Information Returns Required With Respect to Certain Foreign Corporations and Certain Foreign-Owned Domestic Corporations, 35524-35527 [E6-9612]
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Federal Register / Vol. 71, No. 119 / Wednesday, June 21, 2006 / Rules and Regulations
Authority: Secs. 506(c) and 166(h)(2), Pub.
L. 105–220; 20 U.S.C. 9276(c); 29 U.S.C.
2911(h)(2).
Sections 1.6038–2T(f)(11), (12), and
1.6038A–2T(b)(8) apply with respect to
information for annual accounting
periods beginning on or after June 21,
2006. Section 1.6038–2T(k) applies June
21, 2006.
FOR FURTHER INFORMATION CONTACT: Kate
Y. Hwa (202) 622–3840 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
§ 668.230
greater interest in the foreign business
entity.
Section 6038A requires certain
foreign-owned domestic corporations to
furnish certain information prescribed
by the Secretary. In particular, section
6038A(a) requires a 25 percent foreignowned domestic corporation to furnish
information with respect to certain
transactions between such corporation
and certain related parties.
Paperwork Reduction Act
Explanation of Provisions
The final regulations are revised to
remove and correct obsolete references
to a form and IRS offices. The temporary
regulations conform the current final
regulations to specific statutory changes
and make other minor clarifications to
those final regulations.
Section 1.6038–2 provides that each
U.S. person, with respect to each foreign
corporation such person controls, must
furnish the required information on a
Form 5471, ‘‘Information Return of U.S.
Persons with Respect to Certain Foreign
Corporations’’, (or, in the case of taxable
years that ended before December 31,
1982, on a Form 2952, ‘‘Information
Return with Respect to Foreign
Controlled Corporations’’). Section
1.6038–2(f) sets forth the information
that must be provided on the applicable
form. The information that must be
reported includes a summary showing
the total amount of each of the types of
transactions of the corporation specified
in § 1.6038–2(f)(11). In some cases,
§ 1.6038–2(f)(11) requires reporting of
sales and purchases of items. See
§ 1.6038–2(f)(11)(i) (stock in trade) and
(iii) (certain intangibles). In other cases,
it requires reporting only of purchases.
See § 1.6038–2(f)(11)(ii) (tangible
property other than stock in trade). The
temporary regulations modify the rules
of the final regulations to include the
reporting of sales and purchases, instead
of just purchases, of tangible property.
The temporary regulations also modify
the current rules to include the
reporting of premiums paid, instead of
just premiums received, for insurance or
reinsurance. This consistent treatment
of sales and purchases, and premiums
paid and received, more fully
implements the purpose of section 6038.
It also conforms the rules in § 1.6038–
2 to analogous reporting rules. See
§ 1.6038A–2(b)(3)(ii) (reporting
requirements for foreign-owned
domestic corporations).
It has come to the IRS’ attention that
some foreign corporations that use an
accrual method of accounting may not
be properly reporting the transactions
described in § 1.6038–2(f)(11).
Accordingly, § 1.6038–2T(f)(12)
modifies the rules of the final
PART 668—INDIAN AND NATIVE
AMERICAN PROGRAMS UNDER TITLE
I OF THE WORKFORCE INVESTMENT
ACT
159. The authority citation for 20 CFR
668 continues to read as follows:
I
[Amended]
160. In § 668.230(b) remove the words
‘‘or the JTPA regulations at 20 CFR part
632’’.
I
Dated: May 25, 2006.
Emily Stover DeRocco,
Assistant Secretary for Employment and
Training.
[FR Doc. 06–5292 Filed 6–20–06; 8:45 am]
BILLING CODE 4510–30–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 9268]
RIN 1545–BF49
Information Returns Required With
Respect to Certain Foreign
Corporations and Certain ForeignOwned Domestic Corporations
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary
regulations.
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AGENCY:
SUMMARY: This document contains final
and temporary regulations that provide
guidance under sections 6038 and
6038A of the Internal Revenue Code.
The final regulations under § 1.6038–2
are revised to remove and replace
obsolete references to a form and IRS
offices. The temporary regulations
clarify the information required to be
furnished regarding certain related party
transactions of certain foreign
corporations and certain foreign-owned
domestic corporations. The temporary
regulations also increase the amount of
certain penalties, and make certain
other changes, to reflect the statutory
changes made by the Taxpayer Relief
Act of 1997 (TRA ’97). The text of the
temporary regulations also serves as the
text of the proposed regulations set forth
in this issue of the Federal Register.
DATES: Effective Date: These final and
temporary regulations are effective June
21, 2006.
Applicability Date: Changes to
§ 1.6038–2 are applicable June 21, 2006.
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These temporary regulations are being
issued without prior notice and public
procedure pursuant to the
Administrative Procedure Act (5 U.S.C.
553). For this reason, the collection of
information contained in these
regulations has been reviewed and
pending receipt and evaluation of
public comments, approved by the
Office of Management and Budget under
control number 1545–2020. Responses
to this collection of information are
mandatory.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid control number
assigned by the Office of Management
and Budget.
For further information concerning
this collection of information, and
where to submit comments on the
collection of information and the
accuracy of the estimated burden, and
suggestions for reducing this burden,
please refer to the preamble to the crossreferencing notice of proposed
rulemaking published in the Proposed
Rules section of this issue of the Federal
Register.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
Section 6038 of the Internal Revenue
Code (Code) requires a U.S. person to
furnish, with respect to any foreign
business entity which such person
controls, certain information as
prescribed by the Secretary. More
specifically, section 6038(a)(1)(D)
provides that the information to be
furnished includes information relating
to transactions between the foreign
business entity and (i) such U.S. person,
(ii) any corporation or partnership
controlled by such U.S. person, and (iii)
any U.S. person owning at the time the
transaction takes place a 10 percent or
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Federal Register / Vol. 71, No. 119 / Wednesday, June 21, 2006 / Rules and Regulations
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regulations to clarify that foreign
corporations that use an accrual method
of accounting must report the summary
of the total amount of the transactions
described in § 1.6038–2T(f)(11) on an
accrual basis. To maintain conformity,
§ 1.6038A–2(b)(8), which provides a
similar rule for foreign-owned domestic
corporations, has been similarly
clarified.
Section 6038(b)(1), as amended by the
TRA ‘97, provides for a $10,000 penalty
for failure to furnish the required
information within the time prescribed
under section 6038(a)(2). Section
6038(b)(2), as amended by the TRA ‘97,
also provides for additional $10,000
penalties (not to exceed a total of
$50,000) when there is a continuing
failure to furnish the required
information. Section 1.6038–2(k)(1) sets
forth the dollar amounts of the penalty
for failure to furnish the information
required under section 6038. To
conform to the statutory change made
by the TRA ‘97, § 1.6038–2(k)(1) has
been amended to reflect the increased
penalty amounts.
Section 6038(c)(4)(B) and § 1.6038–
2(k)(3) provide a reasonable cause
exception for failure to furnish the
information required under section
6038. Some questions have arisen
regarding how one determines, after
reasonable cause has been established,
the time prescribed for furnishing the
information under § 1.6038–2(i) (time
and place for filing return) and the 90day period described in § 1.6038–
2(k)(1)(ii) (increase in penalty for
continued failure after notification) and
§ 1.6038–2(k)(2)(iv)(A) (reduction of
foreign tax credit for continued failure
after notice). Two examples have been
added in § 1.6038–2T(k)(5) to illustrate
the determination, after reasonable
cause has been established under
§ 1.6038–2(k)(3)(i), of the time for filing
the Form 5471, and the beginning of the
90-day period.
The temporary regulations also
modify the rules of the final regulations
to include transactions between the
foreign corporation and controlled
partnerships, implementing a change
made by section 1142 of the TRA ‘97.
Section 1.6038–2 of the regulations
has been updated to remove references
to obsolete Form 2952 and to reflect that
the Director of Field Operations has
replaced the district director and the
Field Director has replaced the director
of the service center.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
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regulatory assessment is not required. It
has also been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations. For the
applicability of the Regulatory
Flexibility Act (5 U.S.C. chapter 6), refer
to the Special Analyses section of the
preamble to the cross-reference notice of
proposed ruling making published in
the Proposed Rules section in this issue
of the Federal Register. Pursuant to
section 7805(f) of the Code, these final
and temporary regulations will be
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on their
impact on small business.
Drafting Information
The principal author of these
regulations is Kate Y. Hwa, Office of the
Associate Chief Counsel (International).
However, other personnel from the IRS
and Treasury Department participated
in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is
amended as follows:
I
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 continues to read, in part, as
follows:
I
Authority: 26 U.S.C. 7805 * * *
§ 1.6038–2
[Amended]
Par. 2. Section 1.6038–2 is amended
as follows:
I 1. Paragraph (f) introductory text is
amended by removing the language
‘‘Form 2952 or’’ in the first sentence.
I 2. Paragraph (f)(11) and (k)(1) are
revised.
I 3. Paragraph (f)(12) and (m) are added.
I 4. Paragraph (i) is amended by
removing the language ‘‘Form 2952 or’’
in the first sentence, the second
sentence, and the last sentence.
I 5. Paragraph (i) is also amended by
removing the language ‘‘District
directors and directors of service
centers’’ and adding the language
‘‘Directors of Field Operations and Field
Directors’’ in its place in the second
sentence.
I 6. Paragraph (k)(2)(iv) is amended by
removing the language ‘‘district
I
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director’’ and adding the language
‘‘Director of Field Operations’’ in its
place in the first sentence.
I 7. Paragraph (k)(3)(i) is amended by
removing the language ‘‘district
director’’ and adding the language
‘‘Director of Field Operations’’ in its
place in the first sentence.
The revisions and additions read as
follows:
§ 1.6038–2 Information returns required of
United States persons with respect to
annual accounting periods of certain
foreign corporations beginning after
December 31, 1962.
*
*
*
*
*
(f) * * *
(11) [Reserved]. For further guidance,
see § 1.6038–2T(f)(11).
(12) [Reserved]. For further guidance,
see § 1.6038–2T(f)(12).
*
*
*
*
*
(k) * * *
(1) [Reserved]. For further guidance,
see § 1.6038–2T(k)(1).
*
*
*
*
*
(m) [Reserved]. For further guidance,
see § 1.6038–2T(m)
*
*
*
*
*
I Par. 3 Section 1.6038–2T is amended
by revising paragraphs (e) through (m)
to read as follows:
§ 1.6038–2T Information returns required
of United States persons with respect to
annual accounting periods of certain
foreign corporations (temporary).
*
*
*
*
*
(e) through (f)(10) [Reserved]. For
further guidance, see § 1.6038–2(e)
through (f)(10).
(f)(11) Transactions with certain
related parties. (i) A summary showing
the total amount of each of the following
types of transactions of the corporation,
which took place during the annual
accounting period, with the person
required to file this return, any other
corporation or partnership controlled by
that person, or any United States person
owning at the time of the transaction 10
percent or more in value of any class of
stock outstanding of the foreign
corporation, or of any corporation
controlling that foreign corporation—
(A) Sales and purchases of stock in
trade;
(B) Sales and purchases of tangible
property other than stock in trade;
(C) Sales and purchases of patents,
inventions, models, or designs (whether
or not patented), copyrights, trademarks,
secret formulas or processes, or any
other similar property rights;
(D) Compensation paid and
compensation received for the rendition
of technical, managerial, engineering,
construction, scientific, or like services;
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Federal Register / Vol. 71, No. 119 / Wednesday, June 21, 2006 / Rules and Regulations
(E) Commissions paid and
commissions received;
(F) Rents and royalties paid and rents
and royalties received;
(G) Amounts loaned and amounts
borrowed (except open accounts
resulting from sales and purchases
reported under other items listed in this
paragraph (f)(11) that arise and are
collected in full in the ordinary course
of business);
(H) Dividends paid and dividends
received;
(I) Interest paid and interest received;
and
(J) Premiums paid and premiums
received for insurance or reinsurance.
(ii) Special rule for banks. For
purposes of this paragraph (f)(11), if the
United States person is a bank, as
defined in section 581, or is controlled
within the meaning of section 368(c) by
a bank, the term transactions shall not,
as to a corporation with respect to
which a return is filed, include banking
transactions entered into on behalf of
customers; in any event, however,
deposits in accounts between a foreign
corporation, controlled (within the
meaning of paragraph (b) of this section)
by a United States person, and a person
described in this paragraph (f)(11) and
withdrawals from such accounts shall
be summarized by reporting end-ofmonth balances.
(12) Accrued payments and receipts.
For purposes of the required summary
under paragraph (f)(11) of this section,
a corporation that uses an accrual
method of accounting shall use accrued
payments and accrued receipts for
purposes of computing the total amount
of each of the types of transactions
listed.
(g) through (j)(3) [Reserved]. For
further guidance, see § 1.6038–2(g)
through (j)(3).
(k) Failure to furnish information—(1)
Dollar amount penalty—(i) In general. If
any person required to file Form 5471
under section 6038 and this section fails
to furnish any information described in
paragraphs (f) and (g) of this section
within the time prescribed by paragraph
(i) of this section, such person shall pay
a penalty of $10,000 for each annual
accounting period of each foreign
corporation with respect to which such
failure occurs.
(ii) Increase in penalty for continued
failure after notification. If a failure
described in paragraph (k)(1)(i) of this
section continues for more than 90 days
after the date on which the Director of
Field Operations mails notice of such
failure to the person required to file
Form 5471, such person shall pay a
penalty of $10,000, in addition to the
penalty imposed by section 6038(b)(1)
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and paragraph (k)(1)(i) of this section,
for each 30-day period (or a fraction of)
during which such failure continues
after such 90-day period has expired.
The additional penalty imposed by
section 6038(b)(2) and this paragraph
(k)(1)(ii) shall be limited to a maximum
of $50,000 for each failure.
(k)(2) through (k)(4) [Reserved]. For
further guidance, see § 1.6038–2(k)(2)
through (k)(4).
(k)(5) Illustrations. [Reserved]. For
further guidance, see § 1.6038–2(k)(5).
Example 1 and 2. [Reserved]. For further
guidance, see § 1.6038–2(k)(5) Examples 1
and 2.
Example 3. A, a U.S. person, owns 100
percent of the stock of FC. On April 15, 2008,
A timely filed its 2007 income tax return but
did not file Form 5471 with respect to FC’s
2007 annual accounting period. On June 1,
2008, the Director of Field Operations mailed
a notice to A of A’s failure to file Form 5471
for 2007 with respect to FC. On August 1,
2008, A submits a written statement asserting
facts for reasonable cause for failure to file
the 2007 Form 5471 for FC. Based on A’s
statement and discussions with A, the
Director of Field Operations agrees that A
had reasonable cause for failure to file FC’s
2007 Form 5471 and determined that it is
reasonable for A to file FC’s 2007 Form 5471
by September 15, 2008. The time prescribed
for furnishing information under paragraph
(i) of this section is September 15, 2008, and
the 90-day period described under
paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this
section begins on that same date. Thus, if A
files a completed Form 5471 by September
15, 2008, A is not subject to the penalties
under paragraphs (k)(1) and (k)(2) of this
section. If A does not file a completed Form
5471 by December 14, 2008, in addition to
the penalties under paragraphs (k)(1) and
(k)(2) of this section, A will also be subject
to the penalties for continued failure under
paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this
section.
Example 4. The facts are the same as in
Example 3 except A submits the written
statement to the Director before a notice of
failure to furnish information is mailed to A.
The notice is mailed to A on September 7,
2008. Under these facts, the time prescribed
for furnishing information under paragraph
(i) of this section is September 15, 2008, and
the 90-day period after mailing of notice of
failure under paragraphs (k)(1)(ii) and
(k)(2)(iv)(A) of this section begins on that
same date.
(l) through (l)(2) [Reserved]. For
further guidance, see § 1.6038–(2)(l)
through (l)(2).
(m) Effective dates. (1) Except as
otherwise provided, this section applies
with respect to information for annual
accounting periods beginning on or after
June 21, 2006. Paragraph (d) of this
section applies to taxable years ending
after October 22, 2004. Paragraphs (k)(1)
and (k)(5), Examples 3 and 4, of this
section apply June 21, 2006.
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(2) The applicability of paragraphs
(f)(11), (f)(12), (k)(1), and (k)(5),
Examples 3 and 4, of this section will
expire on or before June 22, 2009.
I Par. 4. Section 1.6038A–2 is amended
by revising paragraph (b)(8) to read as
follows:
§ 1.6038A–2
Requirement of return.
*
*
*
*
*
(b) * * *
(8) [Reserved]. For further guidance,
see § 1.6038A–2T(b)(8).
*
*
*
*
*
I Par. 5. Section 1.6038A–2T is
amended by adding paragraphs (b)(8)
and (h) to read as follows:
§ 1.6038A–2T
(temporary).
Requirement of return
*
*
*
*
*
(b)(8) Accrued payments and receipts.
For purposes of this section, a reporting
corporation that uses an accrual method
of accounting shall use accrued
payments and accrued receipts for
purposes of computing the total amount
of each of the types of transactions
listed in this section.
*
*
*
*
*
(h) Effective date. (1) Except as
otherwise provided, for effective dates
for this section for certain reporting
corporations, see § 1.6038A–1(n).
Paragraph (b)(8) of this section applies
with respect to information for annual
accounting periods beginning on or after
June 21, 2006.
(2) The applicability of paragraph
(b)(8) of this section will expire on or
before June 22, 2009.
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
I Par. 6. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
I Par. 7. Section 602.101(b) is amended
by adding an entry to the table in
numerical order to read as follows:
§ 602.101
*
OMB Control numbers.
*
*
(b) * * *
*
*
CFR part or section where
identified and described
*
*
*
1.6038–2 ...............................
*
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Current OMB
control No.
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Federal Register / Vol. 71, No. 119 / Wednesday, June 21, 2006 / Rules and Regulations
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
Approved: June 13, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary of the
Treasury (Tax Policy).
[FR Doc. E6–9612 Filed 6–20–06; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF DEFENSE
Office of the Secretary
32 CFR Part 199
[DoD–2006–OS–0022]
RIN 0720–AA99
Civilian Health and Medical Program of
the Uniformed Services (CHAMPUS);
TRICARE Reserve Select for Members
of the Selected Reserve
Office of the Secretary, DoD.
Interim final rule with comment
AGENCY:
ACTION:
sroberts on PROD1PC70 with RULES
period.
SUMMARY: This interim final rule revises
requirements and procedures for
TRICARE Reserve Select pursuant to
section 701 of the National Defense
Authorization Act for FY 2006 (NDAA–
06). TRICARE Reserve Select is the
premium-based medical coverage
program first made available in April
2005 for purchase by members of the
Selected Reserve who fulfill the
statutory qualification of having served
on active duty in support of a
contingency operation among other
qualifications. By adding two new tiers
of premium sharing by the government
(50% and 85% member portion) to the
existing premium tier (28% member
portion), this interim final rule expands
availability of TRICARE Reserve Select
to include all Selected Reservists
pursuant to section 702 of NDAA–06.
DATES: This rule is effective July 21,
2006. Submit comments on or before
August 21, 2006. Coverage established
during the one-time special open season
described herein will be available no
later than October 1, 2006.
ADDRESSES: You may submit comments,
identified by docket number and or RIN
number and title, by any of the
following methods:
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Federal Docket Management
System Office, 1160 Defense Pentagon,
Washington, DC 20301–1160.
Instructions: All submissions received
must include the agency name and
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docket number or Regulatory
Information Number (RIN) for this
Federal Register document. The general
policy for comments and other
submissions from members of the public
is to make these submissions available
for public viewing on the Internet at
https://regulations.gov as they are
received without change, including any
personal identifiers or contact
information.
FOR FURTHER INFORMATION CONTACT: Jody
Donehoo, TRICARE Management
Activity, TRICARE Operations,
telephone (703) 681–0039.
Questions regarding payment of
specific claims under the TRICARE
allowable charge method should be
addressed to the appropriate TRICARE
contractor.
SUPPLEMENTARY INFORMATION:
I. Introduction and Background
An interim final rule was published
in the Federal Register on March 16,
2005 (70 FR 12798–12805), that
addressed three provisions of the
Ronald W. Reagan National Defense
Authorization Act for Fiscal Year 2005
(NDAA–05) (Pub. L. 108–375). That
interim final rule established
requirements and procedures to make
permanent two provisions of the
NDAA–05. Section 706 of the NDAA–05
made permanent the temporary
revisions to the Transitional Assistance
Management Program (TAMP), enacted
in section 704 of the National Defense
Authorization Act for Fiscal Year 2004
(NDAA–04) (Pub.L. 18–136) and section
1117 of the Emergency Supplemental
Appropriations Act for the
Reconstruction of Iraq and Afghanistan,
2004 (Emergency Supplemental) (Pub.
L.108–106). Section 703 of the NDAA–
05 made permanent the earlier
TRICARE eligibility for certain reserve
component members authorized by
section 703 of the NDAA–04 and section
1116 of the Emergency Supplemental. A
separate final rule will be issued for the
requirements established by sections
703 and 706 of the NDAA for FY05.
The interim final rule published on
March 16, 2005, also established
requirements and procedures for
implementation of TRICARE Reserve
Select, the program authorized by
section 701 of the NDAA–05 for
premium-based medical coverage for
certain members of the Selected Reserve
and their family members. Before a final
rule could be issued subsequent to the
interim final rule published in the
Federal Register on March 16, 2005 (70
FR 12798–12805), for the TRICARE
Reserve Select program, it became
evident that subsequent legislation
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35527
would likely amend the statutory
provisions in section 701 of the NDAA–
05 implemented in the interim final
rule.
Therefore, this interim rule contains
the provisions of the former interim rule
on the TRICARE Reserve Select program
(70 FR 12798–12805) and addresses two
provisions of the National Defense
Authorization Act for Fiscal Year 2006
(NDAA–06) (Pub. L. 109–163). First,
section 701 of the NDAA–06 contains
several provisions to enhance the
TRICARE Reserve Select program
implemented in fulfillment of section
701 of the NDAA–05. Second, section
702 of the NDAA–06 expands the
TRICARE Reserve Select program to
make it available to all members of the
Selected Reserve of the Ready Reserve
by providing the statutory basis to
establish two tiers of premium sharing
subject to a number of additional
specific statutory requirements, which
are outlined in this regulation. These
two tiers are in addition to the premium
sharing tier established by section 701
of the NDAA–05.
The law authorizing the TRICARE
Reserve Select program uses the term
‘‘eligibility’’ to identify conditions
under which a Reserve component
member may purchase coverage. For
purposes of program administration, the
terms ‘‘qualifying’’ or ‘‘qualified’’ shall
generally be used in lieu of such terms
as ‘‘eligibility’’ or ‘‘eligible’’ to refer to
a Reserve component member who
meets the program requirements
allowing purchase of TRICARE Reserve
Select coverage.
This interim rule introduces certain
terminology for TRICARE Reserve Select
intended to reflect critical elements that
distinguish it from other longestablished TRICARE health programs.
For instance, the effective date of
eligibility for TRICARE has long been
understood to mean that the eligible
individual may obtain care under the
military health system as of that date.
However, that is not what it means in
the context of TRICARE Reserve Select.
To avoid the inevitable
misunderstanding, this rule uses 239 the
term ‘‘qualify’’ to mean that the
member’s reserve component has
validated that the member has satisfied
all the ‘‘qualifications’’ that must be met
before the member is authorized to
purchase coverage under a particular
tier. Only then may the member
purchase coverage by taking further
action to submit a completed
application along with payment of a one
month premium. The term ‘‘coverage’’
indicates the benefit of TRICARE
covering claims submitted by TRICARE
authorized providers, hospitals, and
E:\FR\FM\21JNR1.SGM
21JNR1
]]>Agencies
[Federal Register Volume 71, Number 119 (Wednesday, June 21, 2006)]
[Rules and Regulations]
[Pages 35524-35527]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-9612]
=======================================================================
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 9268]
RIN 1545-BF49
Information Returns Required With Respect to Certain Foreign
Corporations and Certain Foreign-Owned Domestic Corporations
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final and temporary regulations that
provide guidance under sections 6038 and 6038A of the Internal Revenue
Code. The final regulations under Sec. 1.6038-2 are revised to remove
and replace obsolete references to a form and IRS offices. The
temporary regulations clarify the information required to be furnished
regarding certain related party transactions of certain foreign
corporations and certain foreign-owned domestic corporations. The
temporary regulations also increase the amount of certain penalties,
and make certain other changes, to reflect the statutory changes made
by the Taxpayer Relief Act of 1997 (TRA '97). The text of the temporary
regulations also serves as the text of the proposed regulations set
forth in this issue of the Federal Register.
DATES: Effective Date: These final and temporary regulations are
effective June 21, 2006.
Applicability Date: Changes to Sec. 1.6038-2 are applicable June
21, 2006. Sections 1.6038-2T(f)(11), (12), and 1.6038A-2T(b)(8) apply
with respect to information for annual accounting periods beginning on
or after June 21, 2006. Section 1.6038-2T(k) applies June 21, 2006.
FOR FURTHER INFORMATION CONTACT: Kate Y. Hwa (202) 622-3840 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These temporary regulations are being issued without prior notice
and public procedure pursuant to the Administrative Procedure Act (5
U.S.C. 553). For this reason, the collection of information contained
in these regulations has been reviewed and pending receipt and
evaluation of public comments, approved by the Office of Management and
Budget under control number 1545-2020. Responses to this collection of
information are mandatory.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number assigned by the Office of
Management and Budget.
For further information concerning this collection of information,
and where to submit comments on the collection of information and the
accuracy of the estimated burden, and suggestions for reducing this
burden, please refer to the preamble to the cross-referencing notice of
proposed rulemaking published in the Proposed Rules section of this
issue of the Federal Register.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
Section 6038 of the Internal Revenue Code (Code) requires a U.S.
person to furnish, with respect to any foreign business entity which
such person controls, certain information as prescribed by the
Secretary. More specifically, section 6038(a)(1)(D) provides that the
information to be furnished includes information relating to
transactions between the foreign business entity and (i) such U.S.
person, (ii) any corporation or partnership controlled by such U.S.
person, and (iii) any U.S. person owning at the time the transaction
takes place a 10 percent or greater interest in the foreign business
entity.
Section 6038A requires certain foreign-owned domestic corporations
to furnish certain information prescribed by the Secretary. In
particular, section 6038A(a) requires a 25 percent foreign-owned
domestic corporation to furnish information with respect to certain
transactions between such corporation and certain related parties.
Explanation of Provisions
The final regulations are revised to remove and correct obsolete
references to a form and IRS offices. The temporary regulations conform
the current final regulations to specific statutory changes and make
other minor clarifications to those final regulations.
Section 1.6038-2 provides that each U.S. person, with respect to
each foreign corporation such person controls, must furnish the
required information on a Form 5471, ``Information Return of U.S.
Persons with Respect to Certain Foreign Corporations'', (or, in the
case of taxable years that ended before December 31, 1982, on a Form
2952, ``Information Return with Respect to Foreign Controlled
Corporations''). Section 1.6038-2(f) sets forth the information that
must be provided on the applicable form. The information that must be
reported includes a summary showing the total amount of each of the
types of transactions of the corporation specified in Sec. 1.6038-
2(f)(11). In some cases, Sec. 1.6038-2(f)(11) requires reporting of
sales and purchases of items. See Sec. 1.6038-2(f)(11)(i) (stock in
trade) and (iii) (certain intangibles). In other cases, it requires
reporting only of purchases. See Sec. 1.6038-2(f)(11)(ii) (tangible
property other than stock in trade). The temporary regulations modify
the rules of the final regulations to include the reporting of sales
and purchases, instead of just purchases, of tangible property. The
temporary regulations also modify the current rules to include the
reporting of premiums paid, instead of just premiums received, for
insurance or reinsurance. This consistent treatment of sales and
purchases, and premiums paid and received, more fully implements the
purpose of section 6038. It also conforms the rules in Sec. 1.6038-2
to analogous reporting rules. See Sec. 1.6038A-2(b)(3)(ii) (reporting
requirements for foreign-owned domestic corporations).
It has come to the IRS' attention that some foreign corporations
that use an accrual method of accounting may not be properly reporting
the transactions described in Sec. 1.6038-2(f)(11). Accordingly, Sec.
1.6038-2T(f)(12) modifies the rules of the final
[[Page 35525]]
regulations to clarify that foreign corporations that use an accrual
method of accounting must report the summary of the total amount of the
transactions described in Sec. 1.6038-2T(f)(11) on an accrual basis.
To maintain conformity, Sec. 1.6038A-2(b)(8), which provides a similar
rule for foreign-owned domestic corporations, has been similarly
clarified.
Section 6038(b)(1), as amended by the TRA `97, provides for a
$10,000 penalty for failure to furnish the required information within
the time prescribed under section 6038(a)(2). Section 6038(b)(2), as
amended by the TRA `97, also provides for additional $10,000 penalties
(not to exceed a total of $50,000) when there is a continuing failure
to furnish the required information. Section 1.6038-2(k)(1) sets forth
the dollar amounts of the penalty for failure to furnish the
information required under section 6038. To conform to the statutory
change made by the TRA `97, Sec. 1.6038-2(k)(1) has been amended to
reflect the increased penalty amounts.
Section 6038(c)(4)(B) and Sec. 1.6038-2(k)(3) provide a reasonable
cause exception for failure to furnish the information required under
section 6038. Some questions have arisen regarding how one determines,
after reasonable cause has been established, the time prescribed for
furnishing the information under Sec. 1.6038-2(i) (time and place for
filing return) and the 90-day period described in Sec. 1.6038-
2(k)(1)(ii) (increase in penalty for continued failure after
notification) and Sec. 1.6038-2(k)(2)(iv)(A) (reduction of foreign tax
credit for continued failure after notice). Two examples have been
added in Sec. 1.6038-2T(k)(5) to illustrate the determination, after
reasonable cause has been established under Sec. 1.6038-2(k)(3)(i), of
the time for filing the Form 5471, and the beginning of the 90-day
period.
The temporary regulations also modify the rules of the final
regulations to include transactions between the foreign corporation and
controlled partnerships, implementing a change made by section 1142 of
the TRA `97.
Section 1.6038-2 of the regulations has been updated to remove
references to obsolete Form 2952 and to reflect that the Director of
Field Operations has replaced the district director and the Field
Director has replaced the director of the service center.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It has also been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations. For the
applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6),
refer to the Special Analyses section of the preamble to the cross-
reference notice of proposed ruling making published in the Proposed
Rules section in this issue of the Federal Register. Pursuant to
section 7805(f) of the Code, these final and temporary regulations will
be submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.
Drafting Information
The principal author of these regulations is Kate Y. Hwa, Office of
the Associate Chief Counsel (International). However, other personnel
from the IRS and Treasury Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Amendments to the Regulations
0
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 * * *
Sec. 1.6038-2 [Amended]
0
Par. 2. Section 1.6038-2 is amended as follows:
0
1. Paragraph (f) introductory text is amended by removing the language
``Form 2952 or'' in the first sentence.
0
2. Paragraph (f)(11) and (k)(1) are revised.
0
3. Paragraph (f)(12) and (m) are added.
0
4. Paragraph (i) is amended by removing the language ``Form 2952 or''
in the first sentence, the second sentence, and the last sentence.
0
5. Paragraph (i) is also amended by removing the language ``District
directors and directors of service centers'' and adding the language
``Directors of Field Operations and Field Directors'' in its place in
the second sentence.
0
6. Paragraph (k)(2)(iv) is amended by removing the language ``district
director'' and adding the language ``Director of Field Operations'' in
its place in the first sentence.
0
7. Paragraph (k)(3)(i) is amended by removing the language ``district
director'' and adding the language ``Director of Field Operations'' in
its place in the first sentence.
The revisions and additions read as follows:
Sec. 1.6038-2 Information returns required of United States persons
with respect to annual accounting periods of certain foreign
corporations beginning after December 31, 1962.
* * * * *
(f) * * *
(11) [Reserved]. For further guidance, see Sec. 1.6038-2T(f)(11).
(12) [Reserved]. For further guidance, see Sec. 1.6038-2T(f)(12).
* * * * *
(k) * * *
(1) [Reserved]. For further guidance, see Sec. 1.6038-2T(k)(1).
* * * * *
(m) [Reserved]. For further guidance, see Sec. 1.6038-2T(m)
* * * * *
0
Par. 3 Section 1.6038-2T is amended by revising paragraphs (e) through
(m) to read as follows:
Sec. 1.6038-2T Information returns required of United States persons
with respect to annual accounting periods of certain foreign
corporations (temporary).
* * * * *
(e) through (f)(10) [Reserved]. For further guidance, see Sec.
1.6038-2(e) through (f)(10).
(f)(11) Transactions with certain related parties. (i) A summary
showing the total amount of each of the following types of transactions
of the corporation, which took place during the annual accounting
period, with the person required to file this return, any other
corporation or partnership controlled by that person, or any United
States person owning at the time of the transaction 10 percent or more
in value of any class of stock outstanding of the foreign corporation,
or of any corporation controlling that foreign corporation--
(A) Sales and purchases of stock in trade;
(B) Sales and purchases of tangible property other than stock in
trade;
(C) Sales and purchases of patents, inventions, models, or designs
(whether or not patented), copyrights, trademarks, secret formulas or
processes, or any other similar property rights;
(D) Compensation paid and compensation received for the rendition
of technical, managerial, engineering, construction, scientific, or
like services;
[[Page 35526]]
(E) Commissions paid and commissions received;
(F) Rents and royalties paid and rents and royalties received;
(G) Amounts loaned and amounts borrowed (except open accounts
resulting from sales and purchases reported under other items listed in
this paragraph (f)(11) that arise and are collected in full in the
ordinary course of business);
(H) Dividends paid and dividends received;
(I) Interest paid and interest received; and
(J) Premiums paid and premiums received for insurance or
reinsurance.
(ii) Special rule for banks. For purposes of this paragraph
(f)(11), if the United States person is a bank, as defined in section
581, or is controlled within the meaning of section 368(c) by a bank,
the term transactions shall not, as to a corporation with respect to
which a return is filed, include banking transactions entered into on
behalf of customers; in any event, however, deposits in accounts
between a foreign corporation, controlled (within the meaning of
paragraph (b) of this section) by a United States person, and a person
described in this paragraph (f)(11) and withdrawals from such accounts
shall be summarized by reporting end-of-month balances.
(12) Accrued payments and receipts. For purposes of the required
summary under paragraph (f)(11) of this section, a corporation that
uses an accrual method of accounting shall use accrued payments and
accrued receipts for purposes of computing the total amount of each of
the types of transactions listed.
(g) through (j)(3) [Reserved]. For further guidance, see Sec.
1.6038-2(g) through (j)(3).
(k) Failure to furnish information--(1) Dollar amount penalty--(i)
In general. If any person required to file Form 5471 under section 6038
and this section fails to furnish any information described in
paragraphs (f) and (g) of this section within the time prescribed by
paragraph (i) of this section, such person shall pay a penalty of
$10,000 for each annual accounting period of each foreign corporation
with respect to which such failure occurs.
(ii) Increase in penalty for continued failure after notification.
If a failure described in paragraph (k)(1)(i) of this section continues
for more than 90 days after the date on which the Director of Field
Operations mails notice of such failure to the person required to file
Form 5471, such person shall pay a penalty of $10,000, in addition to
the penalty imposed by section 6038(b)(1) and paragraph (k)(1)(i) of
this section, for each 30-day period (or a fraction of) during which
such failure continues after such 90-day period has expired. The
additional penalty imposed by section 6038(b)(2) and this paragraph
(k)(1)(ii) shall be limited to a maximum of $50,000 for each failure.
(k)(2) through (k)(4) [Reserved]. For further guidance, see Sec.
1.6038-2(k)(2) through (k)(4).
(k)(5) Illustrations. [Reserved]. For further guidance, see Sec.
1.6038-2(k)(5).
Example 1 and 2. [Reserved]. For further guidance, see Sec.
1.6038-2(k)(5) Examples 1 and 2.
Example 3. A, a U.S. person, owns 100 percent of the stock of
FC. On April 15, 2008, A timely filed its 2007 income tax return but
did not file Form 5471 with respect to FC's 2007 annual accounting
period. On June 1, 2008, the Director of Field Operations mailed a
notice to A of A's failure to file Form 5471 for 2007 with respect
to FC. On August 1, 2008, A submits a written statement asserting
facts for reasonable cause for failure to file the 2007 Form 5471
for FC. Based on A's statement and discussions with A, the Director
of Field Operations agrees that A had reasonable cause for failure
to file FC's 2007 Form 5471 and determined that it is reasonable for
A to file FC's 2007 Form 5471 by September 15, 2008. The time
prescribed for furnishing information under paragraph (i) of this
section is September 15, 2008, and the 90-day period described under
paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this section begins on
that same date. Thus, if A files a completed Form 5471 by September
15, 2008, A is not subject to the penalties under paragraphs (k)(1)
and (k)(2) of this section. If A does not file a completed Form 5471
by December 14, 2008, in addition to the penalties under paragraphs
(k)(1) and (k)(2) of this section, A will also be subject to the
penalties for continued failure under paragraphs (k)(1)(ii) and
(k)(2)(iv)(A) of this section.
Example 4. The facts are the same as in Example 3 except A
submits the written statement to the Director before a notice of
failure to furnish information is mailed to A. The notice is mailed
to A on September 7, 2008. Under these facts, the time prescribed
for furnishing information under paragraph (i) of this section is
September 15, 2008, and the 90-day period after mailing of notice of
failure under paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this
section begins on that same date.
(l) through (l)(2) [Reserved]. For further guidance, see Sec.
1.6038-(2)(l) through (l)(2).
(m) Effective dates. (1) Except as otherwise provided, this section
applies with respect to information for annual accounting periods
beginning on or after June 21, 2006. Paragraph (d) of this section
applies to taxable years ending after October 22, 2004. Paragraphs
(k)(1) and (k)(5), Examples 3 and 4, of this section apply June 21,
2006.
(2) The applicability of paragraphs (f)(11), (f)(12), (k)(1), and
(k)(5), Examples 3 and 4, of this section will expire on or before June
22, 2009.
0
Par. 4. Section 1.6038A-2 is amended by revising paragraph (b)(8) to
read as follows:
Sec. 1.6038A-2 Requirement of return.
* * * * *
(b) * * *
(8) [Reserved]. For further guidance, see Sec. 1.6038A-2T(b)(8).
* * * * *
0
Par. 5. Section 1.6038A-2T is amended by adding paragraphs (b)(8) and
(h) to read as follows:
Sec. 1.6038A-2T Requirement of return (temporary).
* * * * *
(b)(8) Accrued payments and receipts. For purposes of this section,
a reporting corporation that uses an accrual method of accounting shall
use accrued payments and accrued receipts for purposes of computing the
total amount of each of the types of transactions listed in this
section.
* * * * *
(h) Effective date. (1) Except as otherwise provided, for effective
dates for this section for certain reporting corporations, see Sec.
1.6038A-1(n). Paragraph (b)(8) of this section applies with respect to
information for annual accounting periods beginning on or after June
21, 2006.
(2) The applicability of paragraph (b)(8) of this section will
expire on or before June 22, 2009.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 6. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 7. Section 602.101(b) is amended by adding an entry to the table
in numerical order to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(b) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.6038-2................................................ 1545-2020
* * * * *
------------------------------------------------------------------------
[[Page 35527]]
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
Approved: June 13, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E6-9612 Filed 6-20-06; 8:45 am]
BILLING CODE 4830-01-P
