limitation 
losses, and for the recapture of separate limitation losses, overall 
foreign losses, and overall domestic losses.

* * * * *
    (b) * * *
    (2) Full net operating loss deduction. If the full net operating 
loss (that remains after carryovers to other taxable years) is deducted 
in computing the taxable income in a particular year (carryover year), 
so that there is no remaining net operating loss that can be carried to 
other taxable years, U.S. source losses and foreign source losses in 
separate categories that comprise the net operating loss shall be 
combined with the U.S. source income or loss and the foreign source 
income or loss in the same separate categories in the carryover year.
    (3) Partial net operating loss deduction. If the full net operating 
loss (that remains after carryovers to other taxable years) is not 
deducted in computing the taxable income in a carryover year, so that 
there is remaining loss that can be carried to other taxable years, the 
following rules apply:
    (i) Any U.S. source loss (not to exceed the amount of the net 
operating loss carryover deducted in computing the taxable income in 
the carryover year (the net operating loss deduction)) shall be carried 
over to the extent of any U.S. source income in the carryover year.
    (ii) If the net operating loss deduction exceeds the U.S. source 
loss carryover determined under paragraph (b)(3)(i) of this section, 
then separate limitation losses that are part of the net operating loss 
shall be tentatively carried over to the extent of separate limitation 
income in the same separate category in the carryover year. If the sum 
of the potential separate limitation loss carryovers determined under 
the preceding sentence exceeds the amount of the net operating loss 
deduction reduced by any U.S. source loss carried over under paragraph 
(b)(3)(i) of this section, then the potential separate limitation loss 
carryovers shall be reduced pro rata so that their sum equals such 
amount.
    (iii) If the net operating loss deduction exceeds the sum of the 
U.S. and separate limitation loss carryovers determined under 
paragraphs (b)(3)(i) and (ii) of this section, then a proportionate 
part of the remaining loss from each separate category shall be carried 
over to the extent of such excess and combined with the foreign source 
loss, if any, in the same separate categories in the carryover year.
    (iv) If the net operating loss deduction exceeds the sum of all the 
loss carryovers determined under paragraphs (b)(3)(i), (ii), and (iii) 
of this section, then any U.S. source loss not carried over under 
paragraph (b)(3)(i) of this section shall be carried over to the extent 
of such excess and combined with the U.S. source loss, if any, in the 
carryover year.
* * * * *


Sec.  1.905-4T   [Removed]

0
Par. 9. Section 1.905-4T is removed.

Oluwafunmilayo A. Taylor,
Chief, Publications and Regulations Branch, Legal Processing Division, 
Associate Chief Counsel, (Procedure and Administration).
[FR Doc. 2021-21175 Filed 9-30-21; 8:45 am]
BILLING CODE 4830-01-P