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Federal Register / Vol. 89, No. 197 / Thursday, October 10, 2024 / Rules and Regulations
categorically excludes from further
environmental impact review
rulemaking actions that designate or
modify classes of airspace areas,
airways, routes, and reporting points
(see 14 CFR part 71, Designation of
Class A, B, C, D, and E Airspace Areas;
Air Traffic Service Routes; and
Reporting Points), and paragraph 5–
6.5k, which categorically excludes from
further environmental review the
publication of existing air traffic control
procedures that do not essentially
change existing tracks, create new
tracks, change altitude, or change
concentration of aircraft on these tracks.
As such, this action is not expected to
result in any potentially significant
environmental impacts. In accordance
with FAA Order 1050.1F, paragraph 5–
2 regarding Extraordinary
Circumstances, the FAA has reviewed
this action for factors and circumstances
in which a normally categorically
excluded action may have a significant
environmental impact requiring further
analysis. Accordingly, the FAA has
determined that no extraordinary
circumstances exist that warrant
preparation of an environmental
assessment or environmental impact
study.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference,
Navigation (air).
The Amendment
In consideration of the foregoing, the
Federal Aviation Administration
amends 14 CFR part 71 as follows:
PART 71—DESIGNATION OF CLASS A,
B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND
REPORTING POINTS
1. The authority citation for 14 CFR
part 71 continues to read as follows:
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Authority: 49 U.S.C. 106(f), 106(g); 40103,
40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR,
1959–1963 Comp., p. 389.
§ 71.1
[Amended]
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Issued in Washington, DC, on October 3,
2024.
Frank Lias,
Manager, Rules and Regulations Group.
[FR Doc. 2024–23201 Filed 10–9–24; 8:45 am]
BILLING CODE 4910–13–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9994]
RIN 1545–BP55
Section 367(d) Rules for Certain
Repatriations of Intangible Property
Internal Revenue Service (IRS),
Treasury.
ACTION: Final rule.
AGENCY:
This document contains final
regulations that 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 final regulations
affect certain United States persons that
previously transferred intangible
property to a foreign corporation.
DATES:
Effective date: These regulations are
effective on October 10, 2024.
Applicability date: For dates of
applicability, see §§ 1.367(d)–1(j)(2),
1.904–(q)(3), 1.951A–7(e), and 1.6038B–
1(g)(8).
FOR FURTHER INFORMATION CONTACT:
Concerning the final regulations other
than § 1.904–4, Brittany N. Dobi (202)
317–6937; concerning § 1.904–4, Jeffrey
L. Parry, (202) 317–6936 (not toll-free
numbers).
SUMMARY:
SUPPLEMENTARY INFORMATION:
2. The incorporation by reference in
14 CFR 71.1 of FAA Order JO 7400.11J,
Airspace Designations and Reporting
Points, dated July 31, 2024, and
effective September 15, 2024, is
amended as follows:
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Authority
This document contains final
additions and amendments to 26 CFR
part 1 (final regulations) under section
367(d) of the Internal Revenue Code
(Code) regarding the termination of 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 primary provisions
of the final regulations are issued
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pursuant to the express delegations of
authority to the Secretary of the
Treasury (or her delegate) provided
under sections 367(d) and 6038B. The
provisions of the final regulations
related to foreign branch income are
issued pursuant to the express
delegations of authority provided under
sections 904(d)(2)(J) and (d)(7). The final
regulations are also issued under the
express delegation of authority under
section 7805(a).
Background
On May 3, 2023, the Department of
the Treasury (Treasury Department) and
the IRS published a notice of proposed
rulemaking (REG–124064–19) in the
Federal Register (88 FR 27819) under
section 367 (the proposed regulations).
The proposed regulations were intended
to address simple, common fact patterns
involving repatriations of intangible
property by terminating the continued
application of section 367(d) when a
transferee foreign corporation
repatriates intangible property subject to
section 367(d) to a qualified domestic
person when certain reporting
requirements are satisfied. The
proposed regulations also included a
rule coordinating the application of
section 367(d) and the provisions in
§ 1.904–4(f)(2)(vi)(D) that apply the
principles of section 367(d) to
determine the appropriate amount of
gross income attributable to a foreign
branch. A ‘‘repatriation’’ denotes a
subsequent transfer of intangible
property to the U.S. transferor or a
United States person (U.S. person)
related to the U.S. transferor.
Summary of Comments and
Explanation of Revisions
I. In General
Five comments were submitted on the
proposed regulations, which are
available at https://www.regulations.gov
or upon request. No public hearing on
the proposed regulations was requested
or held.
This Summary of Comments and
Explanation of Revisions describes
those comments and the revisions made
in response to those comments. The
comments also made various requests
for future guidance, which the Treasury
Department and the IRS will consider as
part of a potential future rulemaking
addressing, among other things, general
issues under section 367(d).
II. Definition of Qualified Domestic
Person
A. In General
To terminate the continued
application of section 367(d) upon a
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repatriation of intangible property, the
proposed regulations required the
recipient of the intangible property to be
a qualified domestic person. The
proposed regulations defined a qualified
domestic person by reference to an
‘‘initial U.S. transferor,’’ a ‘‘qualified
successor,’’ or a U.S. person that is
either an individual or ‘‘qualified
corporation’’ related to either the initial
U.S. transferor or qualified successor.
See proposed § 1.367(d)–1(f)(4)(iii).
As the preamble to the proposed
regulations explained in part I.C of the
Explanation of Provisions, the definition
of qualified domestic person was 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 during its useful
life, and all 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. See 88 FR 27819,
27824. The proposed regulations further
described how, in the case of a
repatriation to an initial U.S. transferor,
the repatriation restored the
circumstances that existed at the time of
the original section 367(d) transfer. See
Id.
B. Partnerships
The proposed regulations neither
treated a domestic partnership as a
qualified domestic person, nor adopted
an approach that would treat a
partnership as an aggregate of its
partners (aggregate approach) for
purposes of determining qualified
domestic person status. One comment
suggested that the Treasury Department
and the IRS modify the definition of
qualified domestic person to include
partnerships in which all of the partners
in the partnership would themselves be
qualified domestic persons, or
partnerships that made the original
outbound transfer of the intangible
property subject to section 367(d) when
there is substantial continuity of
ownership of that partnership during
the period beginning on the date of the
initial section 367(d) transfer and
ending on the date of the repatriation of
the intangible property. As part of the
modification, the comment also
described various approaches for
addressing the concerns identified in
the proposed regulations regarding, for
example, the potential for postrepatriation changes to partnership
allocations or liquidation rights to
frustrate the purposes of the proposed
regulations if a partnership, or a partner
in the partnership, were permitted as a
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qualified domestic person in certain
cases. See 88 FR 27819, 27824 for a
discussion of those concerns.
Specifically, the comment suggested
that the final regulations, in adopting
the modification, could limit its
application by requiring a specific
period after the repatriation during
which the ownership or interests in the
partnership could not change.
Additionally, the comment suggested
that, to provide flexibility while
protecting against the concerns outlined
in the proposed regulations, the final
regulations could allow the
Commissioner to exercise discretion at a
taxpayer’s request to determine that a
post-distribution change in the
ownership of the partnership, or in the
economic rights of the partners with
respect to the intangible property,
would not taint the partnership’s status
as a qualified domestic person. Finally,
the comment also described more
general, long-standing issues under
section 367(d) related to the treatment of
partnerships within the section 367(d)
regime, and ultimately suggested that
resolution of those issues should not
impede finalizing the proposed
regulations.
The final regulations do not adopt this
comment and therefore adopt the
definition of qualified domestic person
from the proposed regulations without
change. The issues identified by the
comment, along with potential solutions
to those issues, were acknowledged in
the preamble to the proposed
regulations, and the Treasury
Department and the IRS have
determined that the approach outlined
in the proposed regulations continues to
strike the appropriate balance between
implementing the general purpose and
scope of the proposed regulations
(ensuring that only appropriate
repatriations terminate the continued
application of section 367(d)) and
concerns regarding administrability and
compliance. The solutions described in
the comment, like the alternatives
described in the proposed regulations,
would not achieve this balance because
the solutions would either expand the
scope of the proposed regulations in an
inappropriate manner (that is, by
expanding the basic principle upon
which the proposed regulations rests),
or the solutions would, given the
relatively narrow scope of the proposed
regulations, impose an undue burden on
taxpayers and the IRS. See 88 FR 27819,
27824 (describing, with respect to the
latter, an approach modeled off of the
rules in §§ 1.367(a)–3 and 1.367(a)–8
regarding gain recognition agreements
and noting that approach would be
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‘‘unworkable due to the compliance and
administrative burden.’’).
Another comment described general,
long-standing issues under section
367(d) related to the treatment of
partnerships. These issues were
generally identified in the proposed
regulations. See id. For example, the
comment pointed to §§ 1.367(a)–
1T(c)(3)(i) and 1.367(d)–1T(a), which
apply an aggregate approach upon an
initial outbound transfer. The comment
did not include any explicit suggestion
for change regarding the proposed
regulations, but the Treasury
Department and the IRS may consider
these issues as part of future
rulemaking.
C. S Corporations
As described in part I.A of this
Summary of Comments and Explanation
of Revisions, the proposed regulations
limited qualified domestic person status
to ‘‘qualified corporations’’ in the case
of a qualified successor or in the case of
a U.S. person related to either the initial
U.S. transferor or qualified successor.
See proposed § 1.367(d)–1(f)(4)(iii). A
qualified corporation, in relevant part,
did not include an S corporation (as
defined in section 1361(a)). See Id.
One comment suggested that the final
regulations allow S corporations as
qualified corporations. The comment
noted that the shareholders of an S
corporation must generally be U.S.
individuals subject to U.S. taxation,
which ensures that income attributable
to intangible property held by an S
corporation would be subject to U.S.
taxation (though the comment noted
that the limitation is not absolute, as
certain plans described in section 401(a)
may be shareholders of an S
corporation).
Section 512(e)(3) excludes a nonindividual shareholder that is an
employee stock ownership plan (ESOP)
(as defined in section 4975(e)(7) from
the scope of section 512(e)(1), which
provides that, in the case of certain nonindividual shareholders of the S
corporation, any item of income, gain,
loss, or deduction, and any gain or loss
on the disposition of stock in the S
corporation, is taken into account by
such non-individual shareholders as
unrelated business taxable income
(UBTI). As a result, the pro rata share of
an S corporation’s items of income
taken into account by an ESOP
shareholder is not subject to current
taxation as UBTI. As noted in part I.A
of this Summary of Comments and
Explanation of Revisions, a principle for
the definition of qualified domestic
person is that termination of the
continued application of section 367(d)
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should occur only when all the income
produced by the intangible property, as
well as gain recognized on a disposition
of the intangible property, is subject to
current tax in the United States. In the
case of an S corporation, that result is
not guaranteed.
The final regulations, therefore, do
not adopt this comment and retain the
definition of qualified domestic person
from the proposed regulations without
change. The Treasury Department and
the IRS considered alternative
approaches to address this comment—
such as an aggregate approach, with
prohibitions applicable to S corporation
shareholders that are ESOPs—but
determined that such approaches were
effectively unworkable due to the
compliance and administrative burden
discussed in part II.B of this Summary
of Comment and Explanation of
Revisions in connection with the
comment on partnerships.
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III. Qualified Domestic Person’s
Adjusted Basis in Repatriated Intangible
Property
Proposed § 1.367(d)–1(f)(4)(iv)
provided rules regarding a qualified
domestic person’s adjusted basis in the
intangible property it receives in a
repatriation. The proposed regulations
described how these rules were
intended to achieve an appropriate
result regarding a qualified domestic
person’s adjusted basis in intangible
property upon a repatriation, but that
general rules regarding adjusted basis
under section 367(d) (and not in the
context of a repatriation of intangible
property to a qualified domestic person)
would be addressed in future
rulemaking. See 88 FR 27819, 27824,
and 27825.
One comment described how existing
uncertainty regarding the treatment of
adjusted basis of intangible property
subject to section 367(d) may be
implicated when that intangible
property is repatriated. The comment
noted that any solution would
necessarily represent a broad solution to
existing section 367(d) issues, instead of
one limited to the proposed regulations,
so the comment recommended the
Treasury Department and the IRS
address this issue in future rulemaking.
Another comment suggested that, when
a transferee foreign corporation incurs
expenditures with respect to repatriated
intangible property after the initial
outbound transfer, proposed § 1.367(d)–
1(f)(4)(iv) should be modified to allow a
qualified domestic person’s adjusted
basis in repatriated intangible property
to reflect those expenditures, reduced
by any attributable amortization allowed
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or allowable to the transferee foreign
corporation.
As noted in the proposed regulations,
proposed § 1.367(d)–1(f)(4)(iv) operated
‘‘in a manner intended to reach an
appropriate result regarding a qualified
domestic person’s basis in repatriated
intangible property’’ until future
rulemaking is issued that can address
general basis rules under section 367(d).
See id. The Treasury Department and
the IRS, in agreement with the first
comment, continue to believe that any
resolution of these issues necessarily
implicates broader issues under section
367(d) and, as such, is beyond the scope
of this rulemaking. Proposed § 1.367(d)–
1(f)(4)(iv) is therefore finalized without
change, though the Treasury
Department and the IRS may revisit
these issues as part of future
rulemaking.
IV. Required Adjustments Related to an
Annual Section 367(d) Inclusion
The proposed regulations provided
that the deemed annual payment under
section 367(d) by the transferee foreign
corporation is treated as an allowable
deduction that must be allocated and
apportioned to the transferee foreign
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
applicable). See proposed § 1.367(d)–
1(c)(2)(ii) and (e)(2)(ii). These
provisions, described as ‘‘minor
clarifications’’ in the preamble to the
proposed regulations, clarified ‘‘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.’’ See 88 FR 27819,
27822, and 27825.
One comment suggested that the
proposed regulations were unclear as to
whether the allowable deduction
described in proposed § 1.367(d)–
1(c)(2)(ii) and (e)(2)(ii) was limited to
the listed provisions (§§ 1.882–4(b)(1),
1.954–1(c), and 1.960–1(c) and (d)) or
whether such deduction was more
generally available (for example, as a
deduction under section 162). The
comment posited that the latter
approach was more appropriate and
requested that the final regulations
clarify that the allowable deduction may
be allowed as a deduction under section
162. In support, the comment described
how, in the case of certain transfers of
intangible property to a U.S. person that
is not a qualified domestic person,
‘‘excessive U.S. taxation’’ could result if
the allowable deduction were limited to
the listed provisions, which are
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provisions relevant to determinations
with respect to foreign corporations.
The final regulations do not adopt this
comment. The proposed regulations
terminated the continued application of
section 367(d) upon certain, rather than
all, subsequent transfers of intangible
property to a U.S. person (that is, upon
a repatriation to a qualified domestic
person if certain reporting requirements
are met). See 88 FR 27819, 27821, and
27822. The comment, if adopted, would
effectively terminate the continued
application of section 367(d) by, for
example, providing a deduction under
section 162 corresponding to each
annual inclusion under section 367(d).
Indeed, as the proposed regulations
explained, the solution contained in the
proposed regulations was premised, in
relevant part, on the fact that ‘‘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.’’ See id. Thus, a
fundamental premise underlying the
proposed regulations, and the existing
section 367(d) regulations, is that an
allowable deduction, instead of being
generally available, is limited to the
provisions listed in the proposed
regulations (§§ 1.882–4(b)(1), 1.954–1(c),
and 1.960–1(c) and (d)). To adopt the
comment’s suggestion would therefore
be inconsistent with the proposed
regulations and section 367(d) generally.
The comment also suggested that,
when a subsequent transfer of intangible
property results in treating the same
entity as U.S. transferor and transferee
foreign corporation under the section
367(d) regulations, the continued
application of section 367(d) should
terminate by reason of that convergence.
As support, the comment cited to a case
and guidance involving circumstances
in which a taxpayer acquired its own
debt. The Treasury Department and the
IRS do not agree with this suggestion for
the reasons described in the preceding
paragraph, and references to cases or
guidance involving a taxpayer acquiring
its own debt are not instructive for, nor
consistent with, the statutory and
regulatory framework of section 367(d).
Section 367(d) relies upon a statutory
fiction that imposes a notional regime
with a prescribed payor and payee, and
the regulations describe cases in which
a successor succeeds to the notional
payment on both sides of the construct.
For example, § 1.367(d)–1T(e)(1)
provides that a related person can
succeed an initial U.S. transferor for
purposes of including income under
section 367(d), and § 1.367(d)–1T(f)(3)
provides that a related person can
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succeed to the payor side of the deemed
payment fiction. Where intangible
property is returned to the original U.S.
transferor, that U.S. transferor is also the
successor transferee under the statutory
and regulatory framework of section
367(d), and, under the express language
of § 1.367(d)–1T(f)(3), the annual
inclusion under section 367(d)
continues. This is precisely the issue the
proposed regulations were intended to
address, and new regulations providing
a rule for terminating an annual
inclusion stream would have been
largely unnecessary if the deemed
payment construct collapsed
automatically in such cases. Instead,
this Treasury Decision provides the
exclusive means by which the
continued application of section 367(d)
may be terminated by reason of a
subsequent transfer of intangible
property to a U.S. person.
V. Multiple Transfers Before
Repatriation
One comment suggested changes to
the proposed regulations to
accommodate repatriations preceded by
certain transfers of intangible property
subject to section 367(d) between
related foreign corporations. To
illustrate this suggestion, the comment
posited an example pursuant to which
a repatriation was first preceded by a
distribution under section 311 of the
intangible property (first section 311
distribution) from one CFC (original
transferee foreign corporation, or TFC)
to another CFC (successor TFC). The
successor TFC then distributes the
intangible property under section 311 to
a qualified domestic person (second 311
distribution) in a transaction with
respect to which the successor TFC did
not recognize gain or loss (under the
theory that successor TFC’s adjusted
basis in the intangible property equaled
the intangible property’s fair market
value).
On those modified facts, the comment
described how the original TFC could
recognize gain subject to U.S. taxation
by reason of the first section 311
distribution (not under section 367(d),
but rather under, for example, section
951A(a) as to a United States
shareholder), and the qualified domestic
person could recognize that same
amount of gain upon the repatriation
after the second 311 distribution under
the proposed regulations (by reason of
the application of the gain recognition
rule in proposed § 1.367(d)–1(f)(4)(ii)(B),
under which gain is determined by
reference to the U.S. transferor’s former
adjusted basis in the property). And,
because the successor TFC is the TFC at
the time of the repatriation (that is, at
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the time of the second section 311
distribution), the required adjustments
described in proposed § 1.367(d)–1(f)(2)
would apply by reference to the
successor TFC, which did not recognize
gain or loss on the repatriation under
the theory described above, rather than
to the original TFC, which recognized
gain on the first section 311
distribution. To address this concern,
the comment suggested modifying the
proposed regulations in a manner that
would effectively negate a prior transfer
that was subject to tax under a separate
regime (for example, section 951A).
The example provided in the
comment highlights significant potential
interactions between the operation of
section 367(d) and other generally
operative provisions in the Code and
regulations. For example, § 1.367(d)–
1T(f)(3) explicitly provides that the
ongoing annual royalty construct is
unaffected by the taxable distribution of
intangible property from the original
TFC to the successor TFC in the first
section 311 distribution, and § 1.367(d)–
1T(d)(1) and (f)(1) are clear that the
amount of income recognized by the
U.S. transferor upon a later indirect or
direct disposition of intangible property
to an unrelated person is determined
using the transferor’s original basis in
the property. However, the distribution
of the intangible property from the
original TFC to the successor TFC
described in the comment’s example
might result in taxable gain to the
original TFC that would be treated as
tested income under section 951A,
notwithstanding the lack of an
acceleration of income under section
367(d). Similarly, the successor TFC
might take the intangible property with
a fair market value basis under section
301(d), even though that increased basis
would not be available to reduce gain
under section 367(d). Essentially, the
example posited in the comment
highlights that it may be possible to
recognize income under both sections
951A and 367(d) with respect to the
same property in some fact patterns
where separate transactions occur in
separate foreign corporations,
notwithstanding that that result would
not occur in cases where the property is
not transferred among multiple foreign
corporations. Coordinating potential
disparities between income recognition
under section 367(d) as compared to
other generally applicable provisions of
the Code, and potential disparities in
tax basis for purposes of section 367(d)
as compared to adjusted basis for other
purposes, is beyond the scope of this
rulemaking. The request for additional
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guidance addressing multiple related
transfers, therefore, is not adopted.
VI. Reporting
As a condition for terminating the
application of section 367(d) with
respect to repatriated intangible
property, proposed § 1.367(d)–
1(f)(4)(i)(B) would have required a U.S.
transferor to provide the information
described in proposed § 1.6038B–
1(d)(2)(iv). If a U.S. transferor failed to
provide that information, the
repatriation was 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, continued to apply.
However, a U.S. transferor was eligible
for relief under the proposed regulations
if proposed § 1.367(d)–1(f)(4)(i)(B)(2)
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 provided the required
information, explained its failure to
comply, and met certain other
requirements (if applicable).
One comment requested clarifications
of the reporting and relief provisions.
First, the comment requested that the
final regulations clarify whether relief
for a failure to comply is, in relevant
part, also conditioned on the U.S.
transferor timely filing one or more
amended returns for the taxable year in
which the subsequent transfer occurred
and succeeding years, and, if the U.S.
transferor is under examination when
an amended return is filed, providing a
copy of the amended return(s) to the IRS
personnel conducting the examination.
The Treasury Department and the IRS
adopt this comment by revising of
§ 1.367(d)–1(f)(5) to clarify that the relief
for a failure to comply is conditioned
upon the requirements listed in the
previous sentence (if applicable).
The comment also requested that the
Treasury Department and the IRS
consider prescribing in the future a
particular form for filing the required
information under proposed § 1.367(d)–
1(f)(5). The Treasury Department and
the IRS will consider prescribing a
particular form as part of future
improvements to reporting with respect
to section 367(d) generally. However, to
provide taxpayers with additional
guidance on the manner for providing a
U.S. transferor’s explanation for its
failure to comply to the IRS, the final
regulations provide an eFax number for
such purpose (and, if a taxable year of
the U.S. transferor is under
examination, that information should
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instead be provided to the IRS
personnel conducting the examination).
Finally, the comment suggested
clarifications or modifications to the
requirements in proposed § 1.367(d)–
1(f)(5) that a U.S. transferor ‘‘promptly’’
address its failure to file and to the way
the U.S. transferor provides the
remedial information (that is, to the
Director of Field Operations, Cross
Border Activities Practice Area of Large
Business & International, or any
successor to that role). The comment
suggested that ‘‘promptly’’ does not
provide sufficient guidance to taxpayers
(the comment requested a prescribed
period) and the comment asserted that
it is unusual for regulations to require
a taxpayer to provide information
directly to a specified official within the
IRS. The final regulations do not adopt
these suggestions. The Treasury
Department and the IRS believe that
‘‘promptly’’ requiring the U.S. transferor
to address its failure to comply, rather
than providing a specific period, allows
flexibility so that the relief may apply as
appropriate to a taxpayer’s particular
facts and circumstances. Additionally,
proposed § 1.367(d)–1(f)(5) is modeled
on similar relief provisions in other
contexts (for example, §§ 1.367(a)–8(p)
and 1.721(c)–6(f)).
The Treasury Department and the IRS
clarify proposed § 1.367(d)–1(f)(5) by
striking the last clause that appeared in
the second sentence. That sentence
described the consequences of a failure
to comply, namely the continued
application of the annual inclusion
stream pursuant to proposed § 1.367(d)–
1(f)(3) and application of the gain
recognition rule of proposed § 1.367(d)–
1(f)(4)(i)(A). If the failure to comply is
remedied, the rules of the proposed
regulations are treated as satisfied as of
the date of the repatriation (so, the
repatriation terminates the continued
application of section 367(d) and the
U.S. transferor, if applicable, would take
a partial annual inclusion into account
pursuant to proposed § 1.367(d)–
1(f)(4)(i)(B)(1)).
VII. Clarification to Example 3
Proposed § 1.367(d)–1(f)(6)(ii)(C)
(Example 3) illustrated the
determination of a qualified domestic
person’s adjusted basis in intangible
property under the proposed
regulations. In that example, TFC
transferred the intangible property to
USS (a qualified domestic person as
defined in proposed § 1.367(d)–
1(f)(4)(iii)) in an exchange described in
section 351(b) pursuant to which TFC
recognized $50x of gain and USP
recognized $50x of gain under proposed
§ 1.367(d)–1(f)(4)(i)(A). The analysis
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under proposed § 1.367(d)–
1(f)(6)(ii)(C)(2) was, and remains in this
Treasury decision, limited to the
determination of USS’s adjusted basis in
the intangible property.
One comment requested, in relevant
part, that the final regulations clarify
that TFC’s earnings and profits and
gross income arising by reason of the
repatriation are reduced by the amount
of gain recognized by USP under
proposed § 1.367(d)–1(f)(4)(i)(A) ($50x).
The Treasury and the IRS adopt the
comment by clarifying in the facts of the
example that, under § 1.367(d)–1(f)(2)(i),
TFC will reduce its earnings and profits
and gross income by $50x, the amount
arising by reason of the repatriation and
the amount of gain recognized by USP
under § 1.367(d)–1(f)(4)(i)(A).
VIII. Section 904(d) Foreign Branch
Income Rules
Proposed § 1.904–4(f)(2)(vi)(D)(4)
described the application of the
principles of section 367(d) to
subsequent transfers of intangible
property in determining adjustments to
the amount of gross income attributable
to a foreign branch under § 1.904–
4(f)(2)(vi)(D). Specifically, the proposed
regulations would have provided that
each transfer to which § 1.904–
4(f)(2)(vi)(D) applies is considered
independently from any other preceding
or subsequent transfer of the intangible
property, with the result that the
subsequent transfer rules in the
regulations under section 367(d),
including the rules for repatriations
provided in the proposed regulations,
do not apply in determining gross
income attributable to a foreign branch
under § 1.904–4(f)(2)(vi)(D). See 88 FR
27819, 27825, and 27826.
One comment requested that the
Treasury Department and the IRS
finalize the provisions of the proposed
regulations without finalizing proposed
§ 1.904–4(f)(2)(vi)(D)(4). The comment
suggested that such an approach could
allow for further consideration of ways
to simplify the application of section
367(d) principles in § 1.904–
4(f)(2)(vi)(D). The comment suggested
that instead of finalizing proposed
§ 1.904–4(f)(2)(vi)(D)(4), that provision
could be adopted as a temporary
regulation, or alternatively, this
preamble could state that, until the
implementation of final regulations
addressing this issue, the Treasury
Department and the IRS intend that
rules related to section 367(d) and
subsequent transfer will not apply for
purposes of section 904(d).
A broader reconsideration of the
application of section 367(d) principles
in § 1.904–4(f)(2)(vi)(D) is beyond the
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scope of these final regulations. The
Treasury Department and the IRS
believe it is necessary to finalize
proposed § 1.904–4(f)(2)(vi)(D)(4) to
ensure the proper application of the
foreign branch income rules under
§ 1.904–4(f)(2)(vi)(D) as those rules
currently stand. This is because, as
explained in the preamble to the
proposed regulations, while § 1.904–
4(f)(2)(vi)(D) relies on the principles of
section 367(d) to determine the
appropriate amount of gross income that
is attributable to a foreign branch, the
purposes of section 367(d) and § 1.904–
4(f)(2)(vi)(D) are different. See 88 FR
27819, 27825 (providing that, with
respect to § 1.904–4(f)(2)(vi)(D), ‘‘[i]f
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
deemed annual payments depending on
any interim changes in the value of the
intangible property between successive
transfers . . . 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.’’). Accordingly, the final
regulations do not adopt this comment
and proposed § 1.904–4(f)(2)(vi)(D) is
finalized without change.
IX. Applicability Dates
The proposed regulations were
generally proposed to 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). Comments recommended
that the proposed regulations apply
retroactively.
The Treasury Department and the IRS
generally consider several factors when
evaluating whether a rule should apply
retroactively on an elective basis. For
example, and as relevant to the
proposed regulations, retroactive
application may be more compelling
where the regulations are issued with
respect to new legislation, or where
retroactive application is necessary to
achieve certain policy objectives. The
Treasury Department and the IRS also
evaluate the additional administrative
burden likely to result from retroactive
application. Finally, where the
regulations represent a change in
existing regulations, consideration is
given to whether retroactive application
could advantage certain taxpayers over
similarly situated taxpayers, based on
whether the relevant taxable year
remains open for the taxpayer to amend
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their return to take advantage of the
change. The Treasury Department and
the IRS have determined that, on
balance, these factors, though not
representing an exhaustive list of
factors, weigh against permitting the
retroactive application of the final
regulations and therefore do not adopt
these comments.
Special Analyses
I. Regulatory Planning and Review—
Economic Analysis
Pursuant to the Memorandum of
Agreement, Review of Treasury
Regulations under Executive Order
12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject
to the requirements of section 6 of
Executive Order 12866, as amended.
Therefore, a regulatory impact
assessment is not required.
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II. Paperwork Reduction Act
The collection of information
contained in these regulations has 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 1545–0026. The collection of
information in these final regulations 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 total annual reporting
burden is 1,601 hours.
Estimated average annual burden per
respondent is 2.4 hours.
Estimated number of respondents is
667.
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. Books or
records relating to a collection of
information must be retained if their
contents may become material in the
administration of any Internal Revenue
law. Generally, tax returns and tax
return information are confidential, as
required by section 6103.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby
certified that these final regulations will
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not have a significant economic impact
on a substantial number of small
entities.
The Treasury Department and the IRS
do not have data readily available to
assess the number of small entities
potentially affected by the final
regulations. However, 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 have determined that there will
not be a substantial number of domestic
small entities affected by the final
regulations. Consequently, the Treasury
Department and the IRS certify that the
final regulations will not have a
significant economic impact on a
substantial number of small entities.
IV. Section 7805(f)
Pursuant to section 7805(f) of the
Code, the proposed regulations (REG–
113839–22) preceding these final
regulations were submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business, and no
comments were received.
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. These final
regulations do 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.
These final regulations do not have
federalism implications and do not
impose substantial direct compliance
costs on State and local governments or
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82165
preempt State law within the meaning
of the Executive order.
Drafting Information
The principal author of these
regulations is Brittany N. Dobi, of the
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.
Adoption of Amendments to the
Regulations
Accordingly, the Treasury Department
and the IRS 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: 26 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:
■ a. Removing reserved paragraphs
(c)(1) through (2).
■ b. Adding paragraph (c) heading and
paragraphs (c)(1) and (2).
■ c. Removing reserved paragraphs
(c)(4) through (g)(2) (introductory text).
■ d. Adding paragraphs (c)(4) and (d)
through (f).
■ e. Removing paragraph (g)(2)(i),
reserved paragraphs (g)(2)(ii) through
(iii)(D), paragraph (g)(2)(iii)(E), and
reserved paragraph (g)(2)(iii)
undesignated concluding paragraph.
■ f. Adding paragraph (g) heading and
paragraphs (g)(1) and (2).
■ g. Removing reserved paragraphs
(g)(4) through (i).
■ h. Adding paragraphs (g)(4) through
(6), (h), and (i).
■ i. Revising paragraph (j).
The additions and revision read as
follows:
■
§ 1.367(d)–1 Transfers of intangible
property to foreign corporations.
*
*
*
*
*
(c) Deemed payments upon transfer of
intangible property to foreign
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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), and 1.960–1(c) and(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), and 1.960–1(c) and(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
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
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(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, or § 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—
(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
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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 over the U.S.
transferor’s former adjusted basis in that
property.
(iii) Qualified domestic person. For
purposes of this paragraph (f)(4), 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 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
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
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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.
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—
(i) 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
Activities Practice Area of Large
Business & International (or any
successor to the roles and
responsibilities of such position, as
appropriate), by eFax at (855) 582–4842
(or as otherwise directed on irs.gov), or,
if any taxable year of the U.S. transferor
is under examination when the
discovery is made, to the Internal
Revenue Service personnel conducting
the examination;
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(ii) The U.S. transferor timely files 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; and
(iii) If any taxable year of the U.S.
transferor is under examination when
an amended return is filed, the U.S.
transferor provides a copy of the
amended return (or, if applicable,
amended returns) 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 liquidation). The
all earnings and profits amount
determined under § 1.367(b)–2(d) with
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82167
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) of this section
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
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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 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 liquidation ($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
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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 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), which amount will
reduce TFC’s earnings and profits and
gross income by $50x under paragraph
(f)(2)(i) of this section.
(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
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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 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).
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(2) Election to treat transfer as sale.
For further guidance, see § 1.367(d)–
1T(g)(2) introductory text.
(i) The intangible property transferred
constitutes an operating intangible, as
defined in § 1.367(a)–1(d)(6).
(ii) For further guidance, see § 1.367–
1T(g)(2)(ii) through (g)(2)(iii)(D).
(iii)(A) through (D) [Reserved]
(E) The transferred intangible
property will be used in the active
conduct of a trade or business outside
of the United States within the meaning
of § 1.367(a)–2 and will not be used in
connection with the manufacture or sale
of products in or for use or consumption
in the United States.
(F) For further guidance, see
§ 1.367(d)–1T(g)(2)(iii)(F).
*
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(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 through (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 October 10, 2024.
For subsequent dispositions of
intangible property occurring before
October 10, 2024, see § 1.367(d)–1T as
contained in 26 CFR part 1 revised as of
April 1, 2022.
■ Par. 4. Section 1.367(d)–1T is
amended by:
■ a. Revising paragraph (c)(2)(ii).
■ b. Removing the undesignated
paragraph following paragraph (c)(2)(ii).
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d. Revising paragraphs (e)(2)(ii) and
(f)(2).
■ e. Removing and reserving paragraph
(f)(3) and adding reserved paragraphs
(f)(4) through (6).
■ f. Designating the undesignated
paragraph following paragraph
(g)(2)(iii)(E) as paragraph (g)(2)(iii)(F).
■ g. Revising paragraph (h)(2)(ii).
The revisions read as follows:
■
§ 1.367(d)–1T Transfers of intangible
property to foreign corporations
(temporary).
*
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*
(c) * * *
(2) * * *
(ii) For further guidance, see
§ 1.367(d)–1(c)(2)(ii).
*
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*
(e) * * *
(2) * * *
(ii) For further guidance, see
§ 1.367(d)–1(e)(2)(ii);
*
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*
(f) * * *
(2) Required adjustments. For further
guidance, see § 1.367(d)–1(f)(2) through
(6).
(3) through (6) [Reserved]
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*
(h) * * *
(2) * * *
(ii) For further guidance, see
§ 1.367(d)–1(h)(2)(ii).
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*
§ 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.
*
*
*
*
*
(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).
*
*
*
*
*
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82169
(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)(2)(vi)(D)(4) of this section applies to
taxable years that begin on or after
October 10, 2024.
■ 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
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
(as defined in section 952) 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, the
text ‘‘the principles of §§ 1.953–4 and
1.953–5’’ means ‘‘the rules of sections
953 and 954(i)’’ in § 1.952–2(b)(2).
*
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*
■ Par. 8. Section 1.951A–7 is amended
by adding a 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 October
10, 2024, 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 October 10, 2024, 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:
■ a. Removing reserved paragraphs
(d)(1) through (1)(iii).
■ b. Adding paragraphs (d) heading and
(d)(1) introductory text and reserved
paragraphs (d)(1)(i) through (iii).
■ c. Removing reserved paragraphs
(d)(1)(viii) through (d)(2).
■ d. Adding paragraphs (d)(1)(viii),
(d)(2), and (g)(8).
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The additions read as follows:
§ 1.6038B–1 Reporting of certain transfers
to foreign corporations.
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(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]
*
*
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*
*
(viii) Other intangibles. For further
guidance, see § 1.6038B–1T(d)(1)(viii).
(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
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publications, forms, instructions, or
other guidance.
*
*
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*
(g) * * *
(8) Paragraphs (d)(2)(iii) introductory
text and (d)(2)(iv) of this section apply
to transfers occurring on or after October
10, 2024.
■ Par. 10. Section 1.6038B–1T is
amended by revising paragraph
(d)(2)(iii) introductory text to read as
follows:
§ 1.6038B–1T Reporting of certain
transactions to foreign corporations
(temporary).
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*
(d) * * *
(2) * * *
(iii) Subsequent transfer. For further
guidance, see § 1.6038B–1T(d)(2)(iii)
introductory text:
*
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*
Douglas W. O’Donnell,
Deputy Commissioner.
Approved: September 23, 2024.
Aviva Aron-Dine,
Deputy Assistant Secretary of the Treasury
(Tax Policy).
[FR Doc. 2024–23132 Filed 10–9–24; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
[Docket Number USCG–2024–0908]
RIN 1625–AA87
Security Zone; Corpus Christi Ship
Channel, Corpus Christi, TX
Coast Guard, DHS.
Temporary final rule.
AGENCY:
ACTION:
The Coast Guard is
establishing temporary, 500-yard radius,
moving security zones within the
navigable waters of the Corpus Christi
Ship Channel and the La Quinta
Channel. The security zone is needed to
protect certain vessels carrying cargo
which poses risks such that it requires
an elevated level of security to protect
the cargo itself and the surrounding
waterway from terrorist acts, sabotage,
or other subversive acts, accidents, or
events of a similar nature. Entry of
vessels or persons into these zones is
prohibited unless specifically
authorized by the Captain of the Port,
Sector Corpus Christi or a designated
representative.
SUMMARY:
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This rule is effective from
October 7, 2024 through October 17,
2024.
DATES:
To view documents
mentioned in this preamble as being
available in the docket, go to https://
www.regulations.gov, type USCG–2024–
0908 in the search box and click
‘‘Search.’’ Next, in the Document Type
column, select ‘‘Supporting & Related
Material.’’
ADDRESSES:
If
you have questions about this rule, call
or email Lieutenant Tim Cardenas,
Sector Corpus Christi Waterways
Management Division, U.S. Coast
Guard; telephone 361–939–5130,
emailTim.J.Cardenas@uscg.mil.
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
I. Table of Abbreviations
CFR Code of Federal Regulations
COTP Captain of the Port, Sector Corpus
Christi
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of proposed rulemaking
§ Section
U.S.C. United States Code
II. Background Information and
Regulatory History
The Coast Guard is issuing this
temporary rule under the authority in 5
U.S.C. 553(b)(B). This statutory
provision authorizes an agency to issue
a rule without prior notice and
opportunity to comment when the
agency for good cause finds that those
procedures are ‘‘impracticable,
unnecessary, or contrary to the public
interest.’’ Under 5 U.S.C. 553(b)(B), the
Coast Guard finds that good cause exists
for not publishing a notice of proposed
rulemaking (NPRM) with respect to this
rule because it is impracticable. The
Coast Guard must establish this security
zone by October 7, 2024, to ensure
security of certain vessels and the
surrounding area and lacks sufficient
time to request public comments and
respond to these comments before the
safety zone must be established. As
such, it is impracticable to publish an
NPRM.
Additionally, under 5 U.S.C.
553(d)(3), the Coast Guard finds that
good cause exists for making this rule
effective less than 30 days after
publication in the Federal Register.
Delaying the effective date of this rule
would be contrary to the public interest
because prompt action is needed to
provide for the security of these vessels
while they are in transit and carrying
potentially dangerous cargo in need of
elevated security.
E:\FR\FM\10OCR1.SGM
10OCR1
| File Type | application/pdf |
| File Modified | 2024-10-10 |
| File Created | 2024-10-10 |