2020 Ss 1545-1056

SUPPORTING STATEMENT

Internal Revenue Service

TD 9922 (REG-105495-19) Foreign Tax Credit: Notification of Foreign Tax Redeterminations

OMB # 1545-1056

1. CIRCUMSTANCES NECESSITATING COLLECTION OF INFORMATION

The Taxpayer Relief Act of 1997, Public Law 105-34; section 1120(a) of the Act determines the amount of any foreign income taxes shall be translated into dollars by using the average exchange rate for the taxable year to which such taxes relate. Section 1102(a)(2) of the Act determine the amount of the foreign tax credit, in the case of any foreign taxes to which 1102(a) don’t apply. The American Taxpayer Relief Act, Public Law 108-357; section 480(a) of the Act describes the elective exception for foreign taxes paid other than in functional currency.

Section 905(c) of the Internal Revenue Code requires a taxpayer to notify the IRS of a foreign tax redetermination (FTR), which is generally a change in the taxpayer’s foreign income tax liability that may affect the taxpayer’s foreign tax credit as described in §1.905-3(a). New final regulations at §§1.905-4 and 1.905-5, issued under TD 9922, provide rules concerning the time, manner, and contents of such notification.

When a redetermination of U.S. tax liability is required by reason of an FTR, the final regulations generally require the taxpayer to notify the IRS of the FTR and provide certain information necessary to redetermine the U.S. tax due for the year or years affected by the FTR. If there is no change in the U.S. tax liability as a result of the FTR, the taxpayer may attach a statement containing information described in §1.904-2(f) to the original return for the taxpayer's taxable year in which the foreign tax redetermination occurs.

However, taxpayers are generally required to file an amended return (or an administrative adjustment request in the case of certain partnerships) for the year or years affected by the FTR along with an updated Form 1116 Foreign Tax Credit (Individual, Estate, or Trust) (covered under OMB Control Number 1545-0074 individual, or 1545-0121 and 1545-0092 estate and trust) or Form 1118 Foreign Tax Credit-Corporations (OMB Control Number 1545-0123), and a written statement providing specific information relating to the FTR described in §1.905-4(c).

Since the burden for filing amended income tax returns and the Forms 1116 and 1118 is covered under the other OMB control numbers listed above, the burden estimates for OMB Control Number 1545-1056 only cover the burden for the written statements.

The final regulations at §§1.905-4 and 1.905-5, issued under TD 9922, in large part retains the information collection contained in former temporary regulations at §1.905-4T, which is reflected in the previous Information Collection Requests (ICR) submitted for OMB Control No. 1545-1056. Final §§1.905-4 and 1.905-5, as compared to §1.905-4T, only marginally increases the reporting burden for FTRs. Specifically, TD 9922 expands the definition of an FTR in §1.905-3(a) (and, as a result, the reporting requirements in §1.905-4(b)) to cover, in addition to changes that may affect a taxpayer’s foreign tax credits which was already part of the FTR definition, the amount of certain inclusions (under sections 951, 951A, or 1293) and the application of the high-tax exception described in section 954(b)(4). Given the expanded definition, there may be unusual instances where a taxpayer has an FTR that changes the amount of its inclusion and US tax liability but does not also change the amount of its foreign tax credit. Although these taxpayers would be subject to the reporting burdens in §1.905-4(b), the agency believes the marginal increase in burden attributable to this small class of additional respondents to be negligible, and the IRS does not have data available to estimate this incremental impact.

Thus, this ICR updates OMB Control Number 1545-1056 to reflect the issuance of TD 9922, updates the burden estimates to reflect 2018 data, but uses the same methodology for generating that estimate as in previous ICRs.

2. USE OF DATA

The Internal Revenue Service will use the information to be collected under the provisions of section 905(c) for audit purposes to determine whether taxpayers have correctly redetermined their U.S. tax liability and foreign tax credit after an FTR.

3. USE OF IMPROVED INFORMATION TECHNOLOGY TO REDUCE BURDEN

IRS intends to offer electronic filing to the extent it is practicable, but will not provide electronic filing for this collection at this time. Final regulations at §1.905-4, consistent with the former temporary regulations, provide an exception to the general notification rule that allows Large Business and International (LBI) taxpayers to notify the IRS of an FTR that occurs prior to an audit, and requires LBI taxpayers to notify the IRS of an FTR that occurs during the first 180 days of the audit, by providing the written statement to the examiner in lieu of filing an amended return.

4. EFFORTS TO IDENTIFY DUPLICATION

The information obtained through this collection is unique and is not already available for use or adaptation from another source. The final regulations at §1.905-4, consistent with former temporary regulations, provide an exception to the general notification rule that allows Large Business and International (LBI) taxpayers to notify the IRS of an FTR that occurs prior to an audit, and requires LBI taxpayers to notify the IRS of an FTR that occurs during the first 180 days of the audit, by providing the written statement to the examiner in lieu of filing an amended return.

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

The collection of information requirement will not have a significant economic impact on a substantial number of small entities.

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

If the Internal Revenue Service (IRS) did not collect this information, the IRS would not be able to use the information to be collected under the provisions of section 905(c) for audit purposes to determine whether taxpayers have correctly redetermined their U.S. tax liability and foreign tax credit after an FTR. A less frequent collection will not enable the IRS to verify the tax treatment in accordance could result in being unable to meet its missio.

7. SPECIAL CIRCUMSTANCES REQUIRING DATA COLLECTION TO BE INCONSISTENT WITH GUIDELINES IN 5 CFR 1320.5(d)(2)

There are no special circumstances requiring data collection to be inconsistent with Guidelines in 5 CFR 1320.5(d)(2).

8. CONSULTATION WITH INDIVIDUALS OUTSIDE OF THE AGENCY ON AVAILABILITY OF DATA, FREQUENCY OF COLLECTION, CLARITY OF INSTRUCTIONS AND FORMS, AND DATA ELEMENTS

The Notice of Proposed Rulemaking was published in the Federal Register on November 12, 2020, (85 F.R. 72078) soliciting public comments. Any comments received will be addressed and will be taken into account.

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

No payment or gift has been provided to any respondents.

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

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

Section 905(c) requires a taxpayer must notify the IRS of a change in the taxpayer’s foreign income tax liability that may impact the foreign tax credit. The total burden for these requirements is estimated to be 56,065 hours.

The burden estimate is as follows:

Authority	Description	Number of Respondents	Number of Responses per Respondent	Annual Responses	Hours per Response	Total Burden
905(c)	Foreign Tax Redetermination	13,500	1	13,500	4.153	56,065
Totals	Foreign Tax Redetermination	13,500	1	13,500	4.153	56,065

The following regulations impose no additional burden. Please continue to assign OMB number 1545-1065 to these regulations.

1.905-4T, 1.905-5

Estimates of the annualized cost to respondents for the hour burdens shown are not available at this time.

13. ESTIMATED TOTAL ANNUAL COST BURDEN TO RESPONDENTS

There are no capital/start-up or ongoing operation/maintenance cost associated with this

information collection.

14. ESTIMATED ANNUALIZED COST TO THE FEDERAL GOVERNMENT

There is no estimated annual cost to the federal government.

15. REASONS FOR CHANGE IN BURDEN

As described in greater detail above, this submission updates OMB Control Number 1545-1056 to reflect the issuance of TD 9922, updates the burden estimates to reflect 2018 data, but uses the same methodology for generating that estimate as in previous approved requests.

16. PLANS FOR TABULATION, STATISTICAL ANALYSIS AND PUBLICATION

There are no plans for tabulation, statistical analysis and publication.

17. REASONS WHY DISPLAYING THE OMB EXPIRATION DATE IS INAPPROPRIATE

The agency believes 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

There are no exceptions to the certification statement for this collection.

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.

6