Supporting Statement for 1545-1364

SUPPORTING STATEMENT

(T.D. 9568)

OMB # 1545-1364

1. CIRCUMSTANCES NECESSITATING COLLECTION OF INFORMATION

Section 1.482-7 provides guidance with respect to the sharing of costs and risks under cost sharing arrangements (CSAs). A proposed section 1.482-7 to replace the existing guidance under section 1.482-7 was published in 2005. The proposed regulations provided additional guidance regarding the external inputs for which arm’s length consideration must be provided as an entry condition into cost sharing, as well as to address other technical and procedural issues that have arisen in the course of the administration of the cost sharing rules. As part of that revision, the proposed regulations updated and expanded upon the documentation and reporting requirements under the existing regulations.

The final and temporary regulations published in the Federal Register on January 5, 2009 (74 FR 340) to replace current section 1.482-7 will further expand the documentation requirements of the regulations proposed in 2005. These collections of information are necessary in order to identify the scope of the intangible development activity undertaken in the cost sharing arrangement and the form of payment used to provide arm’s length compensation to those participants providing platform contributions for such activity.

When the cost sharing regulations were finalized in December 22, 2011 under T.D. 9568 (2012-12 I.R.B. 499; 76 FR 80082), the Treasury removed the temporary regulations under T.D. 9441.

2. USE OF DATA

The information will be used to administer and enforce section 482 of the Internal Revenue Code.

3. USE OF IMPROVED INFORMATION TECHNOLOGY TO REDUCE BURDEN

There are no plans to provide electronic filing because electronic filing is not appropriate for the collection of information in this submission.

4. EFFORTS TO IDENTIFY DUPLICATION

We have attempted to eliminate duplication within the agency wherever possible.

5. METHODS TO MINIMIZE BURDEN ON SMALL BUSINESSES OR OTHER SMALL ENTITIES

Not applicable.

6. CONSEQUENCES OF LESS FREQUENT COLLECTION ON FEDERAL PROGRAMS OR POLICY ACTIVITIES

Not applicable.

7. SPECIAL CIRCUMSTANCES REQUIRING DATA COLLECTION TO BE

INCONSISTENT WITH GUIDELINES IN 5 CFR 1320.5(d)(2)

Not applicable.

8. CONSULTATION WITH INDIVIDUALS OUTSIDE OF THE AGENCY ON

AVAILABILITY OF DATA, FREQUENCY OF COLLECTION, CLARITY

OF INSTRUCTIONS AND FORMS, AND DATA ELEMENTS

A notice of proposed rulemaking was published in the Federal Register on August 29, 2005 (70 FR 51116) relating to proposed regulations that provide guidance regarding methods under section 482 to determine taxable income in connection with a cost sharing arrangement. A public hearing was held on November 16, 2005. A final and temporary regulation was published in the Federal Register on January 5, 2009 (74 FR 340) along with another notice of proposed rulemaking (74 FR 236). Later, T.D. 9568 (2012-12 I.R.B. 499; 76 FR 80082), removed the temporary regulations under T.D. 9441 and finalized the cost sharing regulations.

In response to the Federal Register Notice dated March 11, 2014, (79 FR 13739), we received no comments during the comment period regarding T.D. 9568.

9. EXPLANATION OF DECISION TO PROVIDE ANY PAYMENT OR GIFT TO

RESPONDENTS

Not applicable.

10. ASSURANCE OF CONFIDENTIALITY OF RESPONSES

Generally, tax returns and tax return information are confidential as required by 26 USC 6103.

11. JUSTIFICATION OF SENSITIVE QUESTIONS

In accordance with the Privacy Act of 1974, Treasury has published its complete Privacy Act systems of records notices, which include all maintained records systems as of January 2, 2014; six systems have been amended, altered, or added since April 20, 2010, when the complete notices were last published. See 79 F.R. 209-261 and 79 F.R. 183-206, which was published on August 10, 2012, 77 FR 47930.

A privacy impact assessment (PIA) has been conducted for information collected under this request as part of the “Business Master File (BMF)” system and a Privacy Act System of Records notice (SORN) has been issued for this system under IRS 24.046-Customer Account Data Engine Business Master File. The Department of Treasury PIAs can be found at http://www.treasury.gov/privacy/PIAs/Pages/default.aspx.

Title 26 USC 6109 requires inclusion of identifying numbers in returns, statements, or other documents for securing proper identification of persons required to make such returns, statements, or documents and is the authority for social security numbers (SSNs) in IRS systems.

12. ESTIMATED BURDEN OF INFORMATION COLLECTION

Currently, § 1.482-7(b)(4)requires cost sharing participants to record the CSA in a document that contains certain provisions and is contemporaneous with the formation of the CSA. Section 1.482-7(k)(1), as proposed in 2005, further expanded on the current requirements by requiring the CSA to contain additional provisions that would (1) specify the functions and risks that each controlled participant will undertake in connection with the CSA, (2) enumerate all categories of intangible development costs to be shared under the CSA, (3) require the controlled participants to enter into cost sharing transactions covering all such costs and (4) require the controlled participants to enter into preliminary or contemporaneous transactions (PCTs) covering all external contributions.

Currently, § 1.482-7(j)(2) imposes certain documentation requirements on participants in a CSA. Section 1.482-7(k)(2), as proposed in 2005, further expanded on the current requirements by requiring the participants to maintain records necessary to (1) establish that the participants have met the additional requirements of § 1.482-7(k)(1), as listed above, (2) describe all updates of reasonably anticipated benefits shares, (3) describe the reference transaction with reference to each PCT or group of PCTs, (4) specify the form of payments due under each PCT or group of PCTs, (5) specify the estimated arm’s length value as of the date of the relevant PCTs, (6) describe, where applicable, why transactions were or were not aggregated, (7) specify the method payment form and (8) under certain circumstances, specify the weighted average cost of capital of the controlled group that includes the participants.

Currently, § 1.482-7(j)(3) requires a cost sharing participant to annually file a statement attached to its U.S. Income tax return or, if not required, to schedule M of any Form 5471 or Form 5472 it is required to file. Section 1.482-7(k)(4), as proposed in 2005 somewhat expanded the material to be included in this annual statement.

The reporting requirements of temporary § 1.482-7(k) generally follow the 2005 proposed regulations, albeit with some minor changes in terminology. However, as described below, the temporary regulations will supplement the recordkeeping requirements set forth in §§ 1.482-7(k)(1) and (2) as proposed in 2005. Section 1.482-7(k)(1)(i)(J) has been added that will require the CSA to contain a provision specifying the type of payment due under each PCT in existence at the formation (or any revision) of the CSA. Section 1.482-7(k)(2)(ii)(A) is amended to require the participants to maintain additional records necessary to establish the scope of the intangible development activity undertaken pursuant to the CSA. Section 1.482-7(k)(2)(ii)(1) is amended to require retention of additional information relevant to establishing that a PCT payment is arm’s length.

We estimate that approximately 500 Respondents will file a response, with each response requiring an average of 18 hours and 42 minutes, resulting in a total burden of 9,350 hours.

13. ESTIMATED TOTAL ANNUAL COST BURDEN TO RESPONDENTS

As suggested by OMB, our Federal Register Notice dated March 11, 2014, (79 FR 13739), requested public comments on estimates of cost burden that are not captured in the estimates of burden hours, i.e., estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information. However, we did not receive any response from taxpayers, during the comment period on this subject. As a result, estimates of the cost burdens are not available at this time.

14. ESTIMATED ANNUALIZED COST TO THE FEDERAL GOVERNMENT

Not applicable.

15. REASONS FOR CHANGE IN BURDEN

We are making this submission to renew the OMB approval.

16. PLANS FOR TABULATION, STATISTICAL ANALYSIS AND PUBLICATION

Not applicable.

17. REASONS WHY DISPLAYING THE OMB EXPIRATION DATE IS

INAPPROPRIATE

We believe that displaying the OMB expiration date is inappropriate because it could cause confusion by leading taxpayers to believe that the regulation sunsets as of the expiration date. Taxpayers are not likely to be aware that the Service intends to request renewal of the OMB approval and obtain a new expiration date before the old one expires.

18. EXCEPTIONS TO THE CERTIFICATION STATEMENT ON OMB FORM 83-I

Not applicable.

Note: The following paragraph applies to all of the collections of information in this submission:

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 OMB control number. 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.

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