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nominate tribal representatives to serve
on the Committee and tribal alternates
to serve when the representative is
unavailable. Based upon the
proportionate share of students, some
tribes similar in affiliation or geography
are grouped together for one seat. It will
be necessary for such nominating tribes
either to co-nominate a single tribal
representative to represent the multitribal jurisdiction or for each tribe in the
multi-tribal jurisdiction to nominate a
representative with the knowledge that
BIE will only be able to appoint one of
the nominees who will then be
responsible for representing the entire
multi-tribal jurisdiction on the
Committee. Each nomination is
expected to include a nomination for a
representative and an alternate who can
fulfill the obligations of membership
should the representative be unable to
attend. The Committee membership
should reflect the diversity of tribal
interests, and tribes should nominate
representatives and alternates who will:
• Have knowledge of school
assessments and accountability systems;
• Have relevant experience as past or
present superintendents, principals,
facility managers, teachers, or school
board members, or possess direct
experience with adequate yearly
progress;
• Be able to coordinate, to the extent
possible, with other tribes and schools
who may not be represented on the
Committee;
• Be able to represent the tribe(s) with
the authority to embody tribal views,
communicate with tribal constituents,
and have a clear means to reach
agreement on behalf of the tribe(s);
• Be able to negotiate effectively on
behalf of the tribe(s) represented;
• Be able to commit the time and
effort required to attend and prepare for
meetings; and
• Be able to collaborate among
diverse parties in a consensus-seeking
process.
VI. Submitting Nominations
The Secretary will only consider
nominees nominated through the
process identified in this Federal
Register notice. Nominations received
in any other manner will not be
considered. Nominations must include
the following information about each
nominee:
(1) The nominee’s name, tribal
affiliation, job title, major job duties,
employer, business address, business
telephone and fax numbers (and
business email address, if applicable);
(2) The tribal interest(s) to be
represented by the nominee (see section
V of this notice of intent) and whether

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the nominee will represent other
interest(s) related to this rulemaking, as
the tribe may designate;
(3) A resume reflecting the nominee’s
qualifications and experience in Indian
education (which may include being a
parent of a student attending a BIEfunded school); and
(4) A brief description of how they
will represent tribal views,
communicate with tribal constituents,
and have a clear means to reach
agreement on behalf of the tribe(s) they
are representing.
Additionally, a statement whether the
nominee is only representing one tribe’s
views or whether the expectation is that
the nominee represents a specific group
of tribes.
To be considered, nominations must
be received by the close of business on
the date listed in the DATES section, at
the location indicated in the ADDRESSES
section.
Certification
For the above reasons, I hereby certify
that the Adequate Yearly Progress
Negotiated Rulemaking Committee is in
the public interest.
Dated: January 22, 2013.
Kevin K. Washburn,
Assistant Secretary, Indian Affairs.
[FR Doc. 2013–01957 Filed 1–30–13; 8:45 am]
BILLING CODE 4310–6W–P

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–140649–11]
RIN 1545–BK65

Failure To File Gain Recognition
Agreements and Other Required
Filings
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:

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

SUMMARY:

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Written or electronic comments
and requests for a public hearing must
be received by April 1, 2013.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–140649–11), room
5203, Internal Revenue Service, P.O.
Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions
may be hand-delivered Monday through
Friday between the hours of 8 a.m. and
4 p.m. to CC:PA:LPD:PR (REG–140649–
11), Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW.,
Washington, DC 20224, or sent
electronically via the Federal
Rulemaking Portal at http://
www.regulations.gov (IRS REG–140649–
11).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
Mary W. Lyons, (202) 622–3860;
concerning submission of comments
and to request a hearing,
Oluwafunmilayo (Funmi) Taylor, (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
DATES:

Paperwork Reduction Act
The collections of information
contained in the regulations have been
reviewed and approved by the Office of
Management and Budget in accordance
with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)) under control
number 1545–1487.
The collections of information are in
§§ 1.367(a)–3(f)(2), 1.367(a)–8(p)(2),
1.367(e)–2(f)(2), 1.6038B–1(c)(4)(ii), and
1.6038B–1(e)(4). The collections of
information are mandatory. The likely
respondents are domestic corporations.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number.
Books and records relating to a
collection of information must be
retained as long as their contents might
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
A. Sections 367(a) and 6038B
Section 367(a)(1) provides that if, in
connection with any exchange
described in section 332, 351, 354, 356,
or 361, a United States person (U.S.
transferor) transfers property to a foreign
corporation (transferee foreign
corporation), the transferee foreign
corporation shall not, for purposes of
determining the extent to which gain
shall be recognized on such transfer, be
considered to be a corporation. Sections

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367(a)(2), (3), and (6) provide exceptions
to the general rule of section 367(a)(1)
and grant regulatory authority to the
Secretary to provide additional
exceptions and to limit the statutory
exceptions.
Section 1.367(a)–3 provides
exceptions to the general rule of section
367(a)(1) for certain transfers by a U.S.
transferor of stock or securities to a
foreign corporation. In some cases, these
exceptions require the U.S. transferor to
file a GRA and other related documents
under the provisions of § 1.367(a)–8
(section 367(a) GRA regulations) in
order to avoid the recognition of gain
under section 367(a)(1). See § 1.367(a)–
3(b), (c), and (e) (addressing transfers of
foreign stock or securities, transfers of
domestic stock or securities, and
transfers in certain section 361
exchanges, respectively). Under the
terms of a GRA, the U.S. transferor
agrees to include in income the gain
realized but not recognized on the
initial transfer of the stock or securities
and pay interest on any additional tax
due if a gain recognition event, as
defined in § 1.367(a)–8(b)(1)(iv), occurs
during the term of the GRA (generally
60 months following the close of the
taxable year in which the initial transfer
occurs). See § 1.367(a)–8(c)(1)(i) and (v).
One of the gain recognition events
enumerated is a failure to comply in any
material respect with any requirement
of the section 367(a) GRA regulations or
with the terms of an existing GRA
(failure to comply). See § 1.367(a)–
8(j)(8). An example of such a failure to
comply is the failure to file an annual
certification. The section 367(a) GRA
regulations provide that if there is a
failure to comply, the U.S. transferor
must recognize the full amount of gain
realized on the initial transfer of stock
or securities unless the U.S. transferor
demonstrates that the failure was due to
reasonable cause and not willful neglect
under the procedure that is described in
§ 1.367(a)–8(p). Similarly, if there is a
failure to timely file a GRA in
connection with the initial transfer, the
U.S. transferor must recognize gain with
respect to the transfer unless the
reasonable cause exception is satisfied.
In addition to the section 367(a) GRA
regulations, other regulations under
section 367(a) require certain other
statements to be filed in connection
with a transfer of stock or securities by
a U.S. person to a foreign corporation.
A domestic target corporation in certain
cases must file statements in connection
with the transfer by its shareholders or
security holders of stock or securities in
the domestic target corporation to a
foreign corporation under § 1.367(a)–
3(c). See § 1.367(a)–3(c)(6) and (7). Also,

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a domestic target corporation must file
a statement when its assets are
transferred to a foreign acquiring
corporation in a section 361 exchange
and all or a portion of those assets are
subsequently transferred to a domestic
subsidiary of the foreign acquiring
corporation in a transaction treated as
an indirect stock transfer under
§ 1.367(a)–3(d). See § 1.367(a)–
3(d)(2)(vi)(B)(1)(ii).
In addition, a U.S. person who
transfers certain property to a foreign
corporation in certain nonrecognition
transactions is subject to the reporting
requirements of section 6038B and the
regulations. See §§ 1.6038B–1 and –1T.
In general, the U.S. transferor must file
IRS Form 926 ‘‘Return by a U.S.
Transferor of Property to a Foreign
Corporation,’’ identifying the transferee
foreign corporation and describing the
property transferred. The penalty for
failure to satisfy the section 6038B
reporting requirement is equal to ten
percent of the fair market value of the
property at the time of the exchange, but
not to exceed $100,000 unless the
failure was due to intentional disregard
of the reporting obligation. If, however,
the U.S. transferor demonstrates that the
failure was due to reasonable cause and
not willful neglect, no penalty is
imposed.
Section 1.6038B–1T(c)(4)(ii) provides
that if stock or securities are transferred,
the U.S. transferor must provide
information about the stock or securities
on Form 926. Section 1.6038B–1(f)(2)(i)
provides that a failure to comply with
the reporting requirements of the
regulations includes the failure to
provide material information about the
property transferred. Thus, the failure to
provide the required information about
the stock or securities transferred could
result in a section 6038B penalty. The
current section 6038B regulations have
a rule coordinating the obligations to
file a GRA and complete Form 926.
Specifically, § 1.6038B–1(b)(2) relieves a
U.S. transferor of the obligation to report
a transfer of stock or securities on Form
926 and from the section 6038B penalty
if the U.S transferor has properly filed
a GRA.
On the other hand, a U.S. transferor
who transfers stock or securities for
which a GRA must be properly filed to
avoid recognizing gain under section
367(a)(1) and who neither properly files
a GRA nor a Form 926 with respect to
the transfer is potentially subject both to
the penalty under section 6038B and
full gain recognition under section
367(a)(1). Both of these provisions have
a reasonable cause exception for a
failure to file, and a U.S. transferor who

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cannot establish reasonable cause is
subject to both provisions.
The Deficit Reduction Act of 1984
(1984 Act) (Public Law 98–369, 98 Stat
494 (1984)) amended section 367(a) and
enacted section 6038B. The legislative
history to the 1984 Act indicates that
Congress intended sections 367 and
6038B to operate in tandem, with
section 6038B serving as a notification
requirement for transfers under section
367(a). H.R. Rep. No. 432, Pt. 2, 98th
Cong., 2d Sess., March 5, 1984 at 1325;
S. Rep. No. 169, Vol. 1, 98th Cong., 2d
Sess., Apr. 2, 1984 at 370.
Temporary regulations were
published on May 16, 1986 (TD 8087,
1986–1 CB 175, 51 FR 17936),
addressing GRAs and reporting under
section 6038B (1986 temporary
regulations). The 1986 temporary
regulations imposed both full gain
recognition under section 367(a)(1) for
failure to comply with the regulations
under section 367(a) as well as the
penalty under section 6038B for failure
to comply with the section 6038B
reporting requirements. Both rules have
been retained in later-issued guidance
under sections 367(a) and 6038B.
In addition, the current final
regulations under § 1.367(a)–8(p)(1)
allow a U.S. transferor to obtain relief
from gain recognition caused by a
failure to file a GRA or a failure to
comply in any material respect with the
regulations by requesting relief and
establishing that a failure to file or
comply was due to reasonable cause and
not willful neglect. When a U.S.
transferor requests relief from full gain
recognition under this section, the
regulations provide that the appropriate
IRS examination official (Director) shall
notify the U.S. transferor in writing if it
is determined that the U.S. transferor’s
failure was not due to reasonable cause,
or if additional time will be needed to
make a determination. This notification
is to be made within the 120-day period
that begins on the date that the IRS
notifies the U.S. transferor in writing
that its request for relief has been
received and assigned for review. If the
U.S. transferor is not so notified before
the close of this 120-day period, the U.S.
transferor is deemed to have established
that the failure to file or failure to
comply was due to reasonable cause and
not willful neglect.
B. Section 367(e)(2)
Section 367(e)(2) provides generally
that in a liquidation to which section
332 applies, except as provided in
regulations, subsections (a) and (b)(1) of
section 337 shall not apply when the 80percent distributee (as defined in
section 337(c)) is a foreign corporation.

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

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Explanation of Provisions
A. Proposed Amendments to the Section
367(a) GRA Regulations
Under current law, if a U.S. transferor
fails to timely file an initial GRA, or
fails to comply in any material respect
with the section 367(a) GRA regulations
with respect to an existing GRA (for
example, because it fails to timely file
an annual certification), the U.S.
transferor is subject to full gain
recognition under section 367(a)(1)
unless the U.S. transferor later discovers
the failure, promptly files the GRA or
other required information with the IRS,
and demonstrates that its failure was
due to reasonable cause and not willful
neglect. The existing reasonable cause
standard, given its interpretation under
the case law, may not be satisfied by

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U.S. transferors in many common
situations even though the failure was
not intentional and not due to willful
neglect. Based on the current operation
of the section 367(a) GRA regulations,
the Internal Revenue Service (IRS) and
the Department of the Treasury
(Treasury Department) believe that full
gain recognition under section 367(a)(1)
should apply only if a failure to timely
file an initial GRA or a failure to comply
with the section 367(a) GRA regulations
with respect to an existing GRA is
willful. The IRS and the Treasury
Department believe that the penalty
imposed by section 6038B generally
should be sufficient to encourage proper
reporting and compliance.
Accordingly, the proposed regulations
would revise the section 367(a) GRA
regulations to provide that a U.S.
transferor seeking either to (i) avoid
recognizing gain under section 367(a)(1)
on the initial transfer as a result of a
failure to timely file an initial GRA, or
(ii) avoid triggering gain as a result of a
failure to comply in all material respects
with the section 367(a) GRA regulations
or the terms of an existing GRA, must
demonstrate that the failure was not a
willful failure. For this purpose, willful
is to be interpreted consistent with the
meaning of that term in the context of
other civil penalties (for example,
section 6672), which would include a
failure due to gross negligence, reckless
disregard, or willful neglect.
Whether a failure is willful will be
determined based on all the relevant
facts and circumstances. The proposed
regulations illustrate the application of
this standard through a series of
examples. For example, the section
367(a) GRA regulations require a GRA to
include information about the adjusted
basis and fair market value of the
property transferred. Filing a GRA and
intentionally not providing such
information, including noting on the
GRA that this information is ‘‘available
upon request,’’ would be a willful
failure.
In addition, the proposed regulations
modify the process through which
requests for relief from a failure to file
or a failure to comply are evaluated by
eliminating the requirement for the IRS
to respond to such relief requests within
120 days. While the IRS is committed to
processing requests promptly, the IRS
and the Treasury Department do not
believe that the IRS’s processing time
with respect to a relief request should be
determinative of whether a U.S.
transferor has satisfied its obligations
under the section 367(a) GRA
regulations.
The proposed regulations also provide
guidance clarifying when an initial GRA

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is considered timely filed, and what
gives rise to a failure to comply in any
material respect with the requirements
of the section 367(a) GRA regulations or
the terms of an existing GRA. In general,
an initial GRA is timely filed only if
each document that is required to be
filed as part of an initial GRA is timely
filed and completed in all material
respects. Similarly, in general, there is
a failure to comply in a material respect
with the section 367(a) GRA regulations
or the terms of an existing GRA if a
document (such as an annual
certification) that is required to be filed
is not timely filed, or is not completed
in all material respects. The examples
provided in the proposed regulations
also illustrate the application of the
‘‘completed in all material respects’’
requirement of the current final
regulations.
The proposed regulations also clarify
that the section 6038B penalty will
apply to a failure to comply in any
material respect with the section 367(a)
GRA regulations or the terms of an
existing GRA, such as a failure to
properly file a gain recognition
agreement document (including an
annual certification or new GRA). Under
the proposed regulations, a failure to
comply has the same meaning for
purposes of the section 367(a) GRA
regulations and the section 6038B
regulations; however, the current
reasonable cause standard continues to
apply to U.S. transferors seeking relief
from the section 6038B penalty.
In addition, the section 6038B penalty
continues to apply, as provided under
the current section 6038B regulations, if
both a Form 926 is not filed with respect
to the initial transfer and there is a
failure to file an initial GRA. In this
case, the current reasonable cause
standard continues to apply to U.S.
transferors seeking relief from the
section 6038B penalty.
The proposed regulations modify the
information that must be reported with
respect to a transfer of stock or
securities on Form 926. Specifically, the
U.S. transferor must include on Form
926 the basis and fair market value of
the property transferred. Finally, the
proposed regulations require that a
Form 926 be filed in all cases in which
a GRA is filed, but provide that only
Part I and Part II of the Form 926 must
be completed if the only asset
transferred is stock or securities.
B. Proposed Amendments to the Section
367(e)(2) Regulations
The section 367(e)(2) regulations
governing liquidating distributions to
foreign parent corporations contain
several rules that condition

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nonrecognition treatment upon the
timely filing of statements or other
documents, or complying with the
requirements of those regulations. These
documents are functionally similar to
GRAs in certain respects. The current
section 367(e)(2) regulations provide no
explicit guidance regarding the
treatment of taxpayers who fail to file
these documents or report the required
information, and also provide no
mechanism to obtain relief for such
failures. As discussed in this preamble,
the section 6038B regulations also
require that a Form 926 be filed with
respect to liquidating distributions by a
domestic corporation to a foreign parent
corporation.
The IRS and the Treasury Department
believe that the changes made by the
proposed regulations in the case of
section 367(a) transfers are also
appropriate for failures to file or failures
to comply for purposes of the section
367(e)(2) regulations and the related
section 6038B regulations. Accordingly,
the proposed regulations provide rules
similar to the rules under the section
367(a) GRA regulations and related
section 6038B regulations for failures to
file the required documents or
statements and failures to comply under
the section 367(e)(2) regulations and
related section 6038B regulations.
Finally, the proposed regulations
modify the information that must be
reported with respect to one or more
liquidating distributions of property,
including the addition of the
requirement to report the basis and fair
market value of the property distributed.
C. Other Reporting Under Section
1.367(a)–3
The section 367(a) regulations
currently do not address a taxpayer’s
failure to file certain other statements
required under § 1.367(a)–3 in
connection with certain transfers of
stock or securities. These include the
statements required to be filed by a
domestic target corporation in
connection with a transfer of stock or
securities of such corporation to a
foreign corporation as described in
§§ 1.367(a)–3(c)(6) and (7), and the
statement required to be filed by a
domestic target corporation in
connection with the transfer of its assets
to a foreign corporation in an exchange
described in section 361 and the
subsequent transfer of those assets to a
domestic subsidiary in a transaction
described in § 1.367(a)–
3(d)(2)(vi)(B)(1)(ii). The IRS and the
Treasury Department believe that
failures to timely file these statements or
failures to comply in all material
respects with these regulations should

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be treated similarly to failures to file or
failures to comply with the section
367(a) GRA regulations. Accordingly,
these proposed regulations incorporate
similar rules with respect to these other
filing obligations.
Proposed Effective/Applicability Date
These regulations are proposed to
apply with respect to documents or
statements required under the section
367(a) GRA regulations, § 1.367(a)–3(c)
or (d) of the regulations, or the section
367(e) regulations that are required to be
filed with a timely filed return on or
after the date that final regulations are
published in the Federal Register, as
well as with respect to any requests for
relief for failures to file documents and
statements required under these
regulations, or failures to comply, if
such requests are submitted on or after
the date that final regulations are
published in the Federal Register.
Special Analyses
It has been determined that this
proposed regulation is not a significant
regulatory action as defined in
Executive Order 12866, as
supplemented by Executive Order
13563. Therefore, a regulatory
assessment is not required. It also has
been determined that section 553(b) of
the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations. It is hereby certified that
these regulations will not have a
significant impact on a substantial
number of small entities. This
certification is based on the fact that
these regulations merely provide for a
change in the standard, or clarify or
provide the standard, that will be used
to determine whether a taxpayer that
has failed to file, or comply with the
terms of, a gain recognition agreement
or other related document, a § 1.367(a)–
3 statement, or a document or statement
required under § 1.367(e)–2 will be
entitled to avoid full gain recognition
under section 367(a)(1) or 367(e)(2), as
applicable. Accordingly a Regulatory
Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Code, these
regulations have been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on their impact on small business.
Comments and Requests for Public
Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
written comments (a signed original and
eight (8) copies) or electronic comments

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that are submitted timely to the IRS. The
IRS and the Treasury Department
request comments on the clarity of the
proposed regulations and how they may
be made easier to understand. All
comments will be available for public
inspection and copying. A public
hearing may be scheduled if requested
in writing by any person who timely
submits written or electronic comments.
If a public hearing is scheduled, notice
of the date, time, and place of the
hearing will be published in the Federal
Register.
Drafting Information
The principal author of these
proposed regulations is Mary W. Lyons
of the Office of Associate Chief Counsel
(International). However, other
personnel from the IRS and the Treasury
Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read in part as
follows:

■

Authority: 26 U.S.C. 7805 * * *

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

§ 1.367(a)–3. Treatment of transfers of
stock or securities to foreign corporations.

*

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

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(f) Failure to file statements—(1)
Consequences of a failure to file. Except
as provided in paragraph (f)(2) of this
section, if there is a failure to file a
statement described in paragraph (c)(6),
(c)(7), or (d)(2)(vi)(C) of this section,
then the exceptions to the application of
section 367(a)(1) provided in paragraphs
(c) and (d)(2)(vi)(B)(1)(ii) of this section
will not apply. For this purpose, there
is a failure to file the statement if the
statement is not filed with a timely filed
return or is not completed in all
material respects.
(2) Relief for certain failures to file
that are not willful—(i) In general. A
failure to file described in paragraph
(f)(1) of this section will be deemed not
to have occurred for purposes of
satisfying the requirements of the
applicable regulation if the taxpayer is
able to demonstrate that the failure was
not willful using the procedure set forth
in this paragraph (f)(2). For this
purpose, willful is to be interpreted
consistent with the meaning of that term
in the context of other civil penalties,
which would include a failure due to
gross negligence, reckless disregard, or
willful neglect. Whether a failure to file
was a willful failure will be determined
by the Director of Field Operations
International, Large Business &
International (or any successor to the
roles and responsibilities of such
position, as appropriate) (Director)
based on all the facts and
circumstances.
The taxpayer shall submit a request
for relief and an explanation as
provided in paragraph (f)(2)(ii) of this
section. Although a taxpayer whose
failure to file is determined not to be
willful will avoid gain recognition
under this section, the taxpayer will be
subject to a penalty under section 6038B
if the taxpayer fails to satisfy the
reporting requirements, if any, under
that section and does not demonstrate
that the failure was due to reasonable
cause and not willful neglect. See
§ 1.6038B–1(f). The determination of
whether the failure to file was willful
under this section has no effect on any
request for relief made under § 1.6038B–
1(f).
(ii) Time of submission. A taxpayer’s
statement that the failure to file was not
willful will be considered only if,
promptly after the taxpayer becomes
aware of the failure, an amended return
is filed for the taxable year to which the
failure relates that includes the required
statement and a written statement
explaining the reasons for the failure.
The amended return must be filed with
the applicable Internal Revenue Service
Center with which the taxpayer filed its
original return for such taxable year.

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The taxpayer may also submit a request
for relief from the penalty of section
6038B as part of the same submission.
(iii) Notice requirement. In addition to
the requirements of paragraph (f)(2)(ii)
of this section, the taxpayer must
comply with the notice requirements of
this paragraph (f)(2)(iii). If any taxable
year of the taxpayer is under
examination when the amended return
is filed, a copy of the amended return
and any information required to be
included with such return must be
delivered to the Internal Revenue
Service personnel conducting the
examination. If no taxable year of the
taxpayer is under examination when the
amended return is filed, a copy of the
amended return and any information
required to be included with such
return must be delivered to the Director.
(3) For illustrations of the application
of the willfulness standard, see the
examples in § 1.367(a)–8(p)(3).
(g) * * *
(1) * * *
(ix) Paragraphs (c)(6)(ii),
(d)(2)(vi)(B)(1)(ii) and (f) of this section
will apply to statements that are
required to be filed with a timely filed
U.S. income tax return on or after the
date of publication of the Treasury
decision adopting these rules as final
regulations in the Federal Register, as
well as to any requests for relief for
failures to file statements, if such
requests are submitted on or after the
date of publication of the Treasury
decision adopting these rules as final
regulations in the Federal Register.
*
*
*
*
*
■ Par. 3. Section 1.367(a)–8 is amended:
■ 1. By revising the eleventh sentence of
paragraph (a).
■ 2. In paragraph (b)(1) by
■ a. Redesignating definitions (xii)
through (xv) as (xiv) through (xvii).
■ b. Redesignating definition (xi) as
(xiii).
■ c. Redesignating definitions (v)
through (x) as (vii) through (xii).
■ d. Redesignating definition (iv) as (v).
■ e. Adding new definitions (iv) and
(vi).
■ f. Revising redesignated definitions
(xiii), (xiv), and (xv).
■ 3. By revising paragraph (d)(1).
■ 4. By revising paragraph (j)(8).
■ 5. By revising paragraph (p).
■ 6. By adding a sentence at the end of
paragraph (r)(1)(i).
The revisions and addition read as
follows:

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

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

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recognizing gain under section 367(a)(1)
with respect to the transferred stock or
securities by reason of the applicable
exceptions provided under § 1.367(a)-3.
Except as provided in paragraph (p) of
this section, an initial gain recognition
agreement is timely filed only if—
(i) The initial gain recognition
agreement and any other gain
recognition agreement document
required to be filed with the initial gain
recognition agreement are included with
a timely filed return of the U.S.
transferor for the taxable year during
which the initial transfer occurs; and
(ii) Each gain recognition agreement
document identified in paragraph
(d)(1)(i) of this section is completed in
all material respects.
*
*
*
*
*
(j) * * *
(8) Failure to comply. A U.S.
transferor fails to comply in any
material respect with any requirement
of this section, or the terms of the gain
recognition agreement as described in
paragraph (c)(1) of this section. A failure
to comply under this paragraph (j)(8)
will extend the period of limitations on
assessment of tax until the close of the
third full taxable year ending after the
date on which the Director of Field
Operations International, Large Business
& International (or any successor to the
roles and responsibilities of such
person) (Director) receives actual notice
of the failure to comply from the U.S.
transferor. Except as provided in
paragraph (p) of this section, for
purposes of this paragraph (j)(8), a
failure to comply includes—
(i) If there is a gain recognition event
in a taxable year, a failure to report gain
or pay any additional tax or interest due
under the terms of the gain recognition
agreement; and
(ii) A failure to file a gain recognition
agreement document, other than an
initial gain recognition agreement or a
document required to be filed with the
initial gain recognition agreement. For
this purpose, there is a failure to file a
gain recognition agreement document
if—
(A) The gain recognition agreement
document is not timely filed as required
under this section, or
(B) The gain recognition agreement
document is not completed in all
material respects.
*
*
*
*
*
(p) Relief for certain failures to file or
failures to comply that are not willful—
(1) In general. This paragraph (p)
provides relief if there is a failure to file
an initial gain recognition agreement as
required under paragraph (d)(1) of this
section (failure to file), or a failure to

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comply that is a triggering event under
paragraph (j)(8) of this section (failure to
comply). A failure to file or failure to
comply will be deemed not to have
occurred for purposes of paragraph
(d)(1) of this section or paragraph (j)(8)
of this section if the U.S. transferor is
able to demonstrate that the failure was
not willful using the procedure set forth
in this paragraph (p). For this purpose,
willful is to be interpreted consistent
with the meaning of that term in the
context of other civil penalties, which
would include a failure due to gross
negligence, reckless disregard, or willful
neglect. Whether a failure to file or
failure to comply was willful will be
determined by the Director based on all
the facts and circumstances.
The taxpayer shall submit a request
for relief and an explanation as
provided in paragraph (p)(2)(i) of this
section. Although a U.S. transferor
whose failure to file or failure to
comply, as applicable, is determined not
to be willful will avoid gain recognition
under paragraph (b), (c), or (e) of
§ 1.367(a)–3, or paragraph (c)(1) of this
section, as applicable, the U.S.
transferor will be subject to a penalty
under section 6038B if the U.S.
transferor fails to satisfy the reporting
requirements under that section and
does not demonstrate that the failure
was due to reasonable cause and not
willful neglect. See § 1.6038B–1(b)(2)
and (f). The determination of whether
the failure to file or failure to comply
was willful under this section has no
effect on any request for relief made
under § 1.6038B–1(f).
(2) Procedures for establishing that a
failure to file or failure to comply was
not willful—(i) Time of submission. A
U.S. transferor’s statement that a failure
to file or failure to comply was not
willful will be considered only if,
promptly after the U.S. transferor
becomes aware of the failure, an
amended return is filed for the taxable
year to which the failure relates that
includes the information that should
have been included with the original
return for such taxable year or that
otherwise complies with the rules of
this section, and that includes a written
statement explaining the reasons for the
failure to file or failure to comply. The
U.S. transferor must file, with the
amended return, a Form 8838 extending
the period of limitations on assessment
of tax with respect to the gain realized
but not recognized on the initial transfer
to the later of (1) the close of the eighth
full taxable year following the taxable
year during which the initial transfer
occurred, or (2) three years from the
date the required information is
provided to the IRS. The amended

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6777

return and Form 8838 must be filed
with the applicable Internal Revenue
Service Center with which the U.S.
transferor filed its original return for
such taxable year. The U.S. transferor
may submit a request for relief from the
penalty under section 6038B as part of
the same submission. See § 1.6038B–
1(f).
(ii) Notice requirement. In addition to
the requirements of paragraph (p)(2)(i)
of this section, the U.S. transferor must
comply with the notice requirements of
this paragraph (p)(2)(ii). If any taxable
year of the U.S. transferor is under
examination when the amended return
is filed, a copy of the amended return
and any information required to be
included with such return must be
delivered to the Internal Revenue
Service personnel conducting the
examination. If no taxable year of the
U.S. transferor is under examination
when the amended return is filed, a
copy of the amended return and any
information required to be included
with such return must be delivered to
the Director.
(3) Examples. The following examples
illustrate the application of this
paragraph (p). All of the examples are
based solely on the following facts and
any additional facts stated in the
particular example. DC, a domestic
corporation, wholly owns FS and FA,
each a foreign corporation. In Year 1,
pursuant to a transaction qualifying
both as a reorganization under section
368(a)(1)(B) and an exchange under
section 351, DC transferred all the FS
stock to FA solely in exchange for
voting stock of FA (FS Transfer). The
fair market value of the FS stock
exceeded DC’s tax basis in the stock.
Absent the application of section 367 to
the transaction, DC’s exchange of the FS
stock for the stock of FA qualified as a
tax-free exchange under section 354.
Immediately after the transaction, both
FA and FS were controlled foreign
corporations (as defined in section 957).
Furthermore, DC was a section 1248
shareholder (as defined in § 1.367(b)–
2(b)) with respect to FA and FS, and a
5-percent shareholder with respect to
FA for purposes of § 1.367(a)–3(b)(ii).
Thus, DC was required to recognize gain
under section 367(a)(1) by reason of the
FS Transfer unless DC timely filed an
initial gain recognition agreement (GRA)
as required by paragraph (d)(1) of this
section and complied in all material
respects with the requirements of this
section throughout the term of the GRA.
The application of section 6038B is not
addressed in these examples. DC may be
subject to a penalty under section 6038B
even if DC demonstrates under this
section that a failure to file or failure to

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comply was not willful. See §§ 1.6038B–
1(b) and (f) for the application of section
6038B.
Example 1. Taxpayer failed to file a GRA
due to accidental oversight. (i) Additional
facts. DC filed its tax return for the year of
the FS Transfer, reporting no gain with
respect to the exchange of the FS stock. DC,
through its tax department, was aware of the
requirement to file a GRA in order for DC to
avoid recognizing gain with respect to the FS
Transfer under section 367(a)(1), and had the
experience and competency to properly
prepare the GRA. DC had filed many GRAs
over the years and had never failed to timely
file a GRA. However, although DC prepared
the GRA with respect to the FS Transfer, it
was not filed with DC’s tax return for the year
of the FS Transfer due to an accidental
oversight. During the preparation of the
following year’s tax return, DC discovered
that the GRA was not filed. DC filed an
amended return to file the GRA and
complied with the procedures set forth under
paragraph (p)(2) of this section promptly after
it became aware of the failure.
(ii) Result. Because DC failed to file a GRA
with its timely filed tax return for the year
of the FS Transfer, there is a failure to timely
file the GRA as required by paragraph (d)(1)
of this section. However, based on the facts
of this Example 1, including that the failure
to timely file the GRA was an isolated
oversight, the failure to timely file is not a
willful failure to file. Accordingly, the timely
filed requirement of paragraph (d)(1) of this
section is considered to be satisfied, and DC
is not required to recognize the gain realized
on the FS Transfer under section 367(a)(1).
Example 2. Taxpayer’s course of conduct
is taken into account in determination. (i)
Additional facts. DC filed its tax return for
the year of the FS Transfer, reporting no gain
with respect to the exchange of the FS stock,
but failed to file a GRA. DC, through its tax
department, was aware of the requirement to
file a GRA in order for DC to avoid
recognizing gain with respect to the FS
Transfer under section 367(a)(1). DC had not
consistently and in a timely manner filed
GRAs in the past, and also had an established
history of failing to timely file other tax and
information returns for which it was subject
to penalties. In a year subsequent to Year 1,
DC transferred stock of another foreign
subsidiary with respect to which DC had a
built-in gain (FS2) to FA in a transaction that
qualified as both a reorganization under
section 368(a)(1)(B) and an exchange
described under section 351 (FS2 Transfer).
DC was required to recognize gain on the FS2
Transfer under section 367(a)(1) unless DC
timely filed a GRA as required by paragraph
(d)(1) of this section and complied with the
requirements of this section during the term
of the GRA. DC reported no gain on the FS2
Transfer on its tax return, but failed to file
a GRA. At the time of the FS2 Transfer, DC
was already aware of its failure to file the
GRA required for the prior FS Transfer, but
had not implemented any safeguards to
ensure that it would timely file GRAs for
future transactions. DC filed an amended
return to file the GRA for the FS2 Transfer
and complied with the procedures set forth

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under paragraph (p)(2) of this section
promptly after it became aware of the failure.
DC asserts that its failure to timely file a GRA
with respect to the FS2 Transfer was due to
an isolated oversight similar to the one that
occurred with respect to the FS Transfer. At
issue is DC’s failure to timely file a GRA for
the FS2 Transfer.
(ii) Result. Because DC failed to file a GRA
with its timely filed tax return for the year
of the FS2 Transfer, there is a failure to
timely file the GRA as required by paragraph
(d)(1) of this section. DC’s course of conduct
is taken into account in determining whether
its failure to timely file a GRA for the FS2
Transfer was willful. Based on the facts of
this Example 2, including DC’s history of
failing to file required tax and information
returns in general and GRAs in particular,
and its failure to implement safeguards to
ensure that it would timely file GRAs, the
failure to timely file a GRA with respect to
the FS2 Transfer rises to the level of a willful
failure to timely file. Accordingly, the timely
filed requirement of paragraph (d)(1) of this
section is not satisfied, and DC must
recognize the full amount of the gain realized
on the FS2 Transfer.
Example 3. GRA not completed in all
material respects. (i) Additional facts. DC
timely filed its tax return for the year of the
FS Transfer, reporting no gain with respect
to the exchange of the FS stock. DC was
aware of the requirement to file a GRA to
avoid recognizing gain under section
367(a)(1), including the requirement to
provide the basis and fair market value of the
transferred stock. However, DC filed a
purported GRA that did not contain the fair
market value of the FS stock. Instead, the
GRA was filed with the statement that the
fair market value information was ‘‘available
upon request.’’ Other than the omission of
the fair market value of the FS stock, the GRA
contained all other information required by
this section.
(ii) Result. Because DC omitted the fair
market value of the FS stock from the GRA,
the GRA was not completed in all material
respects. Accordingly, there is a failure to
timely file the GRA. Furthermore, because
DC knowingly omitted such information,
DC’s omission is a willful failure to timely
file a GRA. Accordingly, the GRA is not
considered timely filed for purposes of
paragraph (d)(1) of this section, and DC must
recognize the full amount of the gain realized
on the FS Transfer. A similar result would
arise if DC had included the fair market value
of the FS stock, but omitted its tax basis from
the GRA.
Example 4. GRA filed as a result of
hindsight. (i) Additional facts. At the time
that DC filed its tax return for the tax year
of the FS Transfer, DC anticipated selling
Business A in the following tax year, which
was expected to produce a capital loss that
could be carried back to fully offset the gain
recognized on the FS Transfer. DC chose not
to file a GRA but to recognize the gain from
the FS Transfer under section 367(a)(1),
which it reported on its timely filed tax
return. However, a large class action lawsuit
was filed against Business A at the end of the
following year, and DC was unable to sell the
business. As a result, DC did not realize the

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expected capital loss, and was not able to
offset the gain from the FS Transfer. DC now
seeks to file a GRA for the FS Transfer.
(ii) Result. Because DC failed to file a GRA
with its timely filed tax return for the year
of the FS Transfer, there is a failure to timely
file the GRA as required by paragraph (d)(1)
of this section. Furthermore, because DC
knowingly chose not to file a GRA for the FS
Transfer, its actions constitute a willful
failure to timely file a GRA. Accordingly, the
GRA is not considered timely filed for
purposes of paragraph (d)(1) of this section,
and DC must recognize the full amount of the
gain realized on the FS Transfer.

*

*
*
*
*
(r) Effective/applicability date—(1)
General rule—(i) Transfers occurring on
or after March 13, 2009. * * * The
eleventh sentence of paragraph (a) and
paragraphs (b)(1)(iv), (b)(1)(vi),
(b)(1)(xiii), (d)(1), (j)(8), and (p) of this
section will apply to gain recognition
agreement documents that are required
to be filed with a timely filed return on
or after the date of publication of the
Treasury decision adopting these rules
as final regulations in the Federal
Register, as well as to any requests for
relief for failures to file gain recognition
agreement documents, or failures to
comply, if such requests are submitted
on or after the date of publication of the
Treasury decision adopting these rules
as final regulations in the Federal
Register.
*
*
*
*
*
■ Par. 4. Section 1.367(e)-2 is amended:
■ 1. By revising the ninth sentence and
adding two new sentences before the
last sentence of paragraph (a).
■ 2. By revising paragraph (b)(1)(i).
■ 3. In paragraph (b)(2)(i)(A)(2) by
removing the language ‘‘its U.S. income
tax returns’’ and adding the language
‘‘its timely filed U.S. income tax
returns’’ in its place.
■ 4. In paragraph (b)(2)(i)(A)(3) by
removing the language ‘‘its U.S. income
tax return’’ and adding the language ‘‘its
timely filed U.S. income tax return’’ in
its place.
■ 5. In the first sentence of paragraph
(b)(2)(i)(E)(3) by removing the language
‘‘its U.S. income tax return’’ and adding
the language ‘‘its timely filed U.S.
income tax return’’ in its place.
■ 6. In paragraph (b)(2)(i)(E)(4)(ii) by
removing the language ‘‘its U.S. income
tax return’’ and adding the language ‘‘its
timely filed U.S. income tax return’’ in
its place.
■ 7. In paragraph (b)(2)(i)(E)(5)(ii) by
removing the language ‘‘its U.S. income
tax return’’ and adding the language ‘‘its
timely filed U.S. income tax return’’ in
its place.
■ 8. In the first sentence of paragraph
(b)(2)(iii)(A) by removing the language
‘‘its U.S. income tax return’’ and adding

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the language ‘‘its timely filed U.S.
income tax return’’ in its place.
■ 9. In paragraph (c)(2)(i)(B)(3) by
removing the language ‘‘their U.S.
income tax returns’’ and adding the
language ‘‘their timely filed U.S. income
tax returns’’ in its place.
■ 10. By revising paragraph (e).
■ 11. By adding paragraphs (f) and (g).
The revisions and additions read as
follows:
§ 1.367(e)–2. Distributions described
in section 367(e)(2)—(a) Purpose and
scope—(1) In general. * * * Paragraph
(e) of this section provides rules
regarding failures to file statements or
other documents required under this
section or failures to comply with the
requirements of this section. Paragraph
(f) of this section provides relief for
certain failures to file or comply.
Finally, paragraph (g) of this section
specifies the effective/applicability date
for the rules of this section. * * *
*
*
*
*
*
(b) Distribution by a domestic
corporation—(1) General rule—(i)
Recognition of gain and loss. If a
domestic corporation (domestic
liquidating corporation) makes a
distribution of property in complete
liquidation under section 332 to a
foreign corporation (foreign distributee
corporation) that meets the stock
ownership requirements of section
332(b) with respect to stock in the
domestic liquidating corporation,
then—
(A) Pursuant to section 367(e)(2),
section 337(a) and (b)(1) shall not apply;
and
(B) The domestic liquidating
corporation shall recognize gain or loss
on the distribution of property to the
foreign distributee corporation, except
as provided in paragraph (b)(2) of this
section.
*
*
*
*
*
(e) Failures to file or failures to
comply—(1) Scope. This paragraph (e)
provides rules regarding a failure to file
an initial liquidation document with
respect to one or more liquidating
distributions by a domestic liquidating
corporation that, absent such failure,
would qualify for nonrecognition
treatment under paragraph (b)(2)(i) or
(iii) of this section, or with respect to
one or more liquidating distributions by
a foreign liquidating corporation that,
absent such failure, would qualify for
nonrecognition treatment under
paragraph (c)(2)(i)(B) of this section
(failure to file). This paragraph (e) also
provides rules regarding failures to
comply in all material respects with the
terms of this section with respect to one
or more liquidating distributions for

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which nonrecognition treatment was
initially claimed under paragraph
(b)(2)(i), (b)(2)(iii), or (c)(2)(i)(B) of this
section, as applicable (failure to
comply).
(2) Definitions. The following
definitions apply for purposes of this
section.
(i) An initial liquidation document
means any statement, schedule, or form
required to be filed under this section in
order for the domestic liquidating
corporation or foreign liquidating
corporation, as applicable, to initially
qualify to claim nonrecognition
treatment with respect to one or more
liquidating distributions described in
this section, including—
(A) The statement and attachments
described in paragraph (b)(2)(i)(C) of
this section;
(B) The statement described in
paragraph (b)(2)(iii)(D) of this section;
and
(C) The statement and attachments
described in paragraph (c)(2)(i)(C) of
this section.
(ii) A subsequent liquidation
document means any statement,
schedule, or form (other than an initial
liquidation document) required to be
filed under this section in order for the
domestic liquidating corporation or
foreign liquidating corporation, as
applicable, to continue to qualify for
nonrecognition treatment with respect
to one or more liquidating distributions
described in this section, including—
(A) The schedule described in
paragraph (b)(2)(i)(E)(3) of this section;
(B) The schedule described in
paragraph (b)(2)(i)(E)(4)(ii) of this
section; and
(C) The statement and attachments
described in paragraph (b)(2)(i)(E)(5) of
this section.
(iii) A timely filed U.S. income tax
return means a Federal income tax
return filed by the due date set forth in
section 6072, plus any extension of time
to file such return granted under section
6081.
(3) Failure to file—(i) General rule.
For purposes of this section and except
as provided in paragraph (e)(5) or (f) of
this section, there is a failure to file an
initial liquidation document if—
(A) An initial liquidation document is
not filed with the timely filed U.S.
income tax return specified under this
section, or
(B) An initial liquidation document is
not completed in all material respects.
(ii) Consequences of a failure to file.
If there is a failure to file an initial
liquidation document, then
nonrecognition treatment under
paragraph (b)(2)(i), (b)(2)(iii), or

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(c)(2)(i)(B) of this section (as
appropriate) will not apply.
(4) Failure to comply—(i) General
rule. For purpose of this section and
except as provided in paragraph (e)(5) or
(f) of this section, a failure to comply
includes—
(A) A failure to report gain, or pay any
additional tax or interest due, in
accordance with the requirements under
this section; and
(B) A failure to file a subsequent
liquidation document, as determined
applying paragraph (e)(3)(i) of this
section, but replacing the term ‘‘initial
liquidation document’’ with the term
‘‘subsequent liquidation document.’’
(ii) Consequences of a failure to
comply. If there is a failure to comply
in any material respect with the terms
of paragraph (b)(2)(i), (b)(2)(iii), or
(c)(2)(i) of this section, as applicable,
then—
(A) Any gain (but not loss) that was
not previously recognized by the
domestic liquidating corporation or
foreign liquidating corporation, as
applicable, under paragraph (b)(2)(i),
(b)(2)(iii), or (c)(2)(i)(B) of this section
must be recognized; and
(B) The period of limitations on
assessment of tax is extended until the
close of the third full taxable year
ending after the date on which the
Director of Field Operations
International, Large Business &
International (or any successor to the
roles and responsibilities of such
position, as appropriate) (Director) is
provided written notification that
specifically references the failure to
comply, or a tax return is filed reporting
the gain that was not recognized by the
domestic liquidating corporation or the
foreign liquidating corporation, as
applicable, by reason of paragraph
(b)(2)(i), (b)(2)(iii), or (c)(2)(i)(B) of this
section.
(f) Relief for certain failures to file or
failures to comply that are not willful—
(1) In general. This paragraph (f)
provides relief if there is a failure to file
an initial liquidation document as
described in paragraph (e)(3)(i) of this
section (failure to file), or a failure to
comply in any material respect with the
terms of this section as described in
paragraph (e)(4)(i) of this section (failure
to comply), respectively. The failure to
file or a failure to comply, as applicable,
is deemed not to have occurred for
purposes of paragraph (e)(3)(ii) or
(e)(4)(ii) of this section if the taxpayer is
able to demonstrate that the failure was
not willful using the procedure set forth
in this paragraph (f). For this purpose,
willful is to be interpreted consistent
with the meaning of that term in the
context of other civil penalties, which

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Federal Register / Vol. 78, No. 21 / Thursday, January 31, 2013 / Proposed Rules

would include a failure due to gross
negligence, reckless disregard, or willful
neglect. Whether a failure to file or
failure to comply, as applicable, was
willful will be determined by the
Director based on all the facts and
circumstances.
The taxpayer shall submit a request
for relief and an explanation as
provided in paragraph (f)(2)(i) of this
section. Although a taxpayer whose
failure to file or failure to comply, as
applicable, is determined not to be
willful will avoid gain or loss
recognition under this section, the
taxpayer will be subject to a penalty
under section 6038B if the taxpayer fails
to satisfy the reporting requirements
under that section and does not
demonstrate that the failure was due to
reasonable cause and not willful
neglect. See § 1.6038B–1(e)(4) and (f).
The determination of whether the
failure to file or failure to comply was
willful under this section has no effect
on any request for relief made under
§ 1.6038B–1(f).
(2) Procedures for establishing that a
failure to file or comply was not
willful—(i) Time of submission. A
taxpayer’s statement that the failure to
file or failure to comply, as applicable,
was not willful will be considered only
if, promptly after the taxpayer becomes
aware of the failure, an amended return
is filed for the taxable year to which the
failure relates that includes the
information that should have been
included with the original return for
such taxable year or that otherwise
complies with the rules of this section,
and that includes a written statement
explaining the reasons for the failure. In
the case of a liquidating distribution
described in paragraph (b)(2)(i) or
(c)(2)(i)(B) of this section, the taxpayer
must file, with the amended return, a
Form 8838 extending the period of
limitations on the assessment of tax
with respect to the gain realized but not
recognized with respect to the
liquidating distribution to the later of
the date provided in paragraph
(b)(2)(i)(C)(5), taking into account
paragraph (c)(2)(i)(C) and (D), as
applicable, or three years from the date
the required information is provided to,
or the required gain or loss is reported
to, as applicable, the IRS. In the case of
a liquidating distribution described in
paragraph (b)(2)(iii) of this section, the
taxpayer must file, with the amended
return, a Form 8838 extending the
period of limitations on assessment of
tax with respect to the gain realized but
not recognized with respect to the
liquidating distribution to three years
from the date the required information
is provided to the IRS, or the required

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gain or loss is reported to the IRS. The
amended return and Form 8838 must be
filed with the applicable Internal
Revenue Service Center with which the
taxpayer filed its original return for such
taxable year. The taxpayer may also
submit a request for relief from the
penalty of section 6038B as part of the
same submission.
(ii) Notice requirement. In addition to
the requirements of paragraph (f)(2)(i) of
this section, the taxpayer must comply
with the notice requirements of this
paragraph (f)(2)(ii). If any taxable year of
the taxpayer is under examination when
the amended return is filed, a copy of
the amended return and any
information required to be included
with such return must be delivered to
the Internal Revenue Service personnel
conducting the examination. If no
taxable year of the taxpayer is under
examination when the amended return
is filed, a copy of the amended return
and any information required to be
included with such return must be
delivered to the Director.
(3) For an illustration of the
application of the willfulness standard,
see the examples in § 1.367(a)–8(p)(3).
(g) Effective/applicability dates. The
ninth, tenth, and eleventh sentences of
paragraph (a) of this section, and
paragraphs (b)(1)(i), (b)(2)(i)(A)(2),
(b)(2)(i)(A)(3), (b)(2)(i)(E)(3),
(b)(2)(i)(E)(4)(ii), (b)(2)(i)(E)(5)(ii),
(b)(2)(iii)(A), (c)(2)(i)(B)(3), (e), and (f) of
this section will apply to liquidation
documents that are required to be filed
with a timely filed U.S. income tax
return on or after the date of publication
of the Treasury decision adopting these
rules as final regulations in the Federal
Register, as well as to any requests for
relief for failures to file liquidation
documents, or failures to comply, if
such requests are submitted on or after
the date of publication of the Treasury
decision adopting these rules as final
regulations in the Federal Register.
■ Par. 5. Section 1.6038B–1 is amended
by:
■ 1. Adding a sentence after the first
sentence in paragraph (b)(1)(i).
■ 2. Revising paragraph (b)(2)(i)(B)(1).
■ 3. Adding paragraph (b)(2)(iii).
■ 4. Adding paragraph (b)(2)(iv).
■ 5. Revising paragraph (c).
■ 6. Revising paragraph (e)(4).
■ 7. Adding paragraph (f)(2)(iii).
■ 8. Adding paragraph (f)(2)(iv).
■ 9. Adding paragraph (g)(5).
The revisions and additions read as
follows:
§ 1.6038B–1 Reporting of certain transfers
to foreign corporations.

*

*
*
*
*
(b) Time and manner of reporting—(1)
In general—(i) Reporting procedure.

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

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Federal Register / Vol. 78, No. 21 / Thursday, January 31, 2013 / Proposed Rules
agreement filed pursuant to § 1.367(a)–
8.
*
*
*
*
*
(c) * * *
(1) through (4)(i) [Reserved]. For
further guidance, see § 1.6038B–1T(c)(1)
through (4)(i).
(ii) Stock or securities. Describe any
stock or securities that are transferred,
including the adjusted tax basis and fair
market value of the stock or securities,
the class or type, amount, and
characteristics of the stock or securities,
and the name, address, place of
incorporation, and general description
of the corporation issuing the stock or
securities. In addition, if any provision
of § 1.367(a)–3 applies to except the
transfer of the stock or securities from
section 367(a)(1), provide information
supporting the claimed application of
such provision. However, see paragraph
(b)(2) of this section for certain
exceptions and special rules for
reporting transfers of stock or securities
under section 367(a).
(5) [Reserved]. For further guidance,
see § 1.6038B–1T(c)(5).
*
*
*
*
*
(e) * * *
(4) Reporting rules for section
367(e)(2) distributions by domestic
liquidating corporations—(i) General
rule. Except as provided in paragraph
(e)(4)(ii) of this section, if the
distributing corporation makes a
distribution of property in complete
liquidation under section 332 to a
foreign distributee corporation that
meets the stock ownership requirements
of section 332(b) with respect to the
stock of the distributing corporation,
then the distributing corporation shall
complete a Form 926 and attach a
signed copy of such form to its timely
filed U.S. income tax return for the
taxable years that include one or more
liquidating distributions. The property
description contained in Part III of the
Form 926 shall contain a description,
including the adjusted tax basis and fair
market value, of all property distributed
by the distributing corporation
(regardless of whether the distribution
of the property qualifies for
nonrecognition treatment). The
description shall also identify the items
of property for which nonrecognition
treatment is claimed under § 1.367(e)–
2(b)(2)(ii) or (iii), as applicable.
(ii) Special rule. Except as provided in
paragraph (e)(4)(iii) of this section, if the
distributing corporation distributes
items of property that will be used by
the foreign distributee corporation in
the conduct of a trade or business in the
United States and the distributing
corporation does not recognize gain or

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loss on such distribution under
§ 1.367(e)–2(b)(2)(i) with respect to such
property, then the distributing
corporation may satisfy the
requirements of this section by
completing Part I and Part II of Form
926, noting in Part III that the
information required by Form 926 is
contained in a statement required by
§ 1.367(e)–2(b)(2)(i)(C)(2), and attaching
a signed copy of Form 926 to its timely
filed U.S. income tax return for the
taxable years that include one or more
distributions in liquidation. In addition,
if the distributing corporation
distributes stock of a domestic
subsidiary corporation and does not
recognize gain or loss on such
distribution under § 1.367(e)–2(b)(2)(iii)
with respect to such stock, then the
distributing corporation may satisfy the
requirements of this section by
completing Part I and Part II of Form
926, noting in Part III that the
information required by Form 926 is
contained in a statement required by
§ 1.367(e)–2(b)(2)(iii)(D), and attaching a
signed copy of Form 926 to its timely
filed U.S. income tax return for the
taxable years that include one or more
distributions of domestic subsidiary
stock.
(iii) Properly filed statement.
Paragraph (e)(4)(ii) will not apply if
there is a failure to file an initial
liquidation document as determined
under § 1.367(e)–2(e)(3)(i), but for
purposes of this section, determined
without regard to § 1.367(e)–2(f).
However, see paragraph (f)(3) of this
section for certain relief that may be
available.
(f) * * *
(2) * * *
(iii) With respect to an initial gain
recognition agreement filed under
§ 1.367(a)–8, a failure to comply as
determined under § 1.367(a)–8(j)(8), but
for purposes of this section, determined
without regard to the application of
§ 1.367(a)–8(p).
(iv) With respect to an initial
liquidation document filed under
§ 1.367(e)–2(b)(1), a failure to comply as
determined under § 1.367(e)–2(e)(4)(i),
but for purposes of this section,
determined without regard to the
application of § 1.367(e)–2(f).
*
*
*
*
*
(g) * * *
(5) The second sentence of paragraph
(b)(1)(i) and paragraphs (b)(2)(i)(B)(1),
(b)(2)(iii), (b)(2)(iv), (c), (e)(4), (f)(2)(iii),
and (f)(2)(iv) of this section will apply
to documents required to be filed with
a timely filed return on or after the date
of publication of the Treasury decision
adopting these rules as final regulations

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in the Federal Register, as well as to any
requests for relief for failures to file
documents, or failures to comply, if
such requests are submitted on or after
the date of publication of the Treasury
decision adopting these rules as final
regulations in the Federal Register.
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2013–01749 Filed 1–30–13; 8:45 am]
BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–130507–11]
RIN 1545–BK44

Net Investment Income Tax; Correction
Internal Revenue Service (IRS),
Treasury.
ACTION: Correction to notice of proposed
rulemaking and notice of public
hearing.
AGENCY:

This document contains
corrections to a notice of proposed
rulemaking and notice of public hearing
(REG–130507–11) that was published in
the Federal Register on Wednesday,
December 5, 2012 (77 FR 72612). The
proposed regulations provide guidance
under section 1411 of the Internal
Revenue Code.
FOR FURTHER INFORMATION CONTACT:
David H. Kirk, or Adrienne Mikolashek
at (202) 622–3060 (not a toll free
number).
SUMMARY:

SUPPLEMENTARY INFORMATION:

Background
The notice of proposed rulemaking
and notice of public hearing (REG–
130507–11) that is the subject of these
corrections is under Section 1411 of the
Internal Revenue Code.
Need for Correction
As published, the notice of proposed
rulemaking and notice of public hearing
(REG–130507–11) contains errors that
may prove to be misleading and are in
need of clarification.
Correction of Publication
Accordingly, the notice of proposed
rulemaking and notice of public hearing
(REG–130507–11), that was the subject
of FR Doc. 2012–29238, is corrected as
follows:
■ 1. On page 72612, in the preamble,
column 1, under the caption FOR

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