[Federal Register Volume 84, Number 223 (Tuesday, November 19, 2019)]
[Rules and Regulations]
[Pages 63802-63804]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24985]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9883]
RIN 1545-BM90
Ownership Attribution for Purposes of Determining Whether a
Person Is Related to a Controlled Foreign Corporation; Rents Derived in
the Active Conduct of a Trade or Business
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations regarding the
attribution of ownership of stock or other interests for purposes of
determining whether a person is a related person with respect to a
controlled foreign corporation (``CFC'') under section 954(d)(3). In
addition, the final regulations provide rules for determining whether a
CFC is considered to derive rents in the active conduct of a trade or
business for purposes of computing foreign personal holding company
income. This document finalizes the proposed regulations published on
May 20, 2019. The regulations affect United States persons with direct
or indirect ownership interests in certain foreign corporations.
DATES:
Effective Date: These regulations are effective on November 19,
2019.
Applicability Date: For the dates of applicability, see Sec. Sec.
1.954-1(f)(3), 1.954-2(i)(2), and 1.958-2(h).
FOR FURTHER INFORMATION CONTACT: Kristine A. Crabtree at (202) 317-
6934.
SUPPLEMENTARY INFORMATION:
Background
On May 20, 2019, the Department of the Treasury (``Treasury
Department'')
[[Page 63803]]
and the IRS published proposed regulations (REG-125135-15) under
sections 954 and 958 in the Federal Register (84 FR 22751) (the
``proposed regulations''). No public hearing was requested or held. All
written comments received in response to the proposed regulations are
available at www.regulations.gov or upon request. Because no comments
suggested revisions to the proposed regulations, this Treasury decision
adopts the proposed regulations as final regulations without change.
Summary of Comments
The proposed regulations and the final regulations limit the
application of the section 318(a)(3) constructive ownership rules for
purposes of the definition of related person in section 954(d)(3) to
avoid inappropriately treating entities, including CFCs, that do not
have a significant relationship to each other as related persons.
Comments agreed with the Treasury Department and the IRS that limiting
the application of the downward attribution rules of section
318(a)(3)(A) incorporated by section 958(b) for purposes of section
954(d)(3) avoids inappropriate results, and one comment urged the
Treasury Department and the IRS to provide a similar limitation on the
application of those rules for purposes of determining whether a
foreign corporation is a CFC. The Treasury Department and the IRS are
separately studying the application of section 958(b) following the
repeal of section 958(b)(4) by the Tax Cuts and Jobs Act, Public Law
115-97 (2017), and the final regulations do not address the application
of the constructive ownership rules of section 958(b) for purposes
other than section 954(d)(3).
Effect on Other Documents
Section 7(d) of Notice 2007-9, 2007-1 C.B. 401, is obsoleted.
Special Analyses
OIRA has waived review of this final rule in accordance with
section 6(a)(3)(A) of E.O. 12866.
Because this rulemaking is an interpretive rule and does not impose
a collection of information on small entities, under 5 U.S.C. 603(a)
the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6)
do not apply. Accordingly, a regulatory flexibility analysis under the
Regulatory Flexibility Act is not required.
Pursuant to section 7805(f), the notice of proposed rulemaking
preceding this regulation was submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact
on small businesses. No comments were received.
Drafting Information
The principal author of the final regulations is James Beatty of
the Office of Associate Chief Counsel (Income Tax & Accounting).
However, other personnel from the Treasury Department and the IRS
participated in the development of these proposed regulations.
Statement of Availability of IRS Documents
Notice 2007-9 is published in the Internal Revenue Bulletin (or
Cumulative Bulletin) and is available from the Superintendent of
Documents, U.S. Government Publishing Office, Washington, DC 20402, or
by visiting the IRS website at http://www.irs.gov.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.954-1 also issued under 26 U.S.C. 954(b) and (c).
Section 1.954-2 also issued under 26 U.S.C. 954(b) and (c).
* * * * *
0
Par. 2. Section 1.954-0 is amended in paragraph (b) by adding entries
for Sec. Sec. 1.954-1(f)(3), (f)(3)(i) through (iii), (g), and (g)(1)
through (4) and 1.954-2(c)(2)(v) through (viii), (d)(2)(v), (i), and
(i)(1) through (3) to read as follows:
Sec. 1.954-0 Introduction.
* * * * *
(b) * * *
Sec. 1.954-1 Foreign base company income.
* * * * *
(f) * * *
(3) Applicability dates.
(i) General rule.
(ii) Option rule in paragraph (f)(2)(iv)(B)(2) of this section.
(iii) Anti-abuse rule.
(g) Distributive share of partnership income.
(1) Application of related person and country of organization
tests.
(2) Application of related person test for sales and purchase
transactions between a partnership and its controlled foreign
corporation partner.
(3) Examples.
(4) Effective date.
Sec. 1.954-2 Foreign personal holding company income.
* * * * *
(c) * * *
(2) * * *
(v) Leased in foreign commerce.
(vi) Leases acquired by the CFC lessor.
(vii) Marketing of leases.
(viii) Cost sharing arrangements (CSAs).
* * * * *
(d) * * *
(2) * * *
(v) Cost sharing arrangements (CSAs).
* * * * *
(i) Applicability dates.
(1) Paragraphs (c)(2)(v) through (vii).
(2) Paragraphs (c)(2)(iii)(B) and (c)(2)(iv)(A) of this section.
(3) Other paragraphs.
0
Par. 3. Section 1.954-1 is amended by revising paragraph (f)(2)(iv) and
adding paragraph (f)(3) to read as follows:
Sec. 1.954-1 Foreign base company income.
* * * * *
(f) * * *
(2) * * *
(iv) Direct or indirect ownership. For purposes of section
954(d)(3) and this paragraph (f), to determine direct or indirect
ownership--
(A) The principles of Sec. 1.958-1 and section 958(a) apply
without regard to whether a corporation, partnership, trust, or estate
is foreign or domestic or whether an individual is a citizen or
resident of the United States; and
(B) The principles of Sec. 1.958-2 and section 958(b) apply,
except that--
(1) Neither section 318(a)(3), nor Sec. 1.958-2(d) or the
principles thereof, applies to attribute stock or other interests to a
corporation, partnership, estate, or trust; and
(2) Neither section 318(a)(4), nor Sec. 1.958-2(e) or the
principles thereof, applies to treat dividends, interest, rents, or
royalties received or accrued from a foreign corporation as received or
accrued from a controlled foreign corporation payor if a principal
purpose of the use of an option to acquire stock or an equity interest,
or an interest similar to such an option, that causes the foreign
corporation to be a controlled foreign corporation payor is to qualify
dividends, interest, rents, or royalties paid by the foreign
corporation for the section 954(c)(6) exception. For purposes of this
paragraph (f)(2)(iv)(B)(2), an interest that is similar to an option to
acquire stock or an equity interest includes, but is not limited to, a
warrant, a convertible debt instrument, an instrument other than debt
that is convertible into stock or an
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equity interest, a put, a stock or equity interest subject to risk of
forfeiture, and a contract to acquire or sell stock or an equity
interest.
(3) Neither section 318(a)(4), nor Sec. 1.958-2(e) or the
principles thereof, applies to treat a person that has an option to
acquire stock or an equity interest, or an interest similar to such an
option, as owning the stock or equity interest if a principal purpose
for the use of the option or similar interest is to treat a person as a
related person with respect to a controlled foreign corporation under
this paragraph (f). For purposes of this paragraph (f)(2)(iv)(B)(3), an
interest that is similar to an option to acquire stock or an equity
interest includes, but is not limited to, a warrant, a convertible debt
instrument, an instrument other than debt that is convertible into
stock or an equity interest, a put, a stock or equity interest subject
to risk of forfeiture, and a contract to acquire or sell stock or an
equity interest.
(3) Applicability dates--(i) General rule. Except as otherwise
provided in this paragraph (f)(3), paragraph (f)(2)(iv) of this section
applies to taxable years of controlled foreign corporations ending on
or after November 19, 2019, and taxable years of United States
shareholders in which or with which such taxable years end.
(ii) Option rule in paragraph (f)(2)(iv)(B)(2) of this section.
Paragraph (f)(2)(iv)(B)(2) of this section applies to taxable years of
controlled foreign corporations beginning after December 31, 2006, and
ending before November 19, 2019, and taxable years of United States
shareholders in which or with which such taxable years end.
(iii) Anti-abuse rule. Paragraphs (f)(2)(iv)(B)(1) and (3) of this
section apply to taxable years of controlled foreign corporations
ending on or after May 17, 2019, and to taxable years of United States
shareholders in which or with which such taxable years end, with
respect to amounts that are received or accrued by a controlled foreign
corporation on or after May 17, 2019 to the extent the amounts are
received or accrued in advance of the period to which such amounts are
attributable with a principal purpose of avoiding the application of
paragraph (f)(2)(iv)(B)(1) or (3) of this section with respect to such
amounts.
* * * * *
0
Par. 4. Section 1.954-2 is amended by:
0
1. Revising paragraphs (c)(2)(iii)(B) and (c)(2)(iv)(A).
0
2. Revising the heading of paragraph (i).
0
3. Redesignating paragraph (i)(2) as paragraph (i)(3).
0
4. Adding new paragraph (i)(2).
The revisions and addition read as follows:
Sec. 1.954-2 Foreign personal holding company income.
* * * * *
(c) * * *
(2) * * *
(iii) * * *
(B) Deductions for amounts (including rents and royalties) paid or
incurred by the lessor for the right to use the property (or a
component thereof) that generated the rental income;
* * * * *
(iv) * * *
(A) Amounts (including rents and royalties) paid or incurred by the
lessor for the right to use the property (or a component thereof) that
generated the rental income;
* * * * *
(i) Applicability dates.* * *
(2) Paragraphs (c)(2)(iii)(B) and (c)(2)(iv)(A) of this section.
Paragraphs (c)(2)(iii)(B) and (c)(2)(iv)(A) of this section apply for
taxable years of controlled foreign corporations ending on or after
November 19, 2019, and for the taxable years of United States
shareholders in which or with which such taxable years end.
* * * * *
0
Par. 5. Section 1.958-2 is amended by revising paragraph (d)(1)
introductory text and the first sentence of paragraph (e) and adding
paragraph (h) to read as follows:
Sec. 1.958-2 Constructive ownership of stock.
* * * * *
(d) * * *
(1) * * * Except as otherwise provided in paragraph (d)(2) of this
section and Sec. 1.954-1(f)--
* * * * *
(e) * * * Except as otherwise provided in Sec. 1.954-1(f), if any
person has an option to acquire stock, such stock shall be considered
as owned by such person. * * *
* * * * *
(h) Applicability date. Paragraphs (d)(1) and (e) of this section
apply for taxable years of controlled foreign corporations ending on or
after November 19, 2019, and for the taxable years of United States
shareholders in which or with which such taxable years end.
* * * * *
Sunita Lough,
Deputy Commissioner for Services and Enforcement.
Approved: October 28, 2019.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2019-24985 Filed 11-18-19; 8:45 am]
BILLING CODE 4830-01-P