Reg-124064-19

Federal Register / Vol. 88, No. 85 / Wednesday, May 3, 2023 / Proposed Rules
FR 56469, September 18, 2015, or access
the information at: https://
www.govinfo.gov/content/pkg/FR-201509-18/pdf/2015-23389.pdf.
Docket: For access to the docket to
read background documents or the
electronic and written/paper comments
received, go to https://
www.regulations.gov and insert the
docket number, found in brackets in the
heading of this document, into the
‘‘Search’’ box and follow the prompts,
and/or go to the Dockets Management
Staff, 5630 Fishers Lane, Rm. 1061,
Rockville, MD 20852, 240–402–7500.
FOR FURTHER INFORMATION CONTACT:
Paulette M. Gaynor, Center for Food
Safety and Applied Nutrition, Food and
Drug Administration, 5001 Campus Dr.,
College Park, MD 20740, 240–402–1192.
SUPPLEMENTARY INFORMATION:
I. Background
Under section 721(d)(1) of the Federal
Food, Drug, and Cosmetic Act (FD&C
Act) (21 U.S.C. 379e(d)(1)), we are
giving notice that we have filed a color
additive petition (CAP 3C0325),
submitted by Environmental Defense
Fund, Center for Environmental Health,
Center for Food Safety, Center for
Science in the Public Interest, and
Environmental Working Group, c/o Tom
Neltner, 1875 Connecticut Ave. NW,
Washington, DC 20009. The petition
proposes that we repeal the color
additive regulation for titanium dioxide
in § 73.575 (21 CFR 73.575), which
permits the use of titanium dioxide in
foods.

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II. Request To Repeal Section 73.575
In accordance with the procedure in
section 721(d) of the FD&C Act for
issuance, amendment, or repeal of
regulations, the petition asks us to
repeal section 73.575 to no longer
provide for the use of titanium dioxide
in foods. The petitioners assert that the
intended use of this color additive no
longer meets the safety standard under
21 CFR 70.3(i), and cite, as evidence, an
opinion by the European Food Safety
Authority (EFSA) entitled ‘‘Safety
assessment of titanium dioxide (E171)
as a food additive’’ that was published
in May 2021 (we are using EFSA’s title
for this document, rather than the one
cited by the petitioners), and other
publications.
We invite comments, additional
scientific data, and other information
related to the issues raised by this
petition. If we determine that the
available data justify repealing section
73.575 to no longer provide for the safe
use of titanium dioxide in foods, we
will publish our decision in the Federal

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Register in accordance with 21 CFR
71.20.
The petitioners have claimed that this
action is categorically excluded under
21 CFR 25.32(m), which applies to an
action to prohibit or otherwise restrict
or reduce the use of a substance in food,
food packaging, or cosmetics. In
addition, the petitioners have stated
that, to their knowledge, no
extraordinary circumstances exist (see
21 CFR 25.21). If FDA determines a
categorical exclusion applies, neither an
environmental assessment nor an
environmental impact statement is
required. If FDA determines a
categorical exclusion does not apply, we
will request an environmental
assessment and make it available for
public inspection.
Dated: April 28, 2023.
Lauren K. Roth,
Associate Commissioner for Policy.
[FR Doc. 2023–09366 Filed 5–2–23; 8:45 am]
BILLING CODE 4164–01–P

DEPARTMENT OF THE TREASURY

26 CFR Part 1
[REG–124064–19]
RIN 1545–BP55

Section 367(d) Rules for Certain
Repatriations of Intangible Property
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:

This document contains
proposed regulations that, in certain
cases, would terminate the continued
application of certain tax provisions
arising from a previous transfer of
intangible property to a foreign
corporation when the intangible
property is repatriated to certain United
States persons. The proposed
regulations would affect certain United
States persons that previously
transferred intangible property to a
foreign corporation.
DATES: Written or electronic comments
and requests for a public hearing must
be received by July 3, 2023. Requests for
a public hearing must be submitted as
prescribed in the ‘‘Comments and
Requests for a Public Hearing’’ section.
ADDRESSES: Commenters are strongly
encouraged to submit public comments
electronically. Submit electronic
submissions via the Federal
eRulemaking Portal at https://
www.regulations.gov (indicate IRS and

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REG–124064–19) by following the
online instructions for submitting
comments. Once submitted to the
Federal eRulemaking Portal, comments
cannot be edited or withdrawn. The
Department of the Treasury (the
‘‘Treasury Department’’) and the IRS
will publish for public availability any
comments submitted electronically or
on paper to its public docket.
Send paper submissions to:
CC:PA:LPD:PR (REG–124064–19), Room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations
other than § 1.904–4, Chadwick
Rowland and L. Ulysses Chatman, (202)
317–6937; concerning § 1.904–4, Jeffrey
L. Parry, (202) 317–6936; concerning
submissions of comments and requests
for a public hearing, Vivian Hayes at
(202) 317–6901 (not toll-free numbers)
or by sending an email to
publichearings@irs.gov (preferred).
SUPPLEMENTARY INFORMATION:
Background
I. Sections 367(d) and 6038B

Internal Revenue Service

SUMMARY:

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A. Statute
Section 367(d) of the Internal Revenue
Code (the ‘‘Code’’) provides rules for
outbound transfers of intangible
property (as defined in section
367(d)(4)) by a United States person (a
‘‘U.S. person’’) to a foreign corporation.1
Section 367(d)(1) provides that, except
as provided in regulations, if a U.S.
person (a ‘‘U.S. transferor’’) transfers
any intangible property to a foreign
corporation (the ‘‘transferee foreign
corporation’’) in an exchange described
in section 351 or 361, section 367(d)
(and not section 367(a)) applies to the
transfer. Section 367(d)(2)(A) provides
that a U.S. transferor that transfers
intangible property subject to section
367(d) is treated as having sold the
intangible property in exchange for
payments that are contingent upon the
productivity, use, or disposition of the
intangible property.
Specifically, the U.S. transferor is
treated as receiving amounts that
reasonably reflect the amounts that
would have been received annually in
the form of such payments over the
useful life of the intangible property (an
‘‘annual inclusion’’), or, in the case of a
1 For purposes of these regulations, a U.S. person
is defined in § 1.367(a)–1(d)(1), which defines a
U.S. person, in part, by reference to persons
described in section 7701(a)(30). Section
7701(a)(30) defines a U.S. person as a citizen or
resident of the United States, a domestic
partnership, a domestic corporation, and certain
estates and trusts.

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direct or indirect disposition of the
intangible property following the
transfer, at the time of the disposition (a
‘‘lump-sum inclusion,’’ and each
inclusion, a ‘‘section 367(d) inclusion’’).
See section 367(d)(2)(A)(ii)(I) and (II).
The amounts taken into account by the
U.S. transferor must be commensurate
with the income attributable to the
transferred intangible property. See
section 367(d)(2)(A) (flush language).
Section 367(d)(2)(B) provides that, for
purposes of chapter 1 of subtitle A of
the Code, the earnings and profits
(‘‘E&P’’) of the transferee foreign
corporation are reduced by the amount
required to be included in the income
of the U.S. transferor as a section 367(d)
inclusion.
Section 6038B(a)(1)(A) grants the
Secretary regulatory authority to require
information reporting related to certain
outbound transfers of property by a U.S.
person to a foreign corporation,
including rules related to outbound
transfers of intangible property. Section
6038B(c) generally provides rules for
failures to furnish the required
information.
B. Legislative History
Congress enacted section 367(d) in
substantially its present form to address
‘‘specific and unique problems’’ that
exist with respect to outbound transfers
of intangible property. See S. Rep. No
169, 98th Cong., 2d Sess., at 360 (1984);
H.R. Rept. No. 432, 98th Cong., 2d Sess.,
at 1315 (1984). Congress generally
identified the cause of such problems as
follows:

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[T]ransferor U.S. companies hope to reduce
their U.S. taxable income by deducting
substantial research and experimentation
expenses associated with the development of
the transferred intangible and, by transferring
the intangible to a foreign corporation at the
point of profitability, to ensure deferral of
U.S. tax on the profits generated by the
intangible.

Id.
Congress also explained that, after the
initial outbound transfer of intangible
property, these problems could arise by
reason of certain subsequent direct or
indirect dispositions of the intangible
property. See S. Rept. No 169, 98th
Cong., 2d Sess., at 368 (1984) (‘‘[G]ain
on a disposition of stock in a [transferee
foreign corporation] will be treated as
being attributable, in part, to the
transferred intangible . . . ; similarly,
upon a disposition of the intangible by
the [transferee foreign corporation], the
U.S. transferor will be treated as
receiving a payment [with respect to
that intangible]’’).

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C. Regulations
1. In General
Temporary regulations were
published under sections 367(d) and
6038B(a)(1)(A) on May 16, 1986 (51 FR
17936). Proposed regulations were also
published under these sections on
September 16, 2015 (80 FR 55568), and
the related final regulations were
published on December 16, 2016 (81 FR
91012) (these final regulations and the
temporary regulations, together, the
‘‘section 367(d) regulations’’).
Consistent with section 367(d) and its
legislative history, the section 367(d)
regulations provide rules for
determining a U.S. transferor’s section
367(d) inclusion and a transferee foreign
corporation’s required adjustments for
its deemed payment to the U.S.
transferor. In general, the U.S. transferor
takes into account an annual inclusion
over the useful life of the intangible
property, as determined in accordance
with the provisions of section 482 and
regulations thereunder. See § 1.367(d)–
1T(c)(1). For this purpose, the useful life
is the entire period during which
exploitation of the intangible property is
reasonably anticipated to affect the
determination of taxable income, as of
the time of transfer. See § 1.367(d)–
1(c)(3)(i).
Additionally, for purposes of chapter
1 of subtitle A of the Code, the
transferee foreign corporation reduces
its E&P by the amount of the deemed
payment to the U.S. transferor, and, for
purposes of subpart F of part III of
subchapter N of chapter 1 (‘‘subpart F’’),
the transferee foreign corporation may
treat the deemed payment as, in relevant
part, an expense properly allocated and
apportioned to gross income subject to
subpart F in accordance with the
provisions of §§ 1.954–1(c) and 1.861–8.
See § 1.367(d)–1T(c)(2); see also
§ 1.951A–2(c)(2)(ii) (providing similar
treatment for purposes of determining
tested income or tested loss of a
controlled foreign corporation (as
defined in section 957, a ‘‘CFC’’)).
2. Subsequent Transfer Rules
If the U.S. transferor subsequently
transfers the stock of the transferee
foreign corporation it received in
exchange for the intangible property, or
if the transferee foreign corporation
subsequently transfers the intangible
property it received in exchange for its
stock, the section 367(d) regulations
provide different rules based on
whether the transferee in the subsequent
transfer is a U.S. person or a foreign
person and whether the transferee is a
related person or an unrelated person as
to the U.S. transferor. See § 1.367(d)–

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1T(d), (e), and (f); see also Notice 2012–
39, 2012–31 I.R.B. 95 (describing
regulations that would apply in lieu of
§ 1.367(d)–1T(c), (d), (e), and (g) with
respect to certain outbound transfers of
intangible property by a domestic
corporation to a foreign corporation in
an exchange described in section 361(a)
or (b)). These subsequent transfer rules
treat certain subsequent transfers of the
stock of the transferee foreign
corporation or the intangible property as
a disposition of the intangible property
(within the meaning of section
367(d)(2)(A)(ii)(II)) that can accelerate a
section 367(d) inclusion, and
corresponding adjustments, by reason of
the deemed payment. See, for example,
§ 1.367(d)–1T(d).
If the U.S. transferor subsequently
transfers stock of the transferee foreign
corporation to a related U.S. person (a
‘‘successor U.S. transferor’’), the transfer
is not treated as a disposition of the
intangible property, and the successor
U.S. transferor is treated as receiving a
right to receive a proportionate share
(determined under § 1.367(d)–1T(e)(4))
of the annual inclusion that would
otherwise be taken into account by the
U.S. transferor under § 1.367(d)–1T(c).
Therefore, the successor U.S. transferor
is required to take into account that
proportionate share of the annual
section 367(d) inclusion over the
remaining useful life of the intangible
property, and the transferee foreign
corporation takes into account any
adjustments from the successor U.S.
transferor’s annual section 367(d)
inclusion. See § 1.367(d)–1T(e)(1) and
(2). If the U.S. transferor transfers a
portion of the stock of the transferee
foreign corporation to one or more
successor U.S. transferors and retains a
portion of the stock of the transferee
foreign corporation, the U.S. transferor
continues to take into account the
portion of the annual section 367(d)
inclusion that is not taken into account
by a successor U.S. transferor.2 See
§ 1.367(d)–1T(c)(1).
Alternatively, if a U.S. transferor
subsequently transfers stock of the
transferee foreign corporation to an
unrelated person (U.S. or foreign), the
transfer is treated as an indirect
disposition of the transferred intangible
property that triggers a lump-sum
section 367(d) inclusion. As a result, the
U.S. transferor recognizes gain
immediately (determined based on the
fair market value of the intangible
2 The section 367(d) regulations apply separately
as to each U.S. person treated as a U.S. transferor.
Any reference to a ‘‘U.S. transferor’’ in the
remainder of this Preamble includes a reference to
a ‘‘successor U.S. transferor’’ unless otherwise
noted.

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Federal Register / Vol. 88, No. 85 / Wednesday, May 3, 2023 / Proposed Rules
property at the time of the indirect
disposition and the U.S. transferor’s
adjusted basis in the intangible property
at the time of the initial section 367(d)
transfer), as if the U.S. transferor had
sold the intangible property to the
unrelated person, and the transferee
foreign corporation makes
corresponding adjustments. See
§ 1.367(d)–1T(d); see also § 1.367(d)–
1T(e)(1)(iii) and (e)(2) (providing pro
rata rules for cases in which there is a
subsequent transfer of stock of the
transferee foreign corporation to both an
unrelated person(s) and a successor U.S.
transferor(s)).
If the transferee foreign corporation
subsequently transfers the intangible
property to a related person,
notwithstanding that such subsequent
transfer is a direct disposition of the
intangible property, the section 367(d)
regulations do not trigger a lump-sum
inclusion but rather provide that ‘‘the
requirement that the U.S. transferor
recognize gain under [§ 1.367(d)–
1T(c)(1) or (e)(1)] shall not be affected’’
by such transfer. See § 1.367(d)–1T(f)(3).
The regulation does not distinguish
between a related U.S. or foreign person
and provides further that ‘‘for purposes
of any required adjustments, and of any
accounts receivable created under
[§ 1.367(d)–1T(g)] the related person
that receives the intangible property
shall be treated as the transferee foreign
corporation.’’ See § 1.367(d)–1T(f)(3).
Conversely, if the transferee foreign
corporation subsequently transfers the
intangible property to an unrelated
person (U.S. or foreign), the U.S.
transferor recognizes gain immediately
(in the form of a lump-sum inclusion
determined using the U.S. transferor’s
former adjusted basis in the intangible
property immediately before the transfer
to the transferee foreign corporation and
a partial annual inclusion), and the
transferee foreign corporation makes
corresponding adjustments. See
§ 1.367(d)–1T(f)(1) and (2).
As described in the preceding
paragraphs of this part I.C.2 of the
Background, the consequences of a
direct or indirect transfer of the
intangible property following an initial
outbound transfer of that property
depend, in relevant part, on whether the
transferee in the subsequent transfer is
a related or unrelated person. In
determining relatedness, the section
367(d) regulations lower certain
thresholds that normally apply in
determining whether persons are
related, to preserve the application of
section 367(d) for cases in which a U.S.
transferor retains a sufficient nexus to
the intangible property after the
subsequent transfer. See § 1.367(d)–

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1T(h)(2). Thus, the section 367(d)
regulations generally preserve the
application of the annual inclusion
stream upon a subsequent transfer, but
if the transfer sufficiently severs the
U.S. transferor’s nexus to the intangible
property, the transfer is treated as a
direct or indirect disposition of the
intangible property, as applicable, and
the section 367(d) regulations provide
that the U.S. transferor has a lump-sum
inclusion and a partial annual
inclusion.
II. Application of Section 367(d) to
Repatriations of Intangible Property
The Treasury Department and the IRS
are aware that some taxpayers are
evaluating whether to repatriate to the
United States intangible property that
was previously transferred to a foreign
corporation in a transaction subject to
section 367(d).
Because, in relevant part, the section
367(d) regulations do not distinguish
between subsequent transfers of
intangible property made to a related
U.S. or foreign person, as described in
part I.C.2 of this Background, there is a
concern that, in certain cases, the
section 367(d) regulations can
inappropriately require the U.S.
transferor to continue recognizing an
annual section 367(d) inclusion even if
the subsequent transfer is to a related
U.S. person that will recognize the
income derived from the intangible
property. Specifically, the section
367(d) regulations do not terminate the
required annual section 367(d)
inclusion even if the intangible property
is transferred to a related U.S. person
that is subject to U.S. taxation on
income earned from the intangible
property. As a result, if the section
367(d) inclusion stream continues, the
income earned from the intangible
property would be subject to excessive
U.S. taxation. Because the continued
application of section 367(d) in these
situations could result in excessive U.S.
taxation and may disincentivize certain
repatriations of intangible property, the
Treasury Department and the IRS are
proposing, in certain cases, to terminate
the application of section 367(d) if the
intangible property is repatriated to
certain U.S. persons that are subject to
U.S. taxation with respect to the income
derived from the intangible property.
The term ‘‘repatriation’’ is, unless
otherwise noted, used in this Preamble
to generally denote a subsequent
transfer of the intangible property to the
U.S. transferor or a U.S. person related
to the U.S. transferor.
Where the U.S. transferor is a member
of a consolidated group, and the
intangible property is repatriated to

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another member of the same
consolidated group (‘‘transferee
member’’), some taxpayers have asked
whether the U.S. transferor’s annual
inclusions could be redetermined to be
excluded from gross income under
§ 1.1502–13(c)(6)(ii)(A) (the ‘‘Automatic
Relief Rule’’). For that to occur, the
transferee member’s corresponding item
must be a deduction or loss that is
‘‘permanently and explicitly
disallowed’’ under another provision of
the Code or regulations. See § 1.1502–
13(c)(6)(ii)(A). However, the U.S.
transferor’s annual inclusions may not
be excluded under the Automatic Relief
Rule, because § 1.367(d)–1T(c)(2) does
not explicitly disallow the transferee
member’s deduction for its expense tied
to its deemed payment. Rather, in
appropriate factual situations, the IRS
has ruled that the U.S. transferor’s
annual inclusions may be excluded
from income under the Commissioner’s
discretionary rule of § 1.1502–
13(c)(6)(ii)(D).
To address repatriations of intangible
property more generally, and not just
those where the related U.S. person is
a member of the same consolidated
group as the U.S. transferor (and to
avoid the need to obtain a ruling in such
a case), these proposed regulations
provide rules that more broadly apply
section 367(d) to the repatriation of
intangible property, including the
circumstances in which the application
of section 367(d) is terminated (these
rules, collectively, the ‘‘section 367(d)
repatriation rules’’).
III. Section 904(d) Foreign Branch
Income
Section 904 provides for the
application of separate foreign tax credit
limitations to certain categories of
income under section 904(d). One of
those categories is the separate category
for foreign branch income under section
904(d)(1)(B). Section 1.904–4(f)(1)(i)
provides that foreign branch category
income means the gross income of a
United States person (as defined in
section 7701(a)(30), other than a passthrough entity) that is attributable to
foreign branches (as defined in § 1.904–
4(f)(3)(vii)) held directly or indirectly
through disregarded entities by the
United States person.
In general, § 1.904–4(f)(2)(vi)(A)
adjusts the attribution of gross income
when disregarded payments are made
between a foreign branch and a foreign
branch owner, or between foreign
branches. Disregarded remittances or
contributions, however, do not result in
the reattribution of gross income.
Accordingly, when a disregarded
transaction with a foreign branch may

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be structured as either a remittance or
contribution, on the one hand, or as a
sale, exchange, or license, on the other
hand, the amount of gross income
attributed to a foreign branch could be
manipulated. This concern is
heightened when the property in
question is highly mobile and highly
valuable, as is generally true of
intangible property (and less frequently
true of tangible property).
To address these concerns § 1.904–
4(f)(2)(vi)(D) provides that the amount
of gross income attributable to a foreign
branch (and the amount of gross income
attributable to its foreign branch owner)
that is not passive category income must
be adjusted to reflect all transactions
that are disregarded for U.S. tax
purposes in which property described
in section 367(d)(4) is transferred to or
from a foreign branch or between
foreign branches, whether or not a
disregarded payment is made in
connection with the transfer. In
determining the amount of gross income
that is attributable to a foreign branch
that must be adjusted, the principles of
sections 367(d) and 482 apply. For
example, if a foreign branch owner
transfers property described in section
367(d)(4) to a foreign branch, the
principles of section 367(d) are applied
by treating the foreign branch as a
separate foreign corporation to which
the property is transferred in exchange
for stock of the corporation in a
transaction described in section 351.
Similarly, if a foreign branch remits
property described in section 367(d)(4)
to its foreign branch owner, the foreign
branch is treated as having sold the
transferred property to the foreign
branch owner in exchange for annual
payments contingent on the
productivity or use of the property, the
amounts of which are determined under
the principles of sections 367(d) and
482.
Explanation of Provisions

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I. Section 367(d) Repatriation Rules
A. In General
As described in part II of the
Background of this Preamble,
§ 1.367(d)–1T(f)(3) provides that a
subsequent disposition of intangible
property by the transferee foreign
corporation to a related person does not
affect a U.S. transferor’s annual
inclusion under § 1.367(d)–1T(c) or (e).
This provision further provides that the
related person that receives the
intangible property is treated as the new
transferee foreign corporation for
purposes of any required adjustments
and any accounts receivable created
under § 1.367(d)–1T(g). Accordingly, the

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section 367(d) regulations require the
U.S. transferor to recognize annual
inclusions even if the income earned
from the intangible property is subject
to current U.S. taxation in the hands of
the U.S. person holding the intangible
property. In addition, the deemed
(substituted) transferee foreign
corporation is not allowed a deduction
that could reduce taxable income, even
though that deemed transferee foreign
corporation is the U.S. transferor or a
related U.S. person.
Continuing to apply section 367(d) in
such cases could give rise to excessive
U.S. taxation and disincentivize
taxpayers from repatriating that
property. To address these concerns,
proposed § 1.367(d)–1(f)(4) generally
terminates the application of section
367(d) if the transferee foreign
corporation repatriates the intangible
property to a ‘‘qualified domestic
person’’ and certain reporting
requirements are satisfied. See proposed
§ 1.367(d)–1(f)(4)(i). See part I.C of this
Explanation of Provisions for a
discussion of the definition of a
qualified domestic person and part III of
this Explanation of Provisions for a
discussion of the reporting
requirements.
B. Consequences of Repatriating
Intangible Property
1. In General
As noted in part I.A of this
Explanation of Provisions, the proposed
regulations terminate the continued
application of section 367(d) when a
transferee foreign corporation
repatriates intangible property to a
qualified domestic person and the U.S.
transferor provides the relevant
information described in proposed
§ 1.6038B–1(d)(2) and, when those
requirements are met, the proposed
regulations require the U.S. transferor to
include in gross income a partial annual
inclusion attributable to the part of its
taxable year that the transferee foreign
corporation held the intangible
property, after which the intangible
property is no longer subject to section
367(d) (thus, for example, the annual
inclusion stream terminates). See
proposed § 1.367(d)–1(f)(4)(i). The
proposed regulations also require the
U.S. transferor to recognize gain (which
amount may be zero in certain cases) as
a result of the repatriation. See Id.
Additionally, the proposed regulations
provide a special rule (discussed in part
I.D of this Explanation of Provisions) to
determine the qualified domestic
person’s basis in the repatriated
intangible property. The transferee
foreign corporation, on the other hand,

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makes the required adjustments
currently described in § 1.367(d)–
1T(c)(2), with minor clarifications, for
cases in which the section 367(d)
repatriation rules apply (that is, the
adjustments with respect to the U.S.
transferor’s partial annual inclusion for
the year of the repatriation). See part I.E
of this Explanation of Provisions for a
discussion of the modifications made
with respect to the required adjustments
described in current § 1.367(d)–
1T(c)(2)(ii) and (e)(2)(ii).
The manner in which the repatriation
occurs will determine whether the U.S.
transferor must recognize gain in
connection with the repatriation
transaction, with corresponding
adjustments being made as to the
transferee foreign corporation. For
example, the U.S. transferor would not
recognize gain in the case of a
repatriation occurring by reason of a
nonrecognition transaction pursuant to
which no gain or loss is recognized as
to the transferee foreign corporation. See
part I.B.2 of this Explanation of
Provisions for a discussion of the rules
that apply based on the form of the
transaction by which the intangible
property is repatriated. The proposed
regulations, therefore, address the tax
consequences under section 367(d) as to
the intangible property, but do not
otherwise alter the tax treatment of the
transaction by which the intangible
property is repatriated.
2. Gain Recognition as to the U.S.
Transferor
Consistent with section
367(d)(2)(A)(ii)(II), proposed § 1.367(d)–
1(f)(4)(i)(A) (the ‘‘gain recognition rule’’)
requires the U.S. transferor to recognize
gain equal to the amount described in
proposed § 1.367(d)–1(f)(4)(ii). The gain
recognition rule, in conjunction with
the rules described in parts I.B.3
(Required adjustments for certain gain
recognized) and I.D (Qualified domestic
person’s adjusted basis in repatriated
intangible property) of this Explanation
of Provisions, generally ensures that a
qualified domestic person does not
receive a tax-free increase to the
adjusted basis in the repatriated
intangible property.
Thus, as noted in part I.B.1 of this
Explanation of Provisions, whether the
U.S. transferor recognizes gain under
the gain recognition rule depends on the
form of the repatriation transaction.
Specifically, the gain recognition rule
focuses on whether the intangible
property is transferred basis property (as
defined in section 7701(a)(43)) by
reason of the repatriation, without
regard to the application of section
367(d) and the section 367(d)

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regulations. See proposed § 1.367(d)–
1(f)(4)(ii). The proposed regulations
incorporate the definition of transferred
basis property for this purpose, as
opposed to other approaches for
distinguishing the form of the
repatriation transaction, to ensure the
appropriate application of these
proposed rules in all circumstances.3
If the intangible property is
transferred basis property as described
in the preceding paragraph, the amount
of gain the U.S. transferor will recognize
pursuant to the gain recognition rule is
the amount of gain the transferee foreign
corporation would recognize, if any,
upon the repatriation under general
subchapter C rules if its adjusted basis
in the intangible property were equal to
the U.S. transferor’s former adjusted
basis in the property. See proposed
§ 1.367(d)–1(f)(4)(ii)(A). This amount
may be zero in the case of certain
repatriations, for example, a repatriation
by a transferee foreign corporation of
intangible property to the U.S. transferor
in a complete liquidation described in
sections 332 and 337, in which case the
U.S. transferor will not recognize any
gain under the gain recognition rule.
Alternatively, if, for example, the
repatriation occurs in an exchange
described in section 351(b) in which the
transferee in the exchange is a qualified
domestic person (as defined in proposed
§ 1.367(d)–1(f)(4)(iii)), the amount of
gain determined under this rule may be
greater than zero, even though the
intangible property is transferred basis
property, because the amount of gain is
determined by reference to the gain the
transferee foreign corporation would
recognize upon the transaction if the
adjusted basis in the intangible property
were equal to the U.S. transferor’s
former adjusted basis in the intangible
property.
If the intangible property is not
transferred basis property by reason of
the repatriation, the amount of gain a
U.S. transferor will recognize pursuant
to the gain recognition rule is the
excess, if any, of the fair market value
of the intangible property on the date of
the repatriation over the U.S.
transferor’s former adjusted basis in the
property. See proposed § 1.367(d)–
1(f)(2)(ii)(B). For example, if the
3 For example, if the form of the repatriation
transaction were distinguished by reference to
whether the repatriation occurred pursuant to a
nonrecognition transaction (as described in section
7701(a)(45)), uncertainty could arise in certain
cases, such as repatriations that occur pursuant to
exchanges involving boot (such as cash). This
uncertainty would impact the proposed rules for
determining a qualified domestic person’s adjusted
basis in the repatriated intangible property, which
relies on the form of the repatriation as described
in this paragraph.

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transferee foreign corporation
repatriates the intangible property to the
U.S. transferor in a distribution
described in section 311, the intangible
property is not transferred basis
property, and therefore the rule
described in this paragraph applies to
determine the amount of gain
recognized by the U.S. transferor under
the gain recognition rule.
3. Required Adjustments Related to
Certain Gain Recognized
Current § 1.367(d)–1T(f)(2)(i) provides
that a transferee foreign corporation’s
E&P are reduced, in relevant part, by the
amount of gain recognized by a U.S.
transferor under § 1.367(d)–1T(f)(1).
Because a U.S. transferor recognizes
gain in these cases in the form of a
lump-sum inclusion, the corresponding
adjustment to the transferee foreign
corporation’s E&P is generally intended
to reduce the E&P that arises for the
transferee foreign corporation by reason
of the disposition (and, in so doing, the
adjustment prevents potential excessive
E&P arising from that disposition). To
achieve this goal, § 1.367(d)–1T(f)(2)
necessarily implies a preceding increase
to the transferee foreign corporation’s
E&P by reason of the disposition that is
then offset by the corresponding
reduction. For example, consider a case
in which a U.S. transferor contributed
intangible property with an adjusted
basis of $0 to a wholly owned transferee
foreign corporation in an exchange
described in section 351(a) that was
subject to section 367(d). In a later year,
the transferee foreign corporation
disposes of the intangible property to an
unrelated person when the fair market
value of the intangible property is
$100x, which causes the U.S. transferor
to recognize $100x of gain under
§ 1.367(d)–1T(f)(1); also, assume the
transferee foreign corporation has $50x
of other E&P unrelated to the
subsequent disposition of the intangible
property. Section 1.367(d)–1T(f)(2) does
not simply reduce the transferee foreign
corporation’s E&P by $100x, but rather
the corresponding reduction would
offset the $100x of E&P that arises as to
the transferee foreign corporation by
reason of the disposition, thereby
preventing potential excessive E&P and
leaving the transferee foreign
corporation’s other E&P unaffected.
Similarly, and in order to prevent
excessive E&P and gross income as to
the transferee foreign corporation
because of the gain recognition rule or
§ 1.367(d)–1T(f)(1), proposed § 1.367(d)–
1(f)(2)(i) provides certain adjustments to
the transferee foreign corporation’s E&P
and gross income that arise by reason of
any gain the U.S. transferor recognizes

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under the gain recognition rule or
§ 1.367(d)–1T(f)(1). Specifically, for
purposes of chapter 1 of the Code—that
is, chapter 1 (relating to normal taxes
and surtaxes) of subtitle A (relating to
income taxes) of the Code—the
transferee foreign corporation reduces
(but not below zero) the portion of its
E&P and gross income arising from the
transaction to take into account the gain
recognized by the U.S. transferor. See
proposed § 1.367(d)–1(f)(2)(i). And, as
provided currently under the section
367(d) regulations, any gain so
recognized can be received by the U.S.
transferor without further U.S. tax
consequences pursuant to the account
receivable mechanism provided in
§ 1.367(d)–1T(g)(1). See proposed
§ 1.367(d)–1(f)(2)(ii).
Because section 367(d) effectively
shifts certain gain a transferee foreign
corporation would recognize as to
intangible property directly to a U.S.
transferor under the gain recognition
rule or § 1.367(d)–1T(f)(1) (as
applicable), these rules are intended to
provide appropriate reductions to offset,
as to the transferee foreign corporation,
the impact of a U.S. transferor’s
recognition of gain under section 367(d).
In most cases, the proper reduction
described in proposed § 1.367(d)–
1(f)(2)(i) will equal the amount of gain
recognized by the U.S. transferor under
the provisions described in the
preceding sentence. But the proper
reduction may diverge from the amount
of gain recognized by the U.S. transferor
in certain cases, depending on the
position taken with respect to the
transferee foreign corporation’s basis in
the intangible property during the time
the intangible property is subject to
section 367(d). See part I.D of this
Explanation of Provisions for additional
discussion of this issue.
4. Special Rule for Related Transactions
Proposed § 1.367(d)–1(f)(4)(v)
provides a special rule that applies if
the intangible property is transferred in
two or more related transactions. If this
special rule applies, whether and how
the proposed regulations apply depends
on the ultimate recipient of the
intangible property. See proposed
§ 1.367(d)–1(f)(6)(ii)(D) and (E)
(Examples 4 and 5) for illustrations of
this rule.
C. Qualified Domestic Person
Proposed § 1.367(d)–1(f)(4)(iii) defines
a qualified domestic person for
purposes of the proposed regulations.
First, a qualified domestic person
includes the U.S. transferor that initially
transferred the intangible property
subject to section 367(d) that is

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repatriated (an ‘‘initial U.S. transferor’’)
and a U.S. person treated as the U.S.
transferor pursuant to § 1.367(d)1T(e)(1)
as applied with certain limitations (a
‘‘qualified successor’’). See proposed
§ 1.367(d)–1(f)(4)(iii)(A) and (B).
Specifically, these limitations require
that a qualified successor must be either
an individual or a corporation other
than a corporation exempt from tax
under section 501(a), a regulated
investment company (as defined in
section 851(a)), a real estate investment
trust (as defined in section 856(a)), a
domestic international sales corporation
(DISC) (as defined in section 992(a)(1)),
or an S corporation (as defined in
section 1361(a)) (a domestic corporation
meeting these requirements, a ‘‘qualified
corporation’’). Second, a qualified
domestic person also includes a U.S.
person that is an individual or a
qualified corporation related to the U.S.
transferor within the meaning of
§ 1.367(d)–1T(h). See proposed
§ 1.367(d)–1(f)(4)(iii)(C) and (D).
The proposed regulations define a
qualified domestic person in this
manner based on the principle that it is
generally appropriate to terminate the
continued application of section 367(d)
only when all the income produced by
the intangible property, as well as gain
recognized on a disposition of the
intangible property, will be subject to
current tax in the United States as to the
qualified domestic person while that
person holds the property. It is also
appropriate to terminate the continued
application of section 367(d) for a
repatriation to an initial U.S. transferor
because such a transfer merely restores
the circumstances that existed at the
time of the original outbound transfer
subject to section 367(d).
A qualified domestic person, as noted
above, also includes certain U.S.
persons (individuals and qualified
corporations) related to either the initial
U.S. transferor or qualified successor, as
applicable. See proposed § 1.367(d)–
1(f)(4)(iii)(C) and (D). This aspect of the
definition of qualified domestic person
implements the same principle
described in the preceding paragraph;
that is, to terminate the continued
application of section 367(d), all of the
income or gain from the intangible
property must be subject to current tax
in the United States as to the qualified
domestic person after the repatriation or
the repatriation must restore the
circumstances that existed at the time of
the original outbound transfer subject to
section 367(d).
In the case of a domestic partnership,
§ 1.367(d)–1T(h) defines a related
person for purposes of the section
367(d) regulations by reference to

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certain relationships described in
section 267 or 707(b)(1). Thus, if a U.S.
transferor owns more than 50 percent of
the capital or profits interest in a
domestic partnership, the U.S.
transferor and the domestic partnership
are related within the meaning of
section 707(b)(1) and, therefore, the U.S.
transferor and the domestic partnership
are related for purposes of § 1.367(d)–
1T(h), even if the domestic partnership
has one or more foreign partners. The
proposed regulations, however, do not
treat the domestic partnership as a
qualified domestic person. The Treasury
Department and the IRS considered
addressing such cases by including
rules in the proposed regulations
treating a partnership as an aggregate of
its partners (an ‘‘aggregate approach’’),
with the analysis for qualified domestic
person status occurring under such an
aggregate approach. See, for example,
§§ 1.367(a)–1T(c)(3)(i) and 1.367(d)–
1T(a) for similar rules that apply to
certain transfers of intangible property
by a partnership to a foreign
corporation. The proposed regulations
do not adopt an aggregate approach
because that approach could allow
taxpayers to circumvent the purposes of
these proposed regulations and other
related regulations following a
repatriation to a domestic partnership.
This could occur if, for example,
partnership allocations are changed
after the repatriation or if the transferee
foreign corporation (or a related foreign
corporation) has liquidation rights to the
intangible property following the
transfer. Additionally, in the case of a
partnership with one or more partners
that are qualified domestic persons and
one or more partners that are not, an
aggregate approach would necessitate
rules to measure the extent to which
proposed § 1.367(d)–1(f)(4)(i) applies by
reason of a repatriation (and, by
extension, the extent to which the
annual inclusion stream under section
367(d) should continue to apply after
the repatriation). To address this
concern, the Treasury Department and
the IRS also considered including, as
part of an aggregate approach in the
proposed regulations, rules like those
provided in §§ 1.367(a)–3 and 1.367(a)–
8 regarding gain recognition agreements
to ensure that, to the extent the relief
provided in proposed § 1.367(d)–
1(f)(4)(i) applies as to a repatriation, a
corresponding amount of income from
the intangible property would be, and
would continue to be, subject to tax in
the United States. After consideration,
however, the Treasury Department and
the IRS are not proposing such an
approach, because it would be

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unworkable due to the compliance and
administrative burden.
D. Qualified Domestic Person’s Adjusted
Basis in Repatriated Intangible Property
Proposed § 1.367(d)–1(f)(4)(iv)
provides rules regarding a qualified
domestic person’s basis in the intangible
property it receives in a repatriation.
Specifically, the proposed regulations
provide that, in the case of repatriation
pursuant to which the intangible
property qualifies as transferred basis
property, a qualified domestic person’s
adjusted basis in the intangible property
will equal, subject to any applicable
limitations that may apply under the
Code, the lesser of the U.S. transferor’s
former adjusted basis in the intangible
property or the transferee foreign
corporation’s adjusted basis in that
property (immediately before the
repatriation), increased by the greater of
the amount of gain recognized by the
U.S. transferor under the proposed
regulations upon the repatriation (if
any) or the amount of gain recognized
by the transferee foreign corporation
upon the repatriation (if any). See
§ 1.367(d)–1(f)(4)(v)(A). The result in
most cases will track the result that
would occur under generally applicable
rules, like section 334(b) or 362, while
appropriately accounting for situations
in which the gain a U.S. transferor
recognizes under the gain recognition
rule differs from the gain the transferee
foreign corporation recognizes by reason
of the repatriation. Alternatively, if the
intangible property does not qualify as
transferred basis property, a qualified
domestic person’s adjusted basis in the
intangible property will equal the fair
market value of the intangible property
as of the date of the subsequent
disposition. See proposed § 1.367(d)–
1(f)(4)(iv)(B).
The Treasury Department and the IRS
are aware of the uncertainty regarding
the treatment of adjusted basis in
intangible property subject to section
367(d) while section 367(d) applies,
particularly when the U.S. transferor’s
former adjusted basis is greater than
zero. The proposed regulations are
intended to address basis consequences
solely when intangible property is
repatriated in a transaction that
eliminates the continued application of
section 367(d). In this manner, the effect
of proposed § 1.367(d)–1(f)(4)(iv) is
prospective insofar as it provides for a
qualified domestic person’s adjusted
basis in the intangible property after the
property is no longer subject to section
367(d). Thus, the proposed regulations
do not address, nor is any implication
intended as to, the appropriate
treatment of adjusted basis as to the

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transferee foreign corporation in
intangible property subject to section
367(d) while section 367(d) applies;
instead, the Treasury Department and
the IRS will address general basis rules
under section 367(d) in future
rulemaking. Until such general rules are
issued, proposed § 1.367(d)–1(f)(4)(iv)
would operate in a manner intended to
reach an appropriate result regarding a
qualified domestic person’s basis in
repatriated intangible property. See
proposed § 1.367(d)–1(f)(6)(ii)(C)
(Example 3) for an illustration of this
rule.
E. Required Adjustments Related to an
Annual Section 367(d) Inclusion
As noted in part I.A of this
Explanation of Provisions, the transferee
foreign corporation makes the required
adjustments currently described in
§ 1.367(d)–1T(c)(2) for cases in which
the section 367(d) repatriation rules
apply (that is, the adjustments with
respect to the U.S. transferor’s partial
annual inclusion for the year of the
repatriation). Current § 1.367(d)–
1T(c)(2)(ii) provides that, as to a U.S.
transferor’s annual inclusion, the
transferee foreign corporation may treat
that deemed payment as an expense
(whether or not paid) properly allocated
and apportioned against gross income
subject to subpart F, in accordance with
§§ 1.954–1(c) and 1.861–8.
The proposed regulations provide that
the deemed payment by the transferee
foreign corporation is treated as an
allowable deduction that must be
allocated and apportioned to such
corporation’s classes of gross income in
accordance with §§ 1.882–4(b)(1),
1.954–1(c), and 1.960–1(c) and (d) (as
appropriate). See proposed § 1.367(d)–
1(c)(2)(ii). Proposed § 1.367(d)–
1(c)(2)(ii) thus clarifies that the
allowable deduction is allocated and
apportioned under the provisions cited
in the previous sentence potentially to
any class (or classes) of gross income (as
appropriate) rather than solely to gross
income subject to subpart F in all
circumstances. The proposed
regulations make identical clarifications
in proposed § 1.367(d)–1(e)(2)(ii)
(required adjustments in the case of a
subsequent transfer of stock of the
transferee foreign corporation to a
successor U.S. transferor). The proposed
regulations change the reference to
‘‘expense’’ in the current regulations to
‘‘allowable deduction’’ for clarity; this
modification is not intended to be a
substantive change.
F. Multiple U.S. Transferors
As noted in part I.C of the Background
section of this Preamble, there may be

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multiple U.S. transferors with respect to
the same intangible property, which
may occur, for example, if a U.S.
transferor subsequently transfers a
portion of its stock in the transferee
foreign corporation to a successor U.S.
transferor. In these cases, because the
section 367(d) regulations apply
separately as to each U.S. transferor, the
requirements of proposed § 1.367(d)–
1(f)(4)(i) also apply separately with
respect to each U.S. transferor. That is,
to terminate the continued application
of section 367(d) with respect to a
particular U.S. transferor, the recipient
of the transferred intangible property
must be a qualified domestic person
with respect to that U.S. transferor and
the information described in proposed
§ 1.6038B–1(d)(2)(iv) must be provided.
To illustrate, assume that a transferee
foreign corporation (‘‘TFC’’) holds
intangible property that is subject to
section 367(d), and TFC repatriates that
intangible property on date X. Also
assume that two domestic corporations
(‘‘US1’’ and ‘‘US2’’) are treated as U.S.
transferors under the section 367(d)
regulations by reason of owning stock of
TFC (US1 was the original U.S.
transferor and US2 is a successor U.S.
transferor by reason of its acquisition of
a portion of the stock of TFC from US1).
Therefore, if the recipient of the
transferred intangible property on date
X is a qualified domestic person (for
example, a related domestic
corporation) with respect to US1, but is
an unrelated person with respect to
US2, the following occurs: proposed
§ 1.367(d)–1(f)(4)(i) would apply with
respect to US1, if the information
described in proposed § 1.6038B–
1(d)(2)(iv) is provided, and US2 would
recognize gain under § 1.367(d)–1T(f)(1)
by reason of the transaction.
G. Other Modifications
The proposed regulations update the
references to section 936(h)(3)(B) that
appear in the applicable regulations
under section 367 with references to
section 367(d)(4), which was added as
part of the Consolidated Appropriations
Act in 2018. See Public Law 115–141
and §§ 1.367(a)–1(d)(5) and (6) and
1.367(e)–2(b)(2)(i)(B). The proposed
regulations do not update all references
to section 936(h)(3)(B) that appear in
regulations issued under other sections
of the Code, but such an update will be
included as part of future rulemaking.
The proposed regulations provide that
proposed § 1.367(d)–1(f)(3) would not
apply as to a repatriation meeting the
requirements of proposed § 1.367(d)–
1(f)(4)(i)(B); instead, proposed
§ 1.367(d)–1(f)(4)(i) applies, and,
thereafter, the intangible property is no

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longer subject to section 367(d). The
language in proposed § 1.367(d)–1(f)(3)
also reflects minor editorial differences
from the language currently in
§ 1.367(d)–1T(f)(3) that are not intended
to be substantive. See proposed
§ 1.367(d)–1(f)(3).
The proposed regulations fix a
longstanding typographical error by
replacing the reference to ‘‘section
267(d)’’ in current § 1.367(d)–
1T(h)(2)(ii) with a reference to ‘‘267(f).’’
Finally, the proposed regulations
eliminate § 1.951A–2(c)(2)(ii), which
provides that deductions taken into
account in determining a CFC’s tested
income and tested loss under section
951A include the amount of a deemed
payment under section 367(d)(2)(A).
This rule is no longer necessary because
the proposed regulations provide that
such deemed payments are treated as
allowable deductions in accordance
with, in relevant part, § 1.951A–2(c)(3).
See proposed § 1.367(d)–1(c)(2)(ii) and
(e)(2)(i).
II. Section 904(d) Foreign Branch
Income Rules
As noted in part III of the Background
section of this Preamble, the provisions
in § 1.904–4(f)(2)(vi)(D) provide that, in
relevant part, the principles of section
367(d) apply for determining the
amount of gross income that is
attributable to a foreign branch that
must be adjusted under § 1.904–
4(f)(2)(vi)(D). But those provisions do
not elaborate on how the principles of
section 367(d) apply for that purpose; in
particular, there is no mention of how
or whether current § 1.367(d)–1T(f)
applies in the foreign branch income
context.
The Treasury Department and the IRS
believe that due to the differing scopes
and purposes of section 367(d) and
§ 1.904–4(f)(2)(vi)(D), the consequences
of a subsequent transfer for purposes of
determining a U.S. transferor’s section
367(d) inclusion do not necessarily
inform the appropriate treatment for
purposes of the section 904(d) branch
income rules. Section 367(d), as a
threshold matter, applies only in the
case of certain outbound transfers of
intangible property by a U.S. person to
a foreign corporation, whereas § 1.904–
4(f)(2)(vi)(D) applies to outbound
transfers by a U.S. foreign branch owner
to a foreign branch, inbound transfers by
a foreign branch to a U.S. foreign branch
owner, as well as transfers between
foreign branches with the same U.S.
foreign branch owner. If there are
multiple transfers of an item of
intangible property over time, each
transfer must be separately evaluated
and could result in differing amounts of

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deemed annual payments depending on
any interim changes in the value of the
intangible property between successive
transfers. Accordingly, these proposed
regulations provide that each successive
transfer to which § 1.904–4(f)(2)(vi)(D)
applies is considered independently
from any other preceding or subsequent
transfers. See proposed § 1.904–
(f)(2)(vi)(D)(4). Therefore, the
subsequent transfer rules in the
regulations under section 367(d),
including the rule for repatriations
provided in these proposed regulations,
do not apply in the context of
determining gross income attributable to
the foreign branch income category and
each successive transfer is separately
subject to the provisions of § 1.904–
(f)(2)(vi)(D)(1) and will not terminate or
otherwise impact the application of
§ 1.904–(f)(2)(vi)(D)(1) to a prior transfer
described in that paragraph.
III. Reporting

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A. Reporting Requirements for
Subsequent Transfers of Intangible
Property
As described in part I.A of this
Explanation of Provisions, proposed
§ 1.367(d)–1(f)(4)(i) requires a U.S.
transferor to provide the information
described in proposed § 1.6038B–
1(d)(2)(iv) with respect to the
repatriation. In general, §§ 1.6038B–1
and 1.6038B–1T provide information
reporting rules that apply with respect
to transfers of property to foreign
corporations, including transfers of
property described in sections 367(a)
and (d). See § 1.6038B–1(c) and (d).
Section 1.6038B–1T(d) provides specific
information reporting rules for transfers
subject to section 367(d), including
rules that apply to subsequent transfers.
See § 1.6038B–1T(d)(2).
These proposed regulations make two
conforming changes to the reporting
requirements for subsequent transfers
under § 1.6038B–1T(d)(2) (the
‘‘proposed information reporting
rules’’). The first change provides that,
to the extent a qualified domestic
person receives intangible property in a
subsequent transfer, the subsequent
transfer information described in
proposed § 1.6038B–1(d)(2)(iv) instead
of the subsequent transfer information
described in § 1.6038B–1T(d)(2)(iii)
must be provided.
The second change adds information
reporting requirements for a subsequent
transfer of intangible property to a
qualified domestic person. See proposed
§ 1.6038B–1(d)(2)(iv). These reporting
rules request information that is
necessary to ensure that proposed

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§ 1.367(d)–1(f)(4) is appropriately
applied to the subsequent transfer.
B. Relief for Certain Failures To Provide
Required Information
In general, as a condition for
terminating the application of section
367(d) with respect to the transferred
intangible property, proposed
§ 1.367(d)–1(f)(4)(i)(B) requires a U.S.
transferor to provide the information
described in proposed § 1.6038B–
1(d)(2)(iv). If a U.S. transferor fails to
provide that information, the
repatriation is subject to proposed
§ 1.367(d)–1(f)(3) such that the section
367(d) regulations, including the
requirement to take an annual inclusion
into account over the useful life of the
intangible property, continue to apply.
However, a U.S. transferor is eligible for
relief under the proposed regulations if
proposed § 1.367(d)–1(f)(4)(i)(B) would
have applied to the subsequent transfer
of intangible property but for the fact
that the required information was not
provided and the U.S. transferor, upon
becoming aware of the failure, promptly
provides the required information and
explains its failure to comply. See
proposed § 1.367(d)–1(f)(5). When it
applies, proposed § 1.367(d)–1(f)(5)
treats the requirements of proposed
§ 1.367(d)–1(f)(4)(i)(B) as satisfied as of
the date of the transfer of intangible
property to the qualified domestic
person.
IV. Applicability Dates
The proposed regulations generally
apply to subsequent dispositions of
intangible property occurring on or after
the date of publication of the Treasury
decision adopting these rules as final
regulations in the Federal Register. See
proposed §§ 1.367(d)–1(j)(2)), 1.904–
4(q)(3), and 1.6038B–1(g). Proposed
§ 1.951A–2(c)(2) applies to taxable years
of foreign corporations ending on or
after the date of publication of the
Treasury decision adopting these rules
as final regulations in the Federal
Register, and to taxable years of United
States shareholders in which or with
which such taxable years end. See
proposed § 1.951A–7(e).
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
The Administrator of the Office of
Information and Regulatory Affairs
(‘‘OIRA’’), Office of Management and
Budget (‘‘OMB’’), has determined that
this proposed rule is not a significant
regulatory action, as that term is defined
in section 3(f) of Executive Order 12866.
Therefore, OIRA has not reviewed this
proposed rule pursuant to section

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6(a)(3)(A) of Executive Order 12866 and
the April 11, 2018, Memorandum of
Agreement between the Treasury
Department and OMB.
II. Paperwork Reduction Act
The collection of information
contained in this notice of proposed
rulemaking has been submitted to OMB
for review in accordance with the
Paperwork Reduction Act under control
number 1545–0026. Commenters are
strongly encouraged to submit public
comments electronically. Written
comments and recommendations for the
proposed information collection should
be sent to https://www.reginfo.gov/
public/do/PRAMain, with copies to the
Internal Revenue Service. Find this
particular information collection by
selecting ‘‘Currently under Review—
Open for Public Comments’’ then by
using the search function. Submit
electronic submissions for the proposed
information collection to the IRS via
email at omb.unit@irs.gov (indicate
‘‘REG–124064–19 (1545–0026)’’ on the
Subject line). Comments on the
collection of information should be
received by July 3, 2023. Comments are
specifically requested concerning:
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the IRS,
including whether the information will
have practical utility;
The accuracy of the estimated burden
associated with the proposed collection
of information;
How the quality, utility, and clarity of
the information to be collected may be
enhanced;
How the burden of complying with
the proposed collection of information
may be minimized, including through
the application of automated collection
techniques or other forms of information
technology; and
Estimates of capital or start-up costs
and costs of operation, maintenance,
and purchase of services to provide
information.
The collection of information in this
proposed regulation is in § 1.6038B–
1(d)(2)(iv). This information is
necessary to ensure that proposed
§ 1.367(d)–1(f)(4) is appropriately
applied to the subsequent transfer.
The collection of information is
required to comply with section 367(d).
The likely respondents are domestic
corporations. Burdens associated with
these requirements will be reflected in
the burden for Form 926, Return by a
U.S. Transferor of Property to a Foreign
Corporation.
Estimated change in annual reporting
burden: 1601 hours.

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Federal Register / Vol. 88, No. 85 / Wednesday, May 3, 2023 / Proposed Rules
Estimated increase in annual burden
per respondent: 2.4 hours.
Estimated number of respondents:
667.
Estimated frequency of responses:
annually.
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 assigned by the Office of
Management and Budget.

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III. Regulatory Flexibility Act
When an agency issues a rulemaking
proposal, the Regulatory Flexibility Act
(5 U.S.C. chapter 6) (‘‘RFA’’) requires
the agency ‘‘to prepare and make
available for public comment an initial
regulatory flexibility analysis’’ that will
‘‘describe the impact of the proposed
rule on small entities.’’ See 5 U.S.C.
603(a). Section 605 of the RFA provides
an exception to this requirement if the
agency certifies that the proposed
rulemaking will not have a significant
economic impact on a substantial
number of small entities. A small entity
is defined as a small business, small
nonprofit organization, or small
governmental jurisdiction. See 5 U.S.C.
601(3) through (6).
The Treasury Department and the IRS
do not have detailed data readily
available to assess the exact number of
small entities potentially affected by the
proposed regulations. Based on the
limited data available, it is estimated
that there will be less than 700
taxpayers potentially affected by the
proposed regulations. But, among those
taxpayers, an even smaller portion will
likely be affected by the proposed
regulations as these rules apply to a
specific type of transaction—
repatriations of intangible property
subject to section 367(d). Moreover, the
entities potentially affected by these
proposed regulations are generally not
small entities, because of the resources
and investment necessary to develop
intangible property and, once so
developed, transfer the intangible
property to a foreign corporation.
Therefore, the Treasury Department and
the IRS certify that the proposed
regulations will not have a significant
economic impact on a substantial
number of small entities. The IRS
invites the public to comment on the
impact of these regulations on small
entities.
IV. Section 7805(f)
Pursuant to section 7805(f), this
notice of proposed rulemaking has been
submitted to the Chief Counsel for
Advocacy of the Small Business

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Administration for comment on its
impact on small business.
V. Unfunded Mandates Reform Act
Section 202 of the Unfunded
Mandates Reform Act of 1995 requires
that agencies assess anticipated costs
and benefits and take certain other
actions before issuing a final rule that
includes any Federal mandate that may
result in expenditures in any one year
by a State, local, or Tribal government,
in the aggregate, or by the private sector,
of $100 million in 1995 dollars, updated
annually for inflation. This rule does
not include any Federal mandate that
may result in expenditures by State,
local, or Tribal governments, or by the
private sector in excess of that
threshold.
VI. Executive Order 13132: Federalism
Executive Order 13132 (entitled
‘‘Federalism’’) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
State and local governments, and is not
required by statute, or preempts State
law, unless the agency meets the
consultation and funding requirements
of section 6 of the Executive order. This
proposed rule does not have federalism
implications, does not impose
substantial direct compliance costs on
State and local governments, and does
not preempt State law within the
meaning of the Executive order.
Comments and Requests for Public
Hearing
Before these proposed amendments to
the regulations are adopted as final
regulations, consideration will be given
to comments that are submitted timely
to the IRS as prescribed in the Preamble
under the ADDRESSES section. The
Treasury Department and the IRS
request comments on all aspects of the
proposed regulations.
A public hearing will be scheduled if
requested in writing by any person who
timely submits electronic or written
comments. Requests for a public hearing
are encouraged to be made
electronically. If a public hearing is
scheduled, notice of the date and time
for the public hearing will be published
in the Federal Register. Announcement
2020–4, 2020–17 IRB 1, provides that
until further notice, public hearings
conducted by the IRS will be held
telephonically. Any telephonic hearing
will be made accessible to people with
disabilities.

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Statement of Availability of IRS
Documents
IRS Revenue Procedures, Revenue
Rulings, and Notices cited in this
Preamble are published in the Internal
Revenue Bulletin (or Cumulative
Bulletin) and are available from the
Superintendent of Documents, U.S.
Government Publishing Office,
Washington, DC 20402, or by visiting
the IRS website at https://www.irs.gov.
Drafting Information
The principal authors of these
regulations are Chadwick Rowland and
L. Ulysses Chatman, Office of Associate
Chief Counsel (International). However,
other personnel from the Treasury
Department and the IRS participated in
their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS propose to amend 26 CFR
part 1 as follows:
PART 1—INCOME TAXES
Paragraph 1.The authority citation for
part 1 continues to read in part as
follows:

■

Authority: 6 U.S.C. 7805 * * *
Section 1.367(d)–1 also issued under 26
U.S.C. 367(d).

*

*

*

§ 1.367(a)–1

*

*

[Amended]

Par. 2. Section 1.367(a)–1 is amended
by removing the language ‘‘section
936(h)(3)(B)’’ in paragraphs (d)(5) and
(6) and adding the language ‘‘section
367(d)(4)’’ in its place.
■ Par. 3. Section 1.367(d)–1 is amended
by:
■ 1. Removing reserved paragraphs
(c)(1) through (2).
■ 2. Adding a heading to paragraph (c)
and adding paragraphs (c)(1) and (2).
■ 3. Removing reserved paragraphs
(c)(4) through (g)(2) (introductory text).
■ 4. Adding paragraphs (c)(4), (d), (e),
and (f).
■ 5. Adding a heading to paragraph (g)
and adding paragraphs (g)(1) and (g)(2)
introductory text.
■ 6. Removing reserved paragraphs
(g)(2)(ii) through (g)(2)(iii)(D).
■ 7. Adding paragraph (g)(2)(ii) and
reserved paragraphs (g)(2)(iii)
introductory text and (g)(2)(iii)(A)
through (D).
■ 8. Removing reserved paragraphs
(g)(4) through (i).
■ 9. Adding paragraphs (g)(4), (h), and
(i).
■

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Federal Register / Vol. 88, No. 85 / Wednesday, May 3, 2023 / Proposed Rules

10. Revising paragraph (j).
The additions and revision read as
follows:

■

§ 1.367(d)–1 Transfers of intangible
property to foreign corporations.

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*

*
*
*
*
(c) Deemed payments upon transfer of
intangible property to foreign
corporation—(1) In general. For further
guidance, see § 1.367(d)–1T(c)(1).
(2) Required adjustments. For further
guidance, see § 1.367(d)–1T(c)(2)
introductory text and (c)(2)(i).
(i) [Reserved]
(ii) The deemed payment is treated as
an allowable deduction (whether or not
that amount is paid) of the transferee
foreign corporation properly allocated
and apportioned to the appropriate
classes of gross income in accordance
with §§ 1.882–4(b)(1), 1.951A–2(c)(3),
1.954–1(c), 1.960–1(c), and 1.960–1(d),
as applicable.
*
*
*
*
*
(4) Blocked income. For further
guidance, see § 1.367(d)–1T(c)(4).
(d) Subsequent transfer of stock of
transferee corporation to unrelated
person. For further guidance, see
§ 1.367(d)–1T(d).
(e) Subsequent transfer of stock of
transferee foreign corporation to related
person—(1) Transfer to related U.S.
person treated as disposition of
intangible property. For further
guidance, see § 1. 367(d)–1T(e)(1).
(2) Required adjustments. For further
guidance, see § 1.367(d)–1T(e)(2)
introductory text and (e)(2)(i).
(i) [Reserved]
(ii) The deemed payment is treated as
an allowable deduction (whether or not
that amount is paid) of the transferee
foreign corporation properly allocated
and apportioned to the appropriate
classes of gross income in accordance
with §§ 1.882–4(b)(1), 1.951A–2(c)(3),
1.954–1(c), 1.960–1(c), and 1.960–1(d),
as applicable.
(iii) For further guidance, see
§ 1.367(d)–1T(e)(2)(iii) through (e)(4).
(iv) [Reserved]
(3) through (4) [Reserved]
(f) Subsequent disposition of
transferred intangible property by
transferee foreign corporation—(1) In
general. For further guidance, see
§ 1.367(d)–1T(f)(1).
(2) Required adjustments. If a U.S.
transferor is required to recognize gain
under paragraph (f)(4)(i)(A) of this
section or § 1.367(d)–1T(f)(1), then, in
addition to the adjustments described in
paragraph (c)(2)(ii) of this section and
§ 1.367(d)–1T(c)(2) with respect to the
deemed payment described in
§ 1.367(d)–1T(f)(1)(ii)—
(i) For purposes of chapter 1 of the
Code, the transferee foreign corporation

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reduces (but not below zero) the portion
of its earnings and profits and gross
income arising by reason of the
subsequent disposition of the intangible
property by the amount of gain
recognized by the U.S. transferor under
paragraph (f)(4)(i)(A) of this section or
§ 1.367(d)–1T(f)(1); and
(ii) The U.S. transferor may establish
an account receivable from the
transferee foreign corporation equal to
the amount of gain recognized under
paragraph (f)(4)(i)(A) of this section or
§ 1.367(d)–1T(f)(1) in accordance with
§ 1.367(d)–1T(g)(1).
(3) Subsequent transfer of intangible
property to related person. Except as
provided in paragraph (f)(4)(i)(B) of this
section, a U.S. person’s requirement to
recognize income under § 1.367(d)–
1T(c) or (e) is not affected by the
transferee foreign corporation’s
subsequent disposition of the
transferred intangible property to a
related person. For purposes of any
required adjustments, and of any
accounts receivable created under
§ 1.367(d)–1T(g)(1), the related person
that receives the intangible property is
treated as the transferee foreign
corporation.
(4) Subsequent transfer of intangible
property to qualified domestic person—
(i) In general. Except as provided in
paragraph (f)(4)(v) of this section, if a
U.S. person transfers intangible property
subject to section 367(d) and the rules
of this section and § 1.367(d)–1T to a
foreign corporation in an exchange
described in section 351 or 361 and,
within the useful life of the intangible
property, that transferee foreign
corporation subsequently disposes of
the intangible property to a qualified
domestic person, then—
(A) The U.S. transferor of the
intangible property (or any person
treated as such pursuant to § 1.367(d)–
1T(e)(1)) is required to recognize gain,
as applicable, equal to the amount
described in paragraph (f)(4)(ii) of this
section; and
(B) If the U.S. transferor provides the
information described in § 1.6038B–
1(d)(2)(iv), then—
(1) The U.S. transferor is required to
recognize a deemed payment as
provided in § 1.367(d)–1T(f)(1)(ii); and
(2) The intangible property is no
longer subject to section 367(d), this
section, and § 1.367(d)–1T after
applying paragraphs (f)(4)(i)(A) and
(f)(4)(i)(B)(1) of this section.
(ii) Gain recognition for U.S.
transferor. The amount of gain a U.S.
transferor must recognize under
paragraph (f)(4)(i)(A) of this section is
determined as follows—

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(A) If the intangible property is
transferred basis property (as defined in
section 7701(a)(43)) by reason of the
subsequent disposition (determined
without regard to section 367(d), this
section, and § 1.367(d)–1T), the amount
of gain, if any, the transferee foreign
corporation would recognize if its
adjusted basis in the intangible property
were equal to the U.S. transferor’s
former adjusted basis in the property; or
(B) If the intangible property is not
transferred basis property by reason of
the subsequent disposition (determined
without regard to section 367(d), this
section, and § 1.367(d)–1T), the excess,
if any, of the fair market value of the
intangible property on the date of the
subsequent disposition and the U.S.
transferor’s former adjusted basis in that
property.
(iii) Qualified domestic person. For
purposes of paragraph (f)(4) of this
section, a qualified domestic person
means—
(A) The U.S. transferor that initially
transferred intangible property subject
to section 367(d);
(B) A U.S. person treated as a U.S.
transferor under § 1.367(d)–1T(e)(1),
provided such person is an individual
or a corporation other than a
corporation exempt from tax under
section 501(a), a regulated investment
company (as defined in section 851(a)),
a real estate investment trust (as defined
in section 856(a)), a domestic
international sales corporation (DISC)
(as defined in section 992(a)(1)), or an
S corporation (as defined in section
1361(a));
(C) A U.S. person that is an individual
related, within the meaning of
paragraph (h)(2)(ii) of this section and
§ 1.367(d)–1T(h), to the person
described in paragraph (f)(4)(iii)(A) or
(B) of this section; or
(D) A U.S. person that is a corporation
related, within the meaning of
paragraph (h)(2)(ii) of this section and
§ 1.367(d)–1T(h), to the person
described in paragraph (f)(4)(iii)(A) or
(B) of this section, other than a
corporation exempt from tax under
section 501(a), a regulated investment
company (as defined in section 851(a)),
a real estate investment trust (as defined
in section 856(a)), a DISC (as defined in
section 992(a)(1)), or an S corporation
(as defined in section 1361(a)).
(iv) Qualified domestic person’s basis
in the intangible property. The qualified
domestic person’s adjusted basis in the
intangible property is—
(A) In the case of a subsequent
disposition of intangible property
described in paragraph (f)(4)(ii)(A) of
this section, and subject to any
applicable limitations that may apply

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Federal Register / Vol. 88, No. 85 / Wednesday, May 3, 2023 / Proposed Rules
under the Code, the lesser of the U.S.
transferor’s former adjusted basis in the
intangible property or the transferee
foreign corporation’s adjusted basis in
the intangible property (as determined
immediately before the subsequent
disposition), in each case increased by
the greater of the amount of gain (if any)
described in paragraph (f)(4)(ii)(A) of
this section and recognized by the U.S.
transferor or the amount of gain (if any)
recognized by the transferee foreign
corporation as to the intangible property
by reason of the subsequent disposition;
or
(B) In the case of a subsequent
disposition of intangible property
described in paragraph (f)(4)(ii)(B) of
this section, the fair market value of the
intangible property (as determined on
the date of the subsequent disposition).
(v) Special rule for related
transactions. If the transferee foreign
corporation subsequently disposes of
the transferred intangible property to a
person that would, absent this
paragraph (f)(4)(v), be a qualified
domestic person (initial transferee) and,
as part of a series of related transactions,
the intangible property is subsequently
disposed of to any other person,
including by reason of multiple
dispositions, then the initial transferee
is treated as a qualified domestic person
only if the ultimate recipient of the
intangible property is a qualified
domestic person. See paragraphs
(f)(6)(ii)(D) and (E) of this section
(Examples 4 and 5), for illustrations of
the application of this paragraph
(f)(4)(v).
(5) Relief for certain failures to
comply. This paragraph (f)(5) provides
relief if paragraph (f)(4)(i)(B)(2) of this
section would apply but for the U.S.
transferor’s failure to provide the
information required by paragraph
(f)(4)(i)(B) of this section (a ‘‘failure to
comply’’). When a failure to comply
occurs, the subsequent disposition of
the transferred intangible property is
generally subject to paragraphs (f)(3)
and (f)(4)(i)(A) of this section, and not
paragraph (f)(4)(i)(B)(2) of this section.
Nevertheless, a failure to comply is
deemed not to have occurred (regardless
of whether the U.S. transferor continued
to include amounts in gross income
under § 1.367(d)–1T(c) or (e) after the
subsequent disposition), and the
requirements of paragraph (f)(4)(i)(B) of
this section are treated as satisfied as of
the date of the subsequent disposition if,
promptly after the U.S. transferor
becomes aware of the failure, the U.S.
transferor provides such information
and provides a reasonable explanation
for its failure to comply to the Director
of Field Operations, Cross Border

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Activities Practice Area of Large
Business & International (or any
successor to the roles and
responsibilities of such position, as
appropriate). Additionally, the U.S.
transferor must timely file an amended
return for the taxable year in which the
subsequent disposition occurred (and, if
applicable, for each taxable year starting
with the taxable year immediately after
the taxable year in which the
subsequent disposition occurred and
ending with the taxable year in which
the U.S. transferor seeks relief under
this paragraph (f)(5)) that includes the
information required by paragraph
(f)(4)(i)(B) of this section. If any taxable
year of the U.S. transferor is under
examination when an amended return is
filed, a copy of the amended return (or,
if applicable, amended returns) must be
provided to the Internal Revenue
Service personnel conducting the
examination.
(6) Examples—(i) Assumed facts. For
purposes of the examples in paragraph
(f)(6)(ii) of this section, and except
where otherwise indicated, the
following facts are assumed.
(A) USP and USS are domestic
corporations that each use a calendar
taxable year.
(B) TFC is a foreign corporation
whose functional currency is the U.S.
dollar.
(C) In year 1, USP transfers intangible
property, as defined in section
367(d)(4), with a $0 adjusted basis, to
TFC in a section 351 exchange (the
‘‘transferred IP’’), and such transfer is
subject to section 367(d).
(D) Each annual inclusion (including
any amount described in § 1.367(d)–
1T(f)(1)(ii)) is taken into account under
section 367(d)(2)(A)(ii)(I) and
§ 1.367(d)–1T(c)(1).
(E) Any subsequent transfer or
disposition of stock of TFC or the
transferred IP occurs within the useful
life of the transferred IP.
(F) All transactions are respected
under general principles of tax law.
(ii) Examples. The following
examples illustrate the application of
paragraph (f)(4) of this section and other
paragraphs of this section that relate to
paragraph (f)(4).
(A) Example 1: Complete liquidation of
transferee foreign corporation into a qualified
domestic person—(1) Facts. In year 2, USP
transfers all the stock of TFC to USS, a
related person within the meaning of
§ 1.367(d)–1T(h) and paragraph (h)(2)(ii) of
this section, in a section 351 exchange to
which § 1.367(d)–1T(e)(1) applies (the ‘‘year
2 transfer’’). In year 3, TFC distributes all its
property (including the transferred IP) to USS
pursuant to a complete liquidation to which
sections 332 and 337 apply (the ‘‘year 3

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liquidation’’). The all earnings and profits
amount determined under § 1.367(b)–2(d)
with respect to the stock of TFC held by USS
is $0. The information described in
§ 1.6038B–1(d)(2) is provided by USS for the
taxable year in which the year 3 liquidation
occurs.
(2) Analysis—(i) The year 2 transfer.
Because the year 2 transfer involves a transfer
of all the stock of TFC by USP (the initial
U.S. transferor) to a related U.S. person
(USS), under § 1.367(d)–1T(e)(1)(i) USS (a
successor U.S. transferor) is treated as
receiving the right to receive a proportionate
share of the contingent annual payments that
USP would have otherwise taken into
account under § 1.367(d)–1T(c). As
determined under § 1.367(d)–1T(e)(4), USS’s
proportionate share of such payments is 100
percent. Accordingly, USS will annually
include in its gross income the full amount
of each of the annual payments that USP
would otherwise have taken into account
under § 1.367(d)–1T(c) over the useful life of
the transferred IP, and USP will not
recognize any gain upon the year 2 transfer.
See § 1.367(d)–1T(e)(1)(ii) and (iii).
(ii) The year 3 liquidation. The year 3
liquidation results in a subsequent
disposition of the transferred IP to USS. USS,
a U.S. person treated as the U.S. transferor
pursuant to § 1.367(d)–1T(e)(1), is a qualified
domestic person within the meaning of
paragraph (f)(4)(iii) of this section. Pursuant
to paragraph (f)(4)(i)(A) of this section, USS
must recognize the amount of gain described
in paragraph (f)(4)(ii) of this section. Because
the year 3 liquidation is a complete
liquidation to which sections 332 and 337
apply, the intangible property is transferred
basis property (as defined in section
7701(a)(43) and determined without regard to
section 367(d), this section, and § 1.367(d)–
1T), and therefore paragraph (f)(4)(ii)(A)
applies to determine the amount of any gain
USS must recognize. Because TFC does not
recognize gain with respect to the transferred
IP (regardless of the adjusted basis in the
intangible property) by reason of the year 3
liquidation, the amount of gain described in
paragraph (f)(4)(ii)(A) of this section is $0.
Accordingly, USS does not recognize gain
pursuant to paragraph (f)(4)(i)(A) of this
section by reason of the year 3 liquidation.
Additionally, because USS provides the
information described in § 1.6038B–1(d)(2),
paragraph (f)(4)(i)(B) of this section applies to
the year 3 liquidation. USS therefore
recognizes a deemed payment representing
the part of USS’s taxable year during which
TFC held the transferred IP pursuant to
paragraph (f)(4)(i)(B)(1) of this section, and
the required adjustments described in
paragraph (c)(2)(ii) of this section and
§ 1.367(d)–1T(c)(2)(i) apply as to the deemed
payment. Also, because USS does not
recognize gain pursuant to paragraph
(f)(4)(i)(A) of this section, the required
adjustments described in paragraph (f)(2) of
this section do not apply. Pursuant to
paragraph (f)(4)(i)(B)(2) of this section, after
taking the deemed payment into account, the
transferred IP is no longer subject to section
367(d), this section, and § 1.367(d)–1T.
Finally, pursuant to paragraph (f)(4)(iv)(A) of
this section, USS’s adjusted basis in the

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transferred IP is $0, which is equal to USP’s
former adjusted basis in the transferred IP
($0), increased by the greater of the amount
of gain recognized by USS under paragraph
(f)(4)(i)(A) of this section ($0) or the amount
of gain recognized by TFC upon the year 3
distribution ($0).
(B) Example 2: Taxable distribution of the
transferred intangible property to a qualified
domestic person—(1) Facts. The facts are the
same as in paragraph (f)(6)(ii)(A) of this
section (Example 1), except that, instead of
in year 3 TFC distributing all its property to
USS pursuant to a complete liquidation, in
year 3 TFC distributes the transferred IP to
USS in a distribution described in section
311(b) when the fair market value of the
transferred IP is $100x (the ‘‘year 3
distribution’’). TFC’s adjusted basis in the
transferred IP immediately before the
distribution is $0.
(2) Analysis. The consequence of the year
2 transfer is the same as described in
paragraph (f)(6)(ii)(A)(2)(i) of this section
(Example 1). Like the consequences
described in paragraph (f)(6)(ii)(A)(2) of this
section (Example 1), the year 3 distribution
is a subsequent disposition of the transferred
IP to USS, a qualified domestic person.
Pursuant to paragraph (f)(4)(i)(A) of this
section, USS must recognize the amount of
gain described in paragraph (f)(4)(ii) of this
section. Because the year 3 distribution is
described in section 311(b) the intangible
property is not transferred basis property (as
defined in section 7701(a)(43) and
determined without regard to section 367(d),
this section, and § 1.367(d)–1T), and
therefore USS must recognize $100x gain
under paragraph (f)(4)(ii)(B) of this section.
The $100x gain amount equals the excess of
the fair market value of the transferred IP on
the date of the year 3 distribution ($100x)
over USP’s former adjusted basis in the
property ($0). TFC, because of USS’s gain
recognition under paragraph (f)(4)(i)(A) of
this section, reduces (but not below zero) the
portion of its earnings and profits and gross
income arising by reason of the year 3
distribution by the amount of such gain
under paragraph (f)(2)(i) of this section.
Specifically, because the year 3 distribution
requires USS to recognize $100x of gain, TFC
reduces the portion of its earnings and profits
and gross income that arise by reason of the
year 3 distribution, which is $100x (the
excess of the fair market value of the
transferred IP ($100x) over TFC’s adjusted
basis in the transferred IP ($0)), by $100x (the
amount of gain USS recognizes pursuant to
paragraph (f)(4)(i)(A) of this section). As a
result, after taking into account the
reduction, TFC has no earnings and profits or
gross income that arise by reason of the year
3 distribution. Furthermore, USS may
establish an account receivable from TFC
equal to $100x under paragraph (f)(2)(ii) of
this section. Additionally, and as described
in paragraph (f)(6)(ii)(A)(2) of this section
(Example 1), pursuant to paragraph
(f)(4)(i)(B)(1) of this section, USS recognizes
a deemed payment for the portion of USS’s
taxable year during which TFC held the
transferred IP, and the required adjustments
described in paragraph (c)(2)(ii) of this
section and § 1.367(d)–1T(c)(2) apply to this

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deemed payment. After taking these
consequences into account, pursuant to
paragraph (f)(4)(i)(B)(2) of this section, the
transferred IP is no longer subject to section
367(d), this section, and § 1.367(d)–1T.
Finally, pursuant to paragraph (f)(4)(iv)(B) of
this section, USS’s adjusted basis in the
transferred IP is $100x, which is the fair
market value of the transferred IP on the date
of the year 3 distribution.
(C) Example 3: Qualified domestic person’s
basis in intangible property when intangible
property is repatriated in an exchange
described in section 351(b)—(1) Facts. The
facts are the same as in paragraph (f)(6)(ii)(A)
of this section (Example 1), except that the
transfer of stock of TFC to USS in year 2 does
not occur and instead of the year 3
liquidation, in year 3 TFC transfers the
intangible property to USS (a qualified
domestic person as defined in paragraph
(f)(4)(iii) of this section) in an exchange
described in section 351(b) pursuant to
which TFC recognizes $50x of gain and USP
recognizes $50x of gain under paragraph
(f)(4)(i)(A) of this section (the ‘‘year 3
exchange’’).
(2) Analysis. Pursuant to paragraph
(f)(4)(iv)(A) of this section, USS’s adjusted
basis in the intangible property is $50x,
which is the amount equal to the lesser of
USP’s former adjusted basis in the property
($0) or TFC’s adjusted basis in the property
($0), increased by the greater of the amount
of gain recognized by USP under paragraph
(f)(4)(i)(A) of this section ($50x) or the
amount of gain recognized by TFC upon the
year 3 exchange ($50x).
(D) Example 4: Repatriation as part of a
series of related transactions culminating in
transfer to a foreign corporation—(1) Facts.
The facts are the same as in paragraph
(f)(6)(ii)(A)(1) of this section (Example 1),
except that the year 3 liquidation occurs as
part of a series of related transactions
pursuant to which USS transfers the
transferred IP that it receives from TFC to a
related foreign corporation (FC1) in exchange
for stock in FC1.
(2) Analysis. Because the year 3 liquidation
occurs as part of a series of related
transactions pursuant to which the
transferred IP is ultimately contributed to a
FC1, a foreign corporation, and because a
foreign corporation is not a qualified
domestic person pursuant to paragraph
(f)(4)(iii) of this section, then, under
paragraph (f)(4)(v) of this section, the year 3
liquidation is not treated as a subsequent
disposition described in paragraph (f)(4)(i) of
this section, but is instead treated as a
subsequent disposition described in
paragraph (f)(3) of this section.
(E) Example 5: Repatriation as part of a
series of related transactions culminating in
transfer to a qualified domestic person—(1)
Facts. The facts are the same as in paragraph
(f)(6)(ii)(B)(1) of this section (Example 2),
except that the year 3 distribution occurs as
part of a series of related transactions
pursuant to which USS disposes of the
transferred IP that it receives from TFC to
USP.
(2) Analysis. Because the year 3
distribution occurs as part of a series of
related transactions pursuant to which the

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transferred IP is distributed to USP, and
because USP is a qualified domestic person
pursuant to paragraph (f)(4)(iii) of this
section, paragraph (f)(4)(v) of this section
does not prevent paragraph (f)(4)(i) of this
section from applying to the year 3
distribution. Accordingly, the consequences
under section 367(d) of the year 3
distribution are the same as those described
in paragraph (f)(6)(ii)(B)(2) of this section
(Example 2), and the consequences of the
subsequent disposition of the transferred IP
by USS to USP are determined after applying
paragraph (f)(4) of this section to the transfer
of the transferred IP by TFC to USS.

(g) Special rules—(1) Establishment of
accounts receivable. For further
guidance, see § 1.367(d)–1T(g)(1).
(2) Election to treat transfer as sale.
For further guidance, see § 1.367(d)–
1T(g)(2) introductory text.
*
*
*
*
*
(ii) For further guidance, see § 1.367–
1T(g)(2)(ii) through (g)(2)(iii)(D).
(iii) [Reserved]
(A) through (D) [Reserved]
*
*
*
*
*
(4) Coordination with section 482. For
further guidance, see § 1.367(d)–
1T(g)(4).
(5) Determination of fair market
value. For further guidance, see
§ 1.367(d)–1T(g)(5).
(6) Anti-abuse rule. For further
guidance, see § 1.367(d)–1T(g)(6).
(h) Related person. For further
guidance, see § 1.367(d)–1T(h)
introductory text and (h)(1).
(1) [Reserved]
(2) For further guidance, see
§ 1.367(d)–1T(h)(2) introductory text
and (h)(2)(i).
(i) [Reserved]
(ii) Section 1563 applies (for purposes
of section 267(f)) without regard to
section 1563(b)(2).
(i) Effective date. For further
guidance, see § 1.367(d)–1T(i).
(j) Applicability dates—(1) In general.
This section applies to transfers
occurring on or after September 14,
2015, and to transfers occurring before
September 14, 2015, resulting from
entity classification elections made
under § 301.7701–3 of this chapter that
are filed on or after September 14, 2015.
For transfers occurring before this
section is applicable, see § 1.367(d)–1T
as contained in 26 CFR part 1 revised as
of April 1, 2016.
(2) Certain subsequent dispositions of
intangible property. Paragraphs (c)(2)(ii),
(e)(2)(ii), (f)(2) through (5), and (h)(2)(ii)
of this section apply to subsequent
dispositions of intangible property
occurring on or after [date of publication
of final regulations in the Federal
Register]. For subsequent dispositions
of intangible property occurring before

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[date of publication of final regulations
in the Federal Register], see § 1.367(d)–
1T (as contained in 26 CFR part 1,
revised as of April 1, 2022).
§ 1.367(d)–1T

[Amended]

Par. 4. Section 1.367(d)–1T is
amended by:
■ 1. Removing ‘‘; and’’ at the end of
paragraph (c)(2)(i) and adding a period
in its place.
■ 2. Removing and reserving paragraphs
(c)(2)(ii), (e)(2)(ii), and (f)(2) and (3).
■ 3. Removing ‘‘; and’’ at the end of
paragraph (h)(2)(i) and adding a period
in its place.
■ 4. Removing and reserving paragraph
(h)(2)(ii).
■

§ 1.367(e)–2

[Amended]

Par. 5. Section 1.367(e)–2 is amended
by removing the language ‘‘section
936(h)(3)(B)’’ in the last sentence of
paragraph (b)(2)(i)(B) and adding the
language ‘‘section 367(d)(4)’’ in its
place.
■ Par. 6. Section 1.904–4 is amended by
adding paragraph (f)(2)(vi)(D)(4) and
revising paragraph (q)(3) to read as
follows:
■

§ 1.904–4 Separate application of section
904 with respect to certain categories of
income.

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*

*
*
*
*
(f) * * *
(2) * * *
(vi) * * *
(D) * * *
(4) Multiple transfers of intangible
property. If the same intangible property
is transferred in a series of transfers
described in paragraph (f)(2)(vi)(D)(1) of
this section, each successive transfer is
separately subject to the provisions of
paragraph (f)(2)(vi)(D)(1) and will not
terminate or otherwise affect the
application of paragraph (f)(2)(vi)(D)(1)
to a prior transfer described in
paragraph (f)(2)(vi)(D)(1).
*
*
*
*
*
(q) * * *
(3) Except as provided in the
following sentence, paragraph (f) of this
section applies to taxable years that
begin after December 31, 2019, and end
on or after November 2, 2020. Paragraph
(f)(vi)(D)(4) of this section applies to
taxable years that begin on or after [date
of publication of final regulations in the
Federal Register].
■ Par. 7. Section 1.951A–2 is amended
by revising paragraph (c)(2) to read as
follows:
§ 1.951A–2

Tested income and tested loss.

*

*
*
*
*
(c) * * *
(2) Determination of gross income and
allowable deductions. For purposes of

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determining tested income and tested
loss, the gross income and allowable
deductions of a controlled foreign
corporation for a CFC inclusion year are
determined under the rules of § 1.952–
2 for determining the subpart F income
of the controlled foreign corporation,
except, for a controlled foreign
corporation which is engaged in the
business of reinsuring or issuing
insurance or annuity contracts and
which, if it were a domestic corporation
engaged only in such business, would
be taxable as an insurance company to
which subchapter L of chapter 1 of the
Code applies, substituting ‘‘the rules of
sections 953 and 954(i)’’ for ‘‘the
principles of §§ 1.953–4 and 1.953–5’’ in
§ 1.952–2(b)(2).
*
*
*
*
*
■ Par. 8. Section 1.951A–7 is amended
by adding paragraph (e) to read as
follows:
§ 1.951A–7

Applicability dates.

*

*
*
*
*
(e) Determination of gross income and
allowable deductions. Section 1.951A–
2(c)(2) applies to taxable years of foreign
corporations ending on or after [date of
publication of final regulations in the
Federal Register], and to taxable years
of United States shareholders in which
or with which such taxable years end.
For taxable years of foreign corporations
ending before [date of publication of
final regulations in the Federal
Register], and to taxable years of United
States shareholders in which or with
which such taxable years end, see
§ 1.951A–2(c)(2)(i) and (ii) as contained
in 26 CFR part 1, revised as of April 1,
2022.
■ Par. 9. Section 1.6038B–1 is amended
by:
■ 1. Removing reserved paragraphs
(d)(1) through (1)(iii).
■ 2. Adding paragraphs (d) heading and
(d)(1) introductory text and reserved
paragraphs (d)(1)(i) through (iii).
■ 3. Removing reserved paragraphs
(d)(1)(viii) through (d)(2).
■ 4. Adding paragraphs (d)(1)(viii),
(d)(2), and (g)(8).
The additions read as follows:
§ 1.6038B–1 Reporting of certain transfers
to foreign corporations.

*

*
*
*
*
(d) Transfers subject to section 367
(d)—(1) Initial transfer. For further
guidance, see § 1.6038B–1T(d)(1)
introductory text through (d)(1)(iii).
(i) through (iii) [Reserved]
*
*
*
*
*
(viii) Other intangibles. For further
guidance, see § 1.6038B–1T(d)(1)(viii).

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27831

(2) Subsequent transfers. For
additional, see § 1.6038B–1T(d)(2)
introductory text through (d)(2)(ii).
(i) through (ii) [Reserved]
(iii) Subsequent transfer. Except for a
subsequent transfer described in
paragraph (d)(2)(iv) of this section,
provide the following information
concerning the subsequent transfer:
(A) For further guidance, see
§ 1.6038B–1T(d)(2)(iii)(A) through (C).
(B) through (C) [Reserved]
(iv) Subsequent transfer of intangible
property to a qualified domestic person.
Provide the following information
concerning a subsequent transfer of
intangible property described in
§ 1.367(d)–1(f)(4)(i):
(A) A statement providing that
§ 1.367(d)–1(f)(4)(i)(B) applies to the
subsequent transfer;
(B) A general description of the
subsequent transfer and any wider
transaction of which it forms a part,
including the U.S. transferor’s former
adjusted basis in the intangible property
and the transferee foreign corporation’s
adjusted basis in the intangible property
(as determined immediately before the
subsequent transfer), the amount and
computation of any gain recognized by
the U.S. transferor under § 1.367(d)–
1(f)(4)(i)(A), and a description of
whether the intangible property was, or
is expected to be, subsequently
transferred to one or more other persons
(as described in § 1.367(d)–1(f)(4)(v));
(C) A description of the intangible
property;
(D) A copy of the Form 926 with
respect to the original transfer of the
intangible property and any attachments
identifying the intangible property as
within the scope of section 367(d);
(E) The name, address, and taxpayer
identification number of the qualified
domestic person that receives the
intangible property, including a
statement describing the relationship
between the U.S. transferor and the
qualified domestic person, and, if
applicable, such information regarding
any other persons described in
§ 1.367(d)–1(f)(4)(v); and
(F) Any other information as may be
prescribed by the Commissioner in
publications, forms, instructions, or
other guidance.
*
*
*
*
*
(g) * * *
(8) Paragraphs (d)(2)(iii) introductory
text and (d)(2)(iv) of this section apply
to transfers occurring on or after [date of
publication of final regulations in the
Federal Register].
■ Par. 10. Section 1.6038B–1T is
amended by revising paragraph
(d)(2)(iii) introductory text to read as
follows:

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Federal Register / Vol. 88, No. 85 / Wednesday, May 3, 2023 / Proposed Rules

§ 1.6038B–1T Reporting of certain
transactions to foreign corporations
(temporary).

*

*
*
*
*
(d) * * *
(2) * * *
(iii) Subsequent transfer. For further
guidance, see § 1.6038B–1(d)(2)(iii)
introductory text:
*
*
*
*
*

Douglas W. O’Donnell,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2023–08843 Filed 5–2–23; 8:45 am]
BILLING CODE 4830–01–P

The Defense Industrial Base (DIB)
means the Department of Defense,
Government, and private sector
worldwide industrial complex with
capabilities to perform research and
development, design, produce, and
maintain military weapon systems,
subsystems, components, or parts to
satisfy military requirements. The DIB
Cybersecurity Program is a voluntary
program to enhance and supplement
participants’ capabilities to safeguard
DoD information that resides on, or
transits, DIB unclassified information
systems. The program encourages
greater threat information sharing to
complement mandatory aspects of
DoD’s DIB cybersecurity activities
which are contractually mandated
through Defense Federal Acquisition
Regulation Supplement (DFARS)
252.204–7012, Safeguarding Covered
Defense Information and Cyber Incident
Reporting.1 This program supports and
complements DoD-specific authorities at
10 U.S.C. 2224 and the Federal
Information Security Management Act
(FISMA) (44 U.S.C. 3541 et seq.). Cyber
threat information sharing activities
under this proposed rule also fulfill
important elements of DoD’s critical
infrastructure protection
responsibilities, as the sector risk
management agency for the DIB (see
Presidential Policy Directive 21 (PPD–
21),2 ‘‘Critical Infrastructure Security
and Resilience’’). Expanding eligibility
requirements for the DIB CS Program
will augment DoD’s information sharing
activities with the DIB.
Currently, the DIB CS Program has the
following objectives:
• Establish a voluntary, mutually
acceptable framework to protect
information from unauthorized access.

• Protect the confidentiality of
information exchanged to the maximum
extent authorized by law.
• Create a trusted environment to
maximize network defense and
remediation efforts by:
1. Sharing cyber threat information
and incident reports.
2. Providing mitigation/remediation
strategies and malware analysis.
This program is part of DoD’s larger
portfolio of work to protect DoD
information handled by the DIB by
understanding and sharing information,
building security partnerships,
implementing long-term risk
management programs, and maximizing
efficient use of resources. It supports
two-way information sharing and
maintains meaningful relationships and
frequent dialogue across the diverse
array of eligible defense contractors. For
eligible defense contractors, the program
maintains a capability for companies to
access classified government cyber
threat information providing additional
context to better understand the cyber
threats targeting their networks and
information systems.
In May 2012, DoD published an
interim final rule establishing the
voluntary DIB CS Program and the
bilateral information sharing model still
used today.3 The 2012 rule established
a voluntary cyber threat information
sharing program for cleared defense
contractors (CDC) with the ability to
safeguard classified information,
estimated at 2,650 in 2012. Under the
rule cleared defense contractor is
defined as a private entity granted
clearance by DoD to access, receive, or
store classified information for the
purpose of bidding for a contract or
conducting activities in support of any
program of DoD. The 2012 rule stated
DoD would maintain a website to
facilitate the following aspects of
program participation: (1) sharing
information regarding eligibility and
participation in the program with
potential participants, (2) applying to
the program online, and (3) executing
the necessary agreements with the
Government. DoD has established this
capability as an online portal referred to
as ‘‘DIBNet,’’ located at https://
dibnet.dod.mil. A final rule responding
to public comments was published in
October 2013.4 In October 2015,
responding to new statutory
requirements for cyber incident
reporting for DoD contractors,

1 https://www.ecfr.gov/current/title-48/chapter-2/
subchapter-H/part-252/subpart-252.2/section252.204-7012.
2 https://obamawhitehouse.archives.gov/thepress-office/2013/02/12/presidential-policydirective-critical-infrastructure-security-and-resil.

3 77 FR 27615, May 11, 2012 (https://
www.govinfo.gov/content/pkg/FR-2012-05-11/pdf/
2012-10651.pdf).
4 78 FR 62430, October 22, 2013 (https://
www.govinfo.gov/content/pkg/FR-2013-10-22/pdf/
2013-24256.pdf).

available for public viewing as they are
received without change, including any
personal identifiers or contact
information provided by the
commenter.
FOR FURTHER INFORMATION CONTACT:

• Stacy Bostjanick, Chief Defense
Industrial Base Cybersecurity, Office:
703–604–3167.
• DIB CS Program Management
Office: OSD.DIBCSIA@mail.mil.
Instructions: DO NOT submit
comments to this email address.
SUPPLEMENTARY INFORMATION:
Background and Authority

DEPARTMENT OF DEFENSE
Office of the Secretary
32 CFR Part 236
[Docket ID: DOD–2019–OS–0112]
RIN 0790–AK86

Department of Defense (DoD) Defense
Industrial Base (DIB) Cybersecurity
(CS) Activities
Office of the DoD Chief
Information Officer, Department of
Defense (DoD).
ACTION: Proposed rule.
AGENCY:

The DoD is proposing
revisions to the eligibility criteria for the
voluntary Defense Industrial Base (DIB)
Cybersecurity (CS) Program. These
revisions will allow a broader
community of defense contractors to
benefit from bilateral information
sharing as when this proposed rule is
finalized all defense contractors who are
subject to mandatory cyber incident
reporting will be able to participate.
DoD is also proposing changes to
definitions and some technical
corrections for readability.
DATES: Comments must be received by
June 20, 2023.
ADDRESSES: Please submit comments on
this proposed rule, identified by 32 CFR
part 236, Docket ID: DOD–2019–OS–
0112 and/or by Regulatory Information
Number (RIN) 0790–AK86, by any of the
following methods:
• Federal Rulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Department of Defense, Office
of the Assistant to the Secretary of
Defense for Privacy, Civil Liberties, and
Transparency, Regulatory Directorate,
4800 Mark Center Drive, Mailbox #24,
Suite 08D09, Alexandria, VA 22350–
1700.
Instructions: The general policy for
comments is to make these submissions

lotter on DSK11XQN23PROD with PROPOSALS1

SUMMARY:

VerDate Sep<11>2014

18:28 May 02, 2023

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03MYP1