Guidance on Passive Foreign Investment Company (PFIC) Purging Elections, 54820-54825 [E7-18988]
Download as PDF
54820
Federal Register / Vol. 72, No. 187 / Thursday, September 27, 2007 / Rules and Regulations
PART 157—APPLICATIONS FOR
CERTIFICATES OF PUBLIC
CONVENIENCE AND NECESSITY AND
FOR ORDERS PERMITTING AND
APPROVING ABANDONMENT UNDER
SECTION 7 OF THE NATURAL GAS
ACT
1. The authority citation for part 157
continues to read as follows:
I
Authority: 15 U.S.C. 717–717w.
2. In § 157.216, paragraphs (a)(2),
(b)(2), (c)(1), and (d)(1) are revised to
read as follows:
I
§ 157.216
Abandonment.
(a) * * *
(2) A facility that did or could now
qualify for automatic authorization as
described in § 157.203(b), provided the
certificate holder obtains the written
consent of each customer served using
the facility during the past 12 months.
(b) * * *
(2) Any other facility that did or could
now qualify for prior notice
authorization as described in
§ 157.203(c), provided the certificate
holder obtains the written consent of
each customer served using the facility
during the past 12 months.
(c) * * *
(1) The location, type, size, and length
of the subject facilities. For facilities not
constructed or acquired under blanket
certificate authority, an estimate of the
current cost to replicate such facilities;
*
*
*
*
*
(d) * * *
(1) A description of the facilities
abandoned under this section. For
facilities not constructed or acquired
under blanket certificate authority, an
estimate of the current cost to replicate
such facilities;
*
*
*
*
*
SUMMARY: This document contains final
regulations that provide certain
elections for taxpayers that continue to
be subject to the PFIC excess
distribution regime of section 1291 of
the Internal Revenue Code even though
the foreign corporation in which they
own stock is no longer treated as a PFIC
under section 1297(a) or (e) of the Code.
The regulations are necessary to provide
guidance about purging the PFIC taint
for such foreign corporations. The
regulations will affect U.S. persons that
hold stock in a PFIC.
DATES: Effective Date: These regulations
are effective on September 27, 2007.
Applicability Date: For dates of
applicability, see §§ 1.1291–9(k),
1.1297–3(f), 1.1298–3(f).
FOR FURTHER INFORMATION CONTACT: Paul
J. Carlino at (202) 622–3840 (not a tollfree number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
Internal Revenue Service
The collection of information
contained in these final 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–
1965.
The collection of information in these
final regulations is in § 1.1297–
3(c)(5)(ii). This information is required
to enable the IRS to verify that a
taxpayer is reporting the correct amount
of income or gain or is claiming the
correct amount of losses, deductions or
credits from that taxpayer’s interest in
the foreign corporation.
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.
Books or records relating to a
collection of information must be
retained as long as their contents might
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
26 CFR Parts 1 and 602
Background
[TD 9360]
On December 8, 2005, the IRS and the
Treasury Department published final
regulations under section 1298(b)(1) and
removal of temporary regulations (TD
9231) in the Federal Register (70 FR
72914). The final regulations provided
rules for a shareholder of a former PFIC
(as defined in § 1.1291–9(j)(2)(iv)) to
make a deemed dividend or deemed
sale election to purge the PFIC taint of
the stock of the foreign corporation (that
is, to end treatment of the stock of the
[FR Doc. E7–18904 Filed 9–26–07; 8:45 am]
BILLING CODE 6717–01–P
DEPARTMENT OF THE TREASURY
mstockstill on PROD1PC66 with RULES
RIN 1545–BC37
Guidance on Passive Foreign
Investment Company (PFIC) Purging
Elections
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
the temporary regulations.
AGENCY:
VerDate Aug<31>2005
17:45 Sep 26, 2007
Jkt 211001
PO 00000
Frm 00008
Fmt 4700
Sfmt 4700
foreign corporation as PFIC stock with
respect to the shareholder). On
December 8, 2005, the Internal Revenue
Service and the Treasury Department
also published temporary regulations
(TD 9232) under sections 1291(d)(2),
1297(e) and 1298(b)(1) in the Federal
Register (70 FR 72908). A notice of
proposed rulemaking (REG–133446–03)
cross-referencing the temporary
regulations was published in the
Federal Register for the same day (70
FR 72952). The temporary and proposed
regulations provided guidance to
shareholders of section 1297(e) PFICs
(as defined in § 1.1291–9(j)(2)(v)) on
making a deemed sale or deemed
dividend election to purge the PFIC
taint of the stock of the foreign
corporation. The temporary and
proposed regulations also provided
guidance to shareholders of section
1297(e) PFICs and shareholders of
former PFICs on making late purging
elections (provided certain requirements
are met).
No public hearing was requested or
held. A comment responding to the
notice of proposed rulemaking was
received. After consideration of the
comment, the proposed regulations are
adopted as amended by this Treasury
decision, and the corresponding
temporary regulations are removed. The
comment and revision is discussed in
this preamble.
Summary of Comments and
Explanation of Revisions
1. Multiple Purging Elections
Sections 1.1297–3 and 1.1298–3
provide guidance for a shareholder of a
section 1297(e) PFIC and a shareholder
of a former PFIC, respectively, to make
a deemed sale or a deemed dividend
election to purge the PFIC taint of the
stock of the foreign corporation. A
section 1297(e) PFIC is a foreign
corporation that qualifies as a PFIC
under section 1297(a) on the first day of
the qualified portion of the
shareholder’s holding period under
section 1297(e), and is treated as a PFIC
with respect to the shareholder under
section 1298(b)(1) because at any time
during the shareholder’s holding period
of the stock, other than the qualified
portion, the foreign corporation was a
PFIC that was not a qualified electing
fund (QEF) under section 1295. (The
‘‘qualified portion’’ is the portion of the
shareholder’s holding period which is
after December 31, 1997, and during
which the shareholder is a U.S.
shareholder (as defined in section
951(b)) and the foreign corporation is a
controlled foreign corporation.) A
former PFIC is a foreign corporation that
E:\FR\FM\27SER1.SGM
27SER1
Federal Register / Vol. 72, No. 187 / Thursday, September 27, 2007 / Rules and Regulations
satisfies neither the income nor the asset
test of section 1297(a), but whose stock
held by a shareholder is treated as stock
of a PFIC, pursuant to section
1298(b)(1), because the corporation was
a PFIC that was not a QEF at some time
during the shareholder’s holding period
of the stock.
Sections 1.1297–3(e) and 1.1298–3(e)
provide rules for making late purging
elections when the time prescribed for
making timely purging elections under
§§ 1.1297–3(b)(3) or (c)(4) and 1.1298–
3(b)(3) or (c)(4) has elapsed.
One commentator requested that the
final regulations clarify whether
multiple late purging elections can be
made under §§ 1.1297–3(e) and 1.1298–
3(e). The IRS and the Treasury
Department believe that multiple late
purging elections should be allowed to
the same extent such multiple purging
elections could have been made if filed
timely. The final regulations are
amended to clarify this rule.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are 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 * * *
Par. 2. Section 1.1291–9 is amended
by revising paragraphs (i), (j)(2)(v) and
(k) to read as follows:
I
§ 1.1291–9
Deemed dividend election.
The principal author of these
regulations is Paul J. Carlino of the
Office of Associate Chief Counsel
(International). However, other
personnel from the IRS and Treasury
Department participated in their
development.
*
*
*
*
(i) Election inapplicable to
shareholder of a former PFIC or of a
section 1297(e) PFIC. A shareholder may
not make the section 1295 and deemed
dividend elections if the foreign
corporation is a former PFIC (as defined
in paragraph (j)(2)(iv) of this section) or
a section 1297(e) PFIC (as defined in
paragraph (j)(2)(v) of this section) with
respect to the shareholder. For the rules
regarding the election by a shareholder
of a former PFIC, see § 1.1298–3. For the
rules regarding the election by a
shareholder of a section 1297(e) PFIC,
see § 1.1297–3.
(j) * * *
(2) * * *
(v) Section 1297(e) PFIC. A foreign
corporation is a section 1297(e) PFIC
with respect to a shareholder (as defined
in paragraph (j)(3) of this section) if—
(A) The foreign corporation qualifies
as a PFIC under section 1297(a) on the
first day on which the qualified portion
of the shareholder’s holding period in
the foreign corporation begins, as
determined under section 1297(e)(2);
and
(B) The stock of the foreign
corporation held by the shareholder is
treated as stock of a PFIC, pursuant to
section 1298(b)(1), because, at any time
during the shareholder’s holding period
of the stock, other than the qualified
portion, the corporation was a PFIC that
was not a QEF.
(k) Effective/applicability date. (1)
The rules of this section, except for
paragraph (j)(2)(v) of this section, are
applicable as of April 1, 1995.
(2) The rules of paragraph (j)(2)(v) of
this section are applicable as of
December 8, 2005.
List of Subjects
§ 1.1291–9T
26 CFR Part 1
I
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
is hereby certified that these regulations
will not have a significant economic
impact on a substantial number of small
entities. This certification is based upon
the fact that these regulations affect only
U.S. persons with stock ownership in a
PFIC. There are not a substantial
number of U.S. persons that are small
entities that own stock in a PFIC.
Further, the economic costs necessary to
comply with the rule for the small
entities that may be impacted are not
significant. Therefore, a Regulatory
Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) is not required. Pursuant to
section 7805(f) of the Code, the notice
of proposed rulemaking preceding this
final regulation was submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business.
Drafting Information
mstockstill on PROD1PC66 with RULES
26 CFR Part 602
Reporting and recordkeeping
requirements.
Income taxes, Reporting and
recordkeeping requirements.
VerDate Aug<31>2005
17:45 Sep 26, 2007
Jkt 211001
*
[Removed]
Par. 3. Section 1.1291–9T is removed.
I Par. 4. Section 1.1297–0 is revised to
read as follows:
PO 00000
Frm 00009
Fmt 4700
Sfmt 4700
§ 1.1297–0
54821
Table of contents.
This section contains a listing of the
headings for § 1.1297–3.
§ 1.1297–3 Deemed sale or deemed
dividend election by a U.S. person that
is a shareholder of a section 1297(e)
PFIC.
(a) In general.
(b) Application of deemed sale election
rules.
(1) Eligibility to make the deemed sale
election.
(2) Effect of the deemed sale election.
(3) Time for making the deemed sale
election.
(4) Manner of making the deemed sale
election.
(5) Adjustments to basis.
(6) Treatment of holding period.
(c) Application of deemed dividend
election rules.
(1) Eligibility to make the deemed dividend
election.
(2) Effect of the deemed dividend election.
(3) Post-1986 earnings and profits defined.
(4) Time for making the deemed dividend
election.
(5) Manner of making the deemed dividend
election.
(6) Adjustments to basis.
(7) Treatment of holding period.
(8) Coordination with section 959(e).
(d) CFC qualification date.
(e) Late purging elections requiring special
consent.
(1) In general.
(2) Prejudice to the interests of the U.S.
government.
(3) Procedural requirements.
(4) Time and manner of making late
election.
(5) Multiple late elections.
(f) Effective/applicability date.
§ 1.1297–0T
[Removed]
Par. 5. Section 1.1297–0T is removed.
I Par. 6. Section 1.1297–3 is added to
read as follows:
I
§ 1.1297–3 Deemed sale or deemed
dividend election by a U.S. person that is
a shareholder of a section 1297(e) PFIC.
(a) In general. A shareholder (as
defined in § 1.1291–9(j)(3)) of a foreign
corporation that is a section 1297(e)
passive foreign investment company
(PFIC) (as defined in § 1.1291–9(j)(2)(v))
with respect to such shareholder, shall
be treated for tax purposes as holding
stock in a PFIC and therefore continues
to be subject to taxation under section
1291 unless the shareholder makes a
purging election under section
1298(b)(1). A purging election under
section 1298(b)(1) is made under rules
similar to the rules of section 1291(d)(2).
Section 1291(d)(2) allows a shareholder
to purge the continuing PFIC taint by
either making a deemed sale election or
a deemed dividend election.
(b) Application of deemed sale
election rules—(1) Eligibility to make
the deemed sale election. A shareholder
E:\FR\FM\27SER1.SGM
27SER1
mstockstill on PROD1PC66 with RULES
54822
Federal Register / Vol. 72, No. 187 / Thursday, September 27, 2007 / Rules and Regulations
of a foreign corporation that is a section
1297(e) PFIC with respect to such
shareholder may make a deemed sale
election under section 1298(b)(1) by
applying the rules of this paragraph (b).
(2) Effect of the deemed sale election.
A shareholder making the deemed sale
election with respect to a section
1297(e) PFIC shall be treated as having
sold all of its stock in the section
1297(e) PFIC for its fair market value on
the controlled foreign corporation (CFC)
qualification date, as defined in
paragraph (d) of this section. A deemed
sale under this section is treated as a
disposition subject to taxation under
section 1291. Thus, the gain from the
deemed sale is taxed as an excess
distribution received on the CFC
qualification date. In the case of an
election made by an indirect
shareholder, the amount of gain to be
recognized and taxed as an excess
distribution is the amount of gain that
the direct owner of the stock of the PFIC
would have realized on an actual sale or
disposition of the stock of the PFIC
indirectly owned by the shareholder.
Any loss realized on the deemed sale is
not recognized. After the deemed sale
election, the shareholder’s stock with
respect to which the election was made
under this paragraph (b) shall not be
treated as stock in a PFIC and the
shareholder shall not be subject to
taxation under section 1291 with
respect to such stock unless the
qualified portion of the shareholder’s
holding period ends, as determined
under section 1297(e)(2), and the foreign
corporation thereafter qualifies as a
PFIC under section 1297(a).
(3) Time for making the deemed sale
election. Except as provided in
paragraph (e) of this section, a
shareholder shall make the deemed sale
election under this paragraph (b) and
section 1298(b)(1) in the shareholder’s
original or amended return for the
taxable year that includes the CFC
qualification date (election year). If the
deemed sale election is made in an
amended return, the return must be
filed by a date that is within three years
of the due date, as extended under
section 6081, of the original return for
the election year.
(4) Manner of making the deemed sale
election. A shareholder makes the
deemed sale election under this
paragraph (b) by filing Form 8621,
‘‘Return by a Shareholder of a Passive
Foreign Investment Company or
Qualified Electing Fund’’, with the
return of the shareholder for the election
year, reporting the gain as an excess
distribution pursuant to section 1291(a)
as if such sale occurred under section
1291(d)(2), and paying the tax and
VerDate Aug<31>2005
17:45 Sep 26, 2007
Jkt 211001
interest due on the excess distribution.
A shareholder that makes the deemed
sale election after the due date of the
return (determined without regard to
extensions) for the election year must
pay additional interest, pursuant to
section 6601, on the amount of
underpayment of tax for that year. An
electing shareholder that realizes a loss
shall report the loss on Form 8621, but
shall not recognize the loss.
(5) Adjustments to basis. A
shareholder that makes the deemed sale
election increases its adjusted basis of
the PFIC stock owned directly by the
amount of gain recognized on the
deemed sale. If the shareholder makes
the deemed sale election with respect to
a PFIC of which it is an indirect
shareholder, the shareholder’s adjusted
basis of the stock or other property
owned directly by the shareholder,
through which ownership of the PFIC is
attributed to the shareholder, is
increased by the amount of gain
recognized by the shareholder. In
addition, solely for purposes of
determining the subsequent treatment
under the Internal Revenue Code (Code)
and regulations of a shareholder of the
stock of the PFIC, the adjusted basis of
the direct owner of the stock of the PFIC
is increased by the amount of gain
recognized on the deemed sale. A
shareholder shall not adjust the basis of
any stock with respect to which the
shareholder realized a loss on the
deemed sale, which loss is not
recognized under paragraph (b)(2) of
this section.
(6) Treatment of holding period. If a
shareholder of a foreign corporation has
made a deemed sale election, then, for
purposes of applying sections 1291
through 1298 to such shareholder after
the deemed sale, the shareholder’s
holding period in the stock of the
foreign corporation begins on the CFC
qualification date, without regard to
whether the shareholder recognized
gain on the deemed sale. For other
purposes of the Code and regulations,
this holding period rule does not apply.
(c) Application of deemed dividend
election rules—(1) Eligibility to make
the deemed dividend election. A
shareholder of a foreign corporation that
is a section 1297(e) PFIC with respect to
such shareholder may make the deemed
dividend election under the rules of this
paragraph (c). A deemed dividend
election may be made by a shareholder
whose pro rata share of the post-1986
earnings and profits of the PFIC
attributable to the PFIC stock held on
the CFC qualification date is zero.
(2) Effect of the deemed dividend
election. A shareholder making the
deemed dividend election with respect
PO 00000
Frm 00010
Fmt 4700
Sfmt 4700
to a section 1297(e) PFIC shall include
in income as a dividend its pro rata
share of the post-1986 earnings and
profits of the PFIC attributable to all of
the stock it held, directly or indirectly
on the CFC qualification date, as
defined in paragraph (d) of this section.
The deemed dividend is taxed under
section 1291 as an excess distribution
received on the CFC qualification date.
The excess distribution determined
under this paragraph (c) is allocated
under section 1291(a)(1)(A) only to each
day of the shareholder’s holding period
of the stock during which the foreign
corporation qualified as a PFIC. For
purposes of the preceding sentence, the
shareholder’s holding period of the PFIC
stock ends on the day before the CFC
qualification date. After the deemed
dividend election, the shareholder’s
stock with respect to which the election
was made under this paragraph (c) shall
not be treated as stock in a PFIC and the
shareholder shall not be subject to
taxation under section 1291 with
respect to such stock unless the
qualified portion of the shareholder’s
holding period ends, as determined
under section 1297(e)(2), and the foreign
corporation thereafter qualifies as a
PFIC under section 1297(a).
(3) Post-1986 earnings and profits
defined—(i) In general—(A) General
rule. For purposes of this section, the
term post-1986 earnings and profits
means the post-1986 undistributed
earnings, within the meaning of section
902(c)(1) (determined without regard to
section 902(c)(3)), as of the day before
the CFC qualification date, that were
accumulated and not distributed in
taxable years of the PFIC beginning after
1986 and during which it was a PFIC,
without regard to whether the earnings
related to a period during which the
PFIC was a CFC.
(B) Special rule. If the CFC
qualification date is a day that is after
the first day of the taxable year, the term
post-1986 earnings and profits means
the post-1986 undistributed earnings,
within the meaning of section 902(c)(1)
(determined without regard to section
902(c)(3)), as of the close of the taxable
year that includes the CFC qualification
date. For purposes of this computation,
only earnings and profits accumulated
in taxable years during which the
foreign corporation was a PFIC shall be
taken into account, but without regard
to whether the earnings related to a
period during which the PFIC was a
CFC.
(ii) Pro rata share of post-1986
earnings and profits attributable to
shareholder’s stock—(A) In general. A
shareholder’s pro rata share of the post1986 earnings and profits of the PFIC
E:\FR\FM\27SER1.SGM
27SER1
mstockstill on PROD1PC66 with RULES
Federal Register / Vol. 72, No. 187 / Thursday, September 27, 2007 / Rules and Regulations
attributable to the stock held by the
shareholder on the CFC qualification
date is the amount of post-1986 earnings
and profits of the PFIC accumulated
during any portion of the shareholder’s
holding period ending at the close of the
day before the CFC qualification date
and attributable, under the principles of
section 1248 and the regulations under
that section, to the PFIC stock held on
the CFC qualification date.
(B) Reduction for previously taxed
amounts. A shareholder’s pro rata share
of the post-1986 earnings and profits of
the PFIC does not include any amount
that the shareholder demonstrates to the
satisfaction of the Commissioner (in the
manner provided in paragraph (c)(5)(ii)
of this section) was, pursuant to another
provision of the law, previously
included in the income of the
shareholder, or of another U.S. person if
the shareholder’s holding period of the
PFIC stock includes the period during
which the stock was held by that other
U.S. person.
(4) Time for making the deemed
dividend election. Except as provided in
paragraph (e) of this section, the
shareholder shall make the deemed
dividend election under this paragraph
(c) and section 1298(b)(1) in the
shareholder’s original or amended
return for the taxable year that includes
the CFC qualification date (election
year). If the deemed dividend election is
made in an amended return, the return
must be filed by a date that is within
three years of the due date, as extended
under section 6081, of the original
return for the election year.
(5) Manner of making the deemed
dividend election—(i) In general. A
shareholder makes the deemed dividend
election by filing Form 8621 and the
attachment to Form 8621 described in
paragraph (c)(5)(ii) of this section with
the return of the shareholder for the
election year, reporting the deemed
dividend as an excess distribution
pursuant to section 1291(a)(1), and
paying the tax and interest due on the
excess distribution. A shareholder that
makes the deemed dividend election
after the due date of the return
(determined without regard to
extensions) for the election year must
pay additional interest, pursuant to
section 6601, on the amount of
underpayment of tax for that year.
(ii) Attachment to Form 8621. The
shareholder must attach a schedule to
Form 8621 that demonstrates the
calculation of the shareholder’s pro rata
share of the post-1986 earnings and
profits of the PFIC that is treated as
distributed to the shareholder on the
CFC qualification date, pursuant to this
paragraph (c). If the shareholder is
VerDate Aug<31>2005
17:45 Sep 26, 2007
Jkt 211001
claiming an exclusion from its pro rata
share of the post-1986 earnings and
profits for an amount previously
included in its income or the income of
another U.S. person, the shareholder
must include the following information:
(A) The name, address and taxpayer
identification number of each U.S.
person that previously included an
amount in income, the amount
previously included in income by each
such U.S. person, the provision of law,
pursuant to which the amount was
previously included in income, and the
taxable year or years of inclusion of
each amount.
(B) A description of the transaction
pursuant to which the shareholder
acquired, directly or indirectly, the
stock of the PFIC from another U.S.
person, and the provision of law
pursuant to which the shareholder’s
holding period includes the period the
other U.S. person held the CFC stock.
(6) Adjustments to basis. A
shareholder that makes the deemed
dividend election increases its adjusted
basis of the stock of the PFIC owned
directly by the shareholder by the
amount of the deemed dividend. If the
shareholder makes the deemed dividend
election with respect to a PFIC of which
it is an indirect shareholder, the
shareholder’s adjusted basis of the stock
or other property owned directly by the
shareholder, through which ownership
of the PFIC is attributed to the
shareholder, is increased by the amount
of the deemed dividend. In addition,
solely for purposes of determining the
subsequent treatment under the Code
and regulations of a shareholder of the
stock of the PFIC, the adjusted basis of
the direct owner of the stock of the PFIC
is increased by the amount of the
deemed dividend.
(7) Treatment of holding period. If the
shareholder of a foreign corporation has
made a deemed dividend election, then,
for purposes of applying sections 1291
through 1298 to such shareholder after
the deemed dividend, the shareholder’s
holding period of the stock of the
foreign corporation begins on the CFC
qualification date. For other purposes of
the Code and regulations, this holding
period rule does not apply.
(8) Coordination with section 959(e).
For purposes of section 959(e), the
entire deemed dividend is treated as
having been included in gross income
under section 1248(a).
(d) CFC qualification date. For
purposes of this section, the CFC
qualification date is the first day on
which the qualified portion of the
shareholder’s holding period in the
section 1297(e) PFIC begins, as
determined under section 1297(e).
PO 00000
Frm 00011
Fmt 4700
Sfmt 4700
54823
(e) Late purging elections requiring
special consent—(1) In general. This
section prescribes the exclusive rules
under which a shareholder of a section
1297(e) PFIC may make a section
1298(b)(1) election after the time
prescribed in paragraph (b)(3) or (c)(4)
of this section for making a deemed sale
or a deemed dividend election has
elapsed (late purging election).
Therefore, a shareholder may not seek
such relief under any other provisions
of the law, including § 301.9100–3 of
this chapter. A shareholder may request
the consent of the Commissioner to
make a late deemed sale or deemed
dividend election for the taxable year of
the shareholder that includes the CFC
qualification date provided the
shareholder satisfies the requirements
set forth in this paragraph (e). The
Commissioner may, in his discretion,
grant relief under this paragraph (e) only
if—
(i) In a case where the shareholder is
requesting consent under this paragraph
(e) after December 31, 2005, the
shareholder requests such consent
before a representative of the Internal
Revenue Service (IRS) raises upon audit
the PFIC status of the foreign
corporation for any taxable year of the
shareholder;
(ii) The shareholder has agreed in a
closing agreement with the
Commissioner, described in paragraph
(e)(3) of this section, to eliminate any
prejudice to the interests of the U.S.
government, as determined under
paragraph (e)(2) of this section, as a
consequence of the shareholder’s
inability to file amended returns for its
taxable year in which the CFC
qualification date falls or an earlier
closed taxable year in which the
shareholder has taken a position that is
inconsistent with the treatment of the
foreign corporation as a PFIC; and
(iii) The shareholder satisfies the
procedural requirements set forth in
paragraph (e)(3) of this section.
(2) Prejudice to the interests of the
U.S. government. The interests of the
U.S. government are prejudiced if
granting relief would result in the
shareholder having a lower tax liability
(other than by a de minimis amount),
taking into account applicable interest
charges, for the taxable year that
includes the CFC qualification date (or
a prior taxable year in which the
taxpayer took a position on a return that
was inconsistent with the treatment of
the foreign corporation as a PFIC) than
the shareholder would have had if the
shareholder had properly made the
section 1298(b)(1) election in the time
prescribed in paragraph (b)(2) or (c)(3)
of this section (or had not taken a
E:\FR\FM\27SER1.SGM
27SER1
54824
Federal Register / Vol. 72, No. 187 / Thursday, September 27, 2007 / Rules and Regulations
mstockstill on PROD1PC66 with RULES
position in a return for an earlier year
that was inconsistent with the status of
the foreign corporation as a PFIC). The
time value of money is taken into
account for purposes of this
computation.
(3) Procedural requirements—(i) In
general. The amount due with respect to
a late purging election is determined in
the same manner as if the purging
election had been timely filed. However,
the shareholder is also liable for interest
on the amount due, pursuant to section
6601, determined for the period
beginning on the due date (without
extensions) for the taxpayer’s income
tax return for the year in which the CFC
qualification date falls and ending on
the date the late purging election is filed
with the IRS.
(ii) Filing instructions. A late purging
election is made by filing a completed
Form 8621–A, ‘‘Return by a Shareholder
Making Certain Late Elections to End
Treatment as a Passive Foreign
Investment Company.’’
(4) Time and manner of making late
election—(i) Time for making a late
purging election. A shareholder may
make a late purging election in the
manner provided in paragraph (e)(4)(ii)
of this section at any time. The date the
election is filed with the IRS will
determine the amount of interest due
under paragraph (e)(3) of this section.
(ii) Manner of making a late purging
election. A shareholder makes a late
purging election by completing Form
8621–A in the manner required by that
form and this section and filing that
form with the Internal Revenue Service,
DP 8621–A, Ogden, UT 84201.
(5) Multiple late elections—(i) General
rule. A shareholder of a foreign
corporation may make multiple late
purging elections under the rules of this
paragraph (e) or § 1.1298–3(e) to the
same extent such multiple purging
elections could have been made if those
purging elections had been filed within
the time prescribed under paragraph
(b)(3) or (c)(4) of this section or
§ 1.1298–3(b)(3) or (c)(4).
(ii) Example. The rule of this
paragraph (e)(5) is illustrated by the
following example:
Example. (i) In 1991, X, a U.S. person,
acquired a five percent interest in the stock
of FC, a controlled foreign corporation, as
defined in section 957(a). In years 1991,
1992, 1995, 1996 and 1997, FC satisfied
either the income test or the asset test of
section 1297(a). X did not make a QEF
election with regard to FC. In years 1993 and
1994, FC did not satisfy either the income or
the asset test of section 1291(a). In 1998, X
acquired additional stock in FC such that X
was a U.S. shareholder (as defined in section
951(b)) of FC.
VerDate Aug<31>2005
17:45 Sep 26, 2007
Jkt 211001
(ii) Because FC qualified as a PFIC in 1991,
FC will be treated as a PFIC with respect to
all of the stock held by X, under the ‘‘once
a PFIC always a PFIC’’ rule of section
1298(b)(1), unless X makes an election to
purge the PFIC taint. Because X ceased to
satisfy either the income or asset test in 1993,
X could have made an election under
§ 1.1298–3 to purge the PFIC taint of FC for
that year if X had filed such an election
within the time prescribed under § 1.1298–
3(b)(3) or (c)(4). If X had done so, the stock
X held in FC would not be treated as stock
in a PFIC for the years 1993 and 1994.
Because X became a U.S. shareholder of FC
in 1998, X then could have made a deemed
sale or deemed dividend election under this
section to purge the PFIC taint of FC for the
years 1995 through 1997 if X had filed within
the time prescribed under paragraph (b)(3) or
(c)(4) of this section. Accordingly, X may
make a late purging election to purge the
PFIC taint of FC for the years 1991 and 1992
under the rules of § 1.1298–3(e) and may also
make a late purging election to purge the
PFIC taint of FC for the years 1995 through
1997 under the rules of this paragraph (e).
(f) Effective/applicability date. The
rules of this section are applicable as of
December 8, 2005.
§ 1.1297–3T
[Removed]
Par. 7. Section 1.1297–3T is removed.
Par. 8. Section 1.1298–0 is revised to
read as follows:
I
I
§ 1.1298–0
Table of contents.
This section contains a listing of the
paragraph headings for § 1.1298–3.
§ 1.1298–3 Deemed sale or deemed
dividend election by a U.S. person that
is a shareholder of a former PFIC.
(a) In general.
(b) Application of deemed sale election
rules.
(1) Eligibility to make the deemed sale
election.
(2) Effect of the deemed sale election.
(3) Time for making the deemed sale
election.
(4) Manner of making the deemed sale
election.
(5) Adjustments to basis.
(6) Treatment of holding period.
(c) Application of deemed dividend
election rules.
(1) Eligibility to make the deemed dividend
election.
(2) Effect of the deemed dividend election.
(3) Post-1986 earnings and profits defined.
(4) Time for making the deemed dividend
election.
(5) Manner of making the deemed dividend
election.
(6) Adjustments to basis.
(7) Treatment of holding period.
(8) Coordination with section 959(e).
(d) Termination date.
(e) Late purging elections requiring special
consent.
(1) In general.
(2) Prejudice to the interests of the U.S.
government.
(3) Procedural requirements.
PO 00000
Frm 00012
Fmt 4700
Sfmt 4700
(4) Time and manner of making late
election.
(5) Multiple late elections.
(f) Effective/applicability date.
§ 1.1298–0T
[Removed]
Par. 9. Section 1.1298–0T is removed.
I Par. 10. Section 1.1298–3 is amended
by revising paragraphs (e) and (f) to read
as follows:
I
§ 1.1298–3 Deemed sale or deemed
dividend election by a U.S. person that is
a shareholder of a former PFIC.
*
*
*
*
*
(e) Late purging elections requiring
special consent—(1) In general. This
section prescribes the exclusive rules
under which a shareholder of a former
PFIC may make a section 1298(b)(1)
election after the time prescribed in
paragraph (b)(3) or (c)(4) of this section
for making a deemed sale or a deemed
dividend election has elapsed (late
purging election). Therefore, a
shareholder may not seek such relief
under any other provisions of the law,
including § 301.9100–3 of this chapter.
A shareholder may request the consent
of the Commissioner to make a late
purging election for the taxable year of
the shareholder that includes the
termination date provided the
shareholder satisfies the requirements
set forth in this paragraph (e). The
Commissioner may, in his discretion,
grant relief under this paragraph (e) only
if—
(i) In a case where the shareholder is
requesting consent under this paragraph
(e) after December 31, 2005, the
shareholder requests such consent
before a representative of the Internal
Revenue Service raises upon audit the
PFIC status of the foreign corporation
for any taxable year of the shareholder;
(ii) The shareholder has agreed in a
closing agreement with the
Commissioner, described in paragraph
(e)(3) of this section, to eliminate any
prejudice to the interests of the U.S.
government, as determined under
paragraph (e)(2) of this section, as a
consequence of the shareholder’s
inability to file amended returns for its
taxable year in which the termination
date falls or an earlier closed taxable
year in which the shareholder has taken
a position that is inconsistent with the
treatment of the foreign corporation as
a PFIC; and
(iii) The shareholder satisfies the
procedural requirements set forth in
paragraph (e)(3) of this section.
(2) Prejudice to the interests of the
U.S. government. The interests of the
U.S. government are prejudiced if
granting relief would result in the
shareholder having a lower tax liability
E:\FR\FM\27SER1.SGM
27SER1
mstockstill on PROD1PC66 with RULES
Federal Register / Vol. 72, No. 187 / Thursday, September 27, 2007 / Rules and Regulations
(other than by a de minimis amount),
taking into account applicable interest
charges, for the taxable year that
includes the termination date (or a prior
taxable year in which the taxpayer took
a position on a return that was
inconsistent with the treatment of the
foreign corporation as a PFIC) than the
shareholder would have had if the
shareholder had properly made the
section 1298(b)(1) election in the time
prescribed in paragraph (b)(2) or (c)(3)
of this section (or had not taken a
position in a return for an earlier year
that was inconsistent with the status of
the foreign corporation as a PFIC). The
time value of money is taken into
account for purposes of this
computation.
(3) Procedural requirements—(i) In
general. The amount due with respect to
a late purging election is determined in
the same manner as if the purging
election had been timely filed. However,
the shareholder is also liable for interest
on the amount due, pursuant to section
6601, determined for the period
beginning on the due date (without
extensions) for the taxpayer’s income
tax return for the year in which the
termination date falls and ending on the
date the late purging election is filed
with the IRS.
(ii) Filing instructions. A late purging
election is made by filing a completed
Form 8621–A, ‘‘Return by a Shareholder
Making Certain Late Elections to End
Treatment as a Passive Foreign
Investment Company.’’
(4) Time and manner of making late
election—(i) Time for making a late
purging election. A shareholder may
make a late purging election in the
manner provided in paragraph (e)(4)(ii)
of this section at any time. The date the
election is filed with the IRS will
determine the amount of interest due
under paragraph (e)(3) of this section.
(ii) Manner of making a late purging
election. A shareholder makes a late
purging election by completing Form
8621–A in the manner required by that
form and this section and filing that
form with the Internal Revenue Service,
DP 8621–A, Ogden, UT 84201.
(5) Multiple late elections. For rules
regarding the circumstances under
which a shareholder of a foreign
corporation may make multiple late
purging elections under this paragraph
(e) or § 1.1297–3(e), see § 1.1297–3(e)(5).
(f) Effective/applicability date. The
rules of this section are applicable as of
December 8, 2005.
§ 1.1298–3T
[Removed]
Par. 11. Section 1.1298–3T is
removed.
I
VerDate Aug<31>2005
17:45 Sep 26, 2007
Jkt 211001
PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 12. The authority citation of part
602 continues to read as follows:
I
Authority: 26 U.S.C. 7805.
Par. 13. In § 602.101, paragraph (b) is
amended by removing the entry for
‘‘1.1297–3T’’ from the table.
I
Kevin M. Brown,
Deputy Commissioner for Services and
Enforcement.
Approved: September 17, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. E7–18988 Filed 9–26–07; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF JUSTICE
Drug Enforcement Administration
54825
exemption claimed from subsection
(e)(3), found at (h)(6). The revised
justification more specifically addresses
the Privacy Act’s notice requirement of
subsection (e)(3) and, therefore
increases the accuracy and clarity of the
final rule.
This rule relates to individuals rather
than to small business entities.
Nevertheless, pursuant to the
requirements of the Regulatory
Flexibility Act, 5 U.S.C. 601–612, this
rule will not have a significant
economic impact on a substantial
number of small entities.
List of Subjects in 28 CFR Part 16
Administrative Practices and
Procedure, Freedom of Information Act,
Government in the Sunshine Act, and
Privacy Act.
I Pursuant to the authority vested in the
Attorney General by 5 U.S.C. 552a and
delegated to me by Attorney General
Order No. 793–78, 28 CFR part 16 is
amended as follows:
[AAG/A Order No. 032–2007]
PART 16—PRODUCTION OR
DISCLOSURE OF MATERIAL OR
INFORMATION
Privacy Act of 1974: Implementation
I
Drug Enforcement
Administration, DOJ.
ACTION: Final rule.
Authority: 5 U.S.C. 301, 552, 552a, 552b(g)
and 553; 18 U.S.C. 4203(a)(1); 28 U.S.C. 509,
510, 534; 31 U.S.C. 3717 and 9701.
28 CFR PART 16
AGENCY:
SUMMARY: The Department of Justice
(DOJ), Drug Enforcement
Administration (DEA), is exempting a
Privacy Act system of records from the
following subsections of the Privacy
Act: (c)(3) and (4), (d)(1), (2), (3), and
(4); (e)(1), (2), (3), (5), and (8); and (g),
pursuant to 5 U.S.C. 552a (j) and (k).
The Privacy Act system of records is the
‘‘El Paso Intelligence Center (EPIC)
Seizure System, (JUSTICE/DEA–022).’’
The exemptions are necessary to
prevent the compromise of ongoing
investigative efforts, to help ensure the
integrity of law enforcement and
investigatory information, to ensure
third party privacy, and to protect the
physical safety of sources of information
and law enforcement personnel.
DATES: Effective Date: This final rule is
effective September 27, 2007.
FOR FURTHER INFORMATION CONTACT: Joo
Chung, Counsel, Privacy and Civil
Liberties Office, 202–514–4921.
SUPPLEMENTARY INFORMATION: On June
26, 2006 (71 FR 36294), a proposed rule
was published in the Federal Register
with an invitation to comment. No
comments were received. This final rule
contains corrections to typographic
errors appearing in the proposed rule
and a revised justification for the
PO 00000
Frm 00013
Fmt 4700
Sfmt 4700
1. The authority citation for part 16
continues to read as follows:
2. Section 16.98 is amended by adding
paragraphs (g) and (h) to read as follows:
I
§ 16.98 Exemption of Drug Enforcement
Administration Systems—limited access.
*
*
*
*
*
(g) The following system of records is
exempt from 5 U.S.C. 552a (c)(3) and
(4); (d)(1), (2), (3), and (4); (e)(1), (2), (3),
(5), and (8); and (g): El Paso Intelligence
Center (EPIC) Seizure System (ESS)
(JUSTICE/DEA–022). These exemptions
apply only to the extent that
information in this system is subject to
exemption pursuant to 5 U.S.C. 552a
(j)(2), (k)(1), and (k)(2). Where
compliance would not appear to
interfere with or adversely affect the law
enforcement and counter-drug purposes
of this system, and the overall law
enforcement process, the applicable
exemption may be waived by the DEA
in its sole discretion.
(h) Exemptions from the particular
subsections are justified for the
following reasons:
(1) From subsection (c)(3) because
making available to a record subject the
accounting of disclosures from records
concerning him/her would potentially
reveal any investigative interest in the
individual. Revealing this information
would permit the subject of an
E:\FR\FM\27SER1.SGM
27SER1
Agencies
[Federal Register Volume 72, Number 187 (Thursday, September 27, 2007)]
[Rules and Regulations]
[Pages 54820-54825]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-18988]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 9360]
RIN 1545-BC37
Guidance on Passive Foreign Investment Company (PFIC) Purging
Elections
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of the temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations that provide certain
elections for taxpayers that continue to be subject to the PFIC excess
distribution regime of section 1291 of the Internal Revenue Code even
though the foreign corporation in which they own stock is no longer
treated as a PFIC under section 1297(a) or (e) of the Code. The
regulations are necessary to provide guidance about purging the PFIC
taint for such foreign corporations. The regulations will affect U.S.
persons that hold stock in a PFIC.
DATES: Effective Date: These regulations are effective on September 27,
2007.
Applicability Date: For dates of applicability, see Sec. Sec.
1.1291-9(k), 1.1297-3(f), 1.1298-3(f).
FOR FURTHER INFORMATION CONTACT: Paul J. Carlino at (202) 622-3840 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final 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 1545-1965.
The collection of information in these final regulations is in
Sec. 1.1297-3(c)(5)(ii). This information is required to enable the
IRS to verify that a taxpayer is reporting the correct amount of income
or gain or is claiming the correct amount of losses, deductions or
credits from that taxpayer's interest in the foreign corporation.
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.
Books or records relating to a collection of information must be
retained as long as their contents might become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
On December 8, 2005, the IRS and the Treasury Department published
final regulations under section 1298(b)(1) and removal of temporary
regulations (TD 9231) in the Federal Register (70 FR 72914). The final
regulations provided rules for a shareholder of a former PFIC (as
defined in Sec. 1.1291-9(j)(2)(iv)) to make a deemed dividend or
deemed sale election to purge the PFIC taint of the stock of the
foreign corporation (that is, to end treatment of the stock of the
foreign corporation as PFIC stock with respect to the shareholder). On
December 8, 2005, the Internal Revenue Service and the Treasury
Department also published temporary regulations (TD 9232) under
sections 1291(d)(2), 1297(e) and 1298(b)(1) in the Federal Register (70
FR 72908). A notice of proposed rulemaking (REG-133446-03) cross-
referencing the temporary regulations was published in the Federal
Register for the same day (70 FR 72952). The temporary and proposed
regulations provided guidance to shareholders of section 1297(e) PFICs
(as defined in Sec. 1.1291-9(j)(2)(v)) on making a deemed sale or
deemed dividend election to purge the PFIC taint of the stock of the
foreign corporation. The temporary and proposed regulations also
provided guidance to shareholders of section 1297(e) PFICs and
shareholders of former PFICs on making late purging elections (provided
certain requirements are met).
No public hearing was requested or held. A comment responding to
the notice of proposed rulemaking was received. After consideration of
the comment, the proposed regulations are adopted as amended by this
Treasury decision, and the corresponding temporary regulations are
removed. The comment and revision is discussed in this preamble.
Summary of Comments and Explanation of Revisions
1. Multiple Purging Elections
Sections 1.1297-3 and 1.1298-3 provide guidance for a shareholder
of a section 1297(e) PFIC and a shareholder of a former PFIC,
respectively, to make a deemed sale or a deemed dividend election to
purge the PFIC taint of the stock of the foreign corporation. A section
1297(e) PFIC is a foreign corporation that qualifies as a PFIC under
section 1297(a) on the first day of the qualified portion of the
shareholder's holding period under section 1297(e), and is treated as a
PFIC with respect to the shareholder under section 1298(b)(1) because
at any time during the shareholder's holding period of the stock, other
than the qualified portion, the foreign corporation was a PFIC that was
not a qualified electing fund (QEF) under section 1295. (The
``qualified portion'' is the portion of the shareholder's holding
period which is after December 31, 1997, and during which the
shareholder is a U.S. shareholder (as defined in section 951(b)) and
the foreign corporation is a controlled foreign corporation.) A former
PFIC is a foreign corporation that
[[Page 54821]]
satisfies neither the income nor the asset test of section 1297(a), but
whose stock held by a shareholder is treated as stock of a PFIC,
pursuant to section 1298(b)(1), because the corporation was a PFIC that
was not a QEF at some time during the shareholder's holding period of
the stock.
Sections 1.1297-3(e) and 1.1298-3(e) provide rules for making late
purging elections when the time prescribed for making timely purging
elections under Sec. Sec. 1.1297-3(b)(3) or (c)(4) and 1.1298-3(b)(3)
or (c)(4) has elapsed.
One commentator requested that the final regulations clarify
whether multiple late purging elections can be made under Sec. Sec.
1.1297-3(e) and 1.1298-3(e). The IRS and the Treasury Department
believe that multiple late purging elections should be allowed to the
same extent such multiple purging elections could have been made if
filed timely. The final regulations are amended to clarify this rule.
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 is hereby
certified that these regulations will not have a significant economic
impact on a substantial number of small entities. This certification is
based upon the fact that these regulations affect only U.S. persons
with stock ownership in a PFIC. There are not a substantial number of
U.S. persons that are small entities that own stock in a PFIC. Further,
the economic costs necessary to comply with the rule for the small
entities that may be impacted are not significant. Therefore, a
Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the
Code, the notice of proposed rulemaking preceding this final regulation
was submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Drafting Information
The principal author of these regulations is Paul J. Carlino of the
Office of 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.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR parts 1 and 602 are 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 * * *
0
Par. 2. Section 1.1291-9 is amended by revising paragraphs (i),
(j)(2)(v) and (k) to read as follows:
Sec. 1.1291-9 Deemed dividend election.
* * * * *
(i) Election inapplicable to shareholder of a former PFIC or of a
section 1297(e) PFIC. A shareholder may not make the section 1295 and
deemed dividend elections if the foreign corporation is a former PFIC
(as defined in paragraph (j)(2)(iv) of this section) or a section
1297(e) PFIC (as defined in paragraph (j)(2)(v) of this section) with
respect to the shareholder. For the rules regarding the election by a
shareholder of a former PFIC, see Sec. 1.1298-3. For the rules
regarding the election by a shareholder of a section 1297(e) PFIC, see
Sec. 1.1297-3.
(j) * * *
(2) * * *
(v) Section 1297(e) PFIC. A foreign corporation is a section
1297(e) PFIC with respect to a shareholder (as defined in paragraph
(j)(3) of this section) if--
(A) The foreign corporation qualifies as a PFIC under section
1297(a) on the first day on which the qualified portion of the
shareholder's holding period in the foreign corporation begins, as
determined under section 1297(e)(2); and
(B) The stock of the foreign corporation held by the shareholder is
treated as stock of a PFIC, pursuant to section 1298(b)(1), because, at
any time during the shareholder's holding period of the stock, other
than the qualified portion, the corporation was a PFIC that was not a
QEF.
(k) Effective/applicability date. (1) The rules of this section,
except for paragraph (j)(2)(v) of this section, are applicable as of
April 1, 1995.
(2) The rules of paragraph (j)(2)(v) of this section are applicable
as of December 8, 2005.
Sec. 1.1291-9T [Removed]
0
Par. 3. Section 1.1291-9T is removed.
0
Par. 4. Section 1.1297-0 is revised to read as follows:
Sec. 1.1297-0 Table of contents.
This section contains a listing of the headings for Sec. 1.1297-3.
Sec. 1.1297-3 Deemed sale or deemed dividend election by a
U.S. person that is a shareholder of a section 1297(e) PFIC.
(a) In general.
(b) Application of deemed sale election rules.
(1) Eligibility to make the deemed sale election.
(2) Effect of the deemed sale election.
(3) Time for making the deemed sale election.
(4) Manner of making the deemed sale election.
(5) Adjustments to basis.
(6) Treatment of holding period.
(c) Application of deemed dividend election rules.
(1) Eligibility to make the deemed dividend election.
(2) Effect of the deemed dividend election.
(3) Post-1986 earnings and profits defined.
(4) Time for making the deemed dividend election.
(5) Manner of making the deemed dividend election.
(6) Adjustments to basis.
(7) Treatment of holding period.
(8) Coordination with section 959(e).
(d) CFC qualification date.
(e) Late purging elections requiring special consent.
(1) In general.
(2) Prejudice to the interests of the U.S. government.
(3) Procedural requirements.
(4) Time and manner of making late election.
(5) Multiple late elections.
(f) Effective/applicability date.
Sec. 1.1297-0T [Removed]
0
Par. 5. Section 1.1297-0T is removed.
0
Par. 6. Section 1.1297-3 is added to read as follows:
Sec. 1.1297-3 Deemed sale or deemed dividend election by a U.S.
person that is a shareholder of a section 1297(e) PFIC.
(a) In general. A shareholder (as defined in Sec. 1.1291-9(j)(3))
of a foreign corporation that is a section 1297(e) passive foreign
investment company (PFIC) (as defined in Sec. 1.1291-9(j)(2)(v)) with
respect to such shareholder, shall be treated for tax purposes as
holding stock in a PFIC and therefore continues to be subject to
taxation under section 1291 unless the shareholder makes a purging
election under section 1298(b)(1). A purging election under section
1298(b)(1) is made under rules similar to the rules of section
1291(d)(2). Section 1291(d)(2) allows a shareholder to purge the
continuing PFIC taint by either making a deemed sale election or a
deemed dividend election.
(b) Application of deemed sale election rules--(1) Eligibility to
make the deemed sale election. A shareholder
[[Page 54822]]
of a foreign corporation that is a section 1297(e) PFIC with respect to
such shareholder may make a deemed sale election under section
1298(b)(1) by applying the rules of this paragraph (b).
(2) Effect of the deemed sale election. A shareholder making the
deemed sale election with respect to a section 1297(e) PFIC shall be
treated as having sold all of its stock in the section 1297(e) PFIC for
its fair market value on the controlled foreign corporation (CFC)
qualification date, as defined in paragraph (d) of this section. A
deemed sale under this section is treated as a disposition subject to
taxation under section 1291. Thus, the gain from the deemed sale is
taxed as an excess distribution received on the CFC qualification date.
In the case of an election made by an indirect shareholder, the amount
of gain to be recognized and taxed as an excess distribution is the
amount of gain that the direct owner of the stock of the PFIC would
have realized on an actual sale or disposition of the stock of the PFIC
indirectly owned by the shareholder. Any loss realized on the deemed
sale is not recognized. After the deemed sale election, the
shareholder's stock with respect to which the election was made under
this paragraph (b) shall not be treated as stock in a PFIC and the
shareholder shall not be subject to taxation under section 1291 with
respect to such stock unless the qualified portion of the shareholder's
holding period ends, as determined under section 1297(e)(2), and the
foreign corporation thereafter qualifies as a PFIC under section
1297(a).
(3) Time for making the deemed sale election. Except as provided in
paragraph (e) of this section, a shareholder shall make the deemed sale
election under this paragraph (b) and section 1298(b)(1) in the
shareholder's original or amended return for the taxable year that
includes the CFC qualification date (election year). If the deemed sale
election is made in an amended return, the return must be filed by a
date that is within three years of the due date, as extended under
section 6081, of the original return for the election year.
(4) Manner of making the deemed sale election. A shareholder makes
the deemed sale election under this paragraph (b) by filing Form 8621,
``Return by a Shareholder of a Passive Foreign Investment Company or
Qualified Electing Fund'', with the return of the shareholder for the
election year, reporting the gain as an excess distribution pursuant to
section 1291(a) as if such sale occurred under section 1291(d)(2), and
paying the tax and interest due on the excess distribution. A
shareholder that makes the deemed sale election after the due date of
the return (determined without regard to extensions) for the election
year must pay additional interest, pursuant to section 6601, on the
amount of underpayment of tax for that year. An electing shareholder
that realizes a loss shall report the loss on Form 8621, but shall not
recognize the loss.
(5) Adjustments to basis. A shareholder that makes the deemed sale
election increases its adjusted basis of the PFIC stock owned directly
by the amount of gain recognized on the deemed sale. If the shareholder
makes the deemed sale election with respect to a PFIC of which it is an
indirect shareholder, the shareholder's adjusted basis of the stock or
other property owned directly by the shareholder, through which
ownership of the PFIC is attributed to the shareholder, is increased by
the amount of gain recognized by the shareholder. In addition, solely
for purposes of determining the subsequent treatment under the Internal
Revenue Code (Code) and regulations of a shareholder of the stock of
the PFIC, the adjusted basis of the direct owner of the stock of the
PFIC is increased by the amount of gain recognized on the deemed sale.
A shareholder shall not adjust the basis of any stock with respect to
which the shareholder realized a loss on the deemed sale, which loss is
not recognized under paragraph (b)(2) of this section.
(6) Treatment of holding period. If a shareholder of a foreign
corporation has made a deemed sale election, then, for purposes of
applying sections 1291 through 1298 to such shareholder after the
deemed sale, the shareholder's holding period in the stock of the
foreign corporation begins on the CFC qualification date, without
regard to whether the shareholder recognized gain on the deemed sale.
For other purposes of the Code and regulations, this holding period
rule does not apply.
(c) Application of deemed dividend election rules--(1) Eligibility
to make the deemed dividend election. A shareholder of a foreign
corporation that is a section 1297(e) PFIC with respect to such
shareholder may make the deemed dividend election under the rules of
this paragraph (c). A deemed dividend election may be made by a
shareholder whose pro rata share of the post-1986 earnings and profits
of the PFIC attributable to the PFIC stock held on the CFC
qualification date is zero.
(2) Effect of the deemed dividend election. A shareholder making
the deemed dividend election with respect to a section 1297(e) PFIC
shall include in income as a dividend its pro rata share of the post-
1986 earnings and profits of the PFIC attributable to all of the stock
it held, directly or indirectly on the CFC qualification date, as
defined in paragraph (d) of this section. The deemed dividend is taxed
under section 1291 as an excess distribution received on the CFC
qualification date. The excess distribution determined under this
paragraph (c) is allocated under section 1291(a)(1)(A) only to each day
of the shareholder's holding period of the stock during which the
foreign corporation qualified as a PFIC. For purposes of the preceding
sentence, the shareholder's holding period of the PFIC stock ends on
the day before the CFC qualification date. After the deemed dividend
election, the shareholder's stock with respect to which the election
was made under this paragraph (c) shall not be treated as stock in a
PFIC and the shareholder shall not be subject to taxation under section
1291 with respect to such stock unless the qualified portion of the
shareholder's holding period ends, as determined under section
1297(e)(2), and the foreign corporation thereafter qualifies as a PFIC
under section 1297(a).
(3) Post-1986 earnings and profits defined--(i) In general--(A)
General rule. For purposes of this section, the term post-1986 earnings
and profits means the post-1986 undistributed earnings, within the
meaning of section 902(c)(1) (determined without regard to section
902(c)(3)), as of the day before the CFC qualification date, that were
accumulated and not distributed in taxable years of the PFIC beginning
after 1986 and during which it was a PFIC, without regard to whether
the earnings related to a period during which the PFIC was a CFC.
(B) Special rule. If the CFC qualification date is a day that is
after the first day of the taxable year, the term post-1986 earnings
and profits means the post-1986 undistributed earnings, within the
meaning of section 902(c)(1) (determined without regard to section
902(c)(3)), as of the close of the taxable year that includes the CFC
qualification date. For purposes of this computation, only earnings and
profits accumulated in taxable years during which the foreign
corporation was a PFIC shall be taken into account, but without regard
to whether the earnings related to a period during which the PFIC was a
CFC.
(ii) Pro rata share of post-1986 earnings and profits attributable
to shareholder's stock--(A) In general. A shareholder's pro rata share
of the post-1986 earnings and profits of the PFIC
[[Page 54823]]
attributable to the stock held by the shareholder on the CFC
qualification date is the amount of post-1986 earnings and profits of
the PFIC accumulated during any portion of the shareholder's holding
period ending at the close of the day before the CFC qualification date
and attributable, under the principles of section 1248 and the
regulations under that section, to the PFIC stock held on the CFC
qualification date.
(B) Reduction for previously taxed amounts. A shareholder's pro
rata share of the post-1986 earnings and profits of the PFIC does not
include any amount that the shareholder demonstrates to the
satisfaction of the Commissioner (in the manner provided in paragraph
(c)(5)(ii) of this section) was, pursuant to another provision of the
law, previously included in the income of the shareholder, or of
another U.S. person if the shareholder's holding period of the PFIC
stock includes the period during which the stock was held by that other
U.S. person.
(4) Time for making the deemed dividend election. Except as
provided in paragraph (e) of this section, the shareholder shall make
the deemed dividend election under this paragraph (c) and section
1298(b)(1) in the shareholder's original or amended return for the
taxable year that includes the CFC qualification date (election year).
If the deemed dividend election is made in an amended return, the
return must be filed by a date that is within three years of the due
date, as extended under section 6081, of the original return for the
election year.
(5) Manner of making the deemed dividend election--(i) In general.
A shareholder makes the deemed dividend election by filing Form 8621
and the attachment to Form 8621 described in paragraph (c)(5)(ii) of
this section with the return of the shareholder for the election year,
reporting the deemed dividend as an excess distribution pursuant to
section 1291(a)(1), and paying the tax and interest due on the excess
distribution. A shareholder that makes the deemed dividend election
after the due date of the return (determined without regard to
extensions) for the election year must pay additional interest,
pursuant to section 6601, on the amount of underpayment of tax for that
year.
(ii) Attachment to Form 8621. The shareholder must attach a
schedule to Form 8621 that demonstrates the calculation of the
shareholder's pro rata share of the post-1986 earnings and profits of
the PFIC that is treated as distributed to the shareholder on the CFC
qualification date, pursuant to this paragraph (c). If the shareholder
is claiming an exclusion from its pro rata share of the post-1986
earnings and profits for an amount previously included in its income or
the income of another U.S. person, the shareholder must include the
following information:
(A) The name, address and taxpayer identification number of each
U.S. person that previously included an amount in income, the amount
previously included in income by each such U.S. person, the provision
of law, pursuant to which the amount was previously included in income,
and the taxable year or years of inclusion of each amount.
(B) A description of the transaction pursuant to which the
shareholder acquired, directly or indirectly, the stock of the PFIC
from another U.S. person, and the provision of law pursuant to which
the shareholder's holding period includes the period the other U.S.
person held the CFC stock.
(6) Adjustments to basis. A shareholder that makes the deemed
dividend election increases its adjusted basis of the stock of the PFIC
owned directly by the shareholder by the amount of the deemed dividend.
If the shareholder makes the deemed dividend election with respect to a
PFIC of which it is an indirect shareholder, the shareholder's adjusted
basis of the stock or other property owned directly by the shareholder,
through which ownership of the PFIC is attributed to the shareholder,
is increased by the amount of the deemed dividend. In addition, solely
for purposes of determining the subsequent treatment under the Code and
regulations of a shareholder of the stock of the PFIC, the adjusted
basis of the direct owner of the stock of the PFIC is increased by the
amount of the deemed dividend.
(7) Treatment of holding period. If the shareholder of a foreign
corporation has made a deemed dividend election, then, for purposes of
applying sections 1291 through 1298 to such shareholder after the
deemed dividend, the shareholder's holding period of the stock of the
foreign corporation begins on the CFC qualification date. For other
purposes of the Code and regulations, this holding period rule does not
apply.
(8) Coordination with section 959(e). For purposes of section
959(e), the entire deemed dividend is treated as having been included
in gross income under section 1248(a).
(d) CFC qualification date. For purposes of this section, the CFC
qualification date is the first day on which the qualified portion of
the shareholder's holding period in the section 1297(e) PFIC begins, as
determined under section 1297(e).
(e) Late purging elections requiring special consent--(1) In
general. This section prescribes the exclusive rules under which a
shareholder of a section 1297(e) PFIC may make a section 1298(b)(1)
election after the time prescribed in paragraph (b)(3) or (c)(4) of
this section for making a deemed sale or a deemed dividend election has
elapsed (late purging election). Therefore, a shareholder may not seek
such relief under any other provisions of the law, including Sec.
301.9100-3 of this chapter. A shareholder may request the consent of
the Commissioner to make a late deemed sale or deemed dividend election
for the taxable year of the shareholder that includes the CFC
qualification date provided the shareholder satisfies the requirements
set forth in this paragraph (e). The Commissioner may, in his
discretion, grant relief under this paragraph (e) only if--
(i) In a case where the shareholder is requesting consent under
this paragraph (e) after December 31, 2005, the shareholder requests
such consent before a representative of the Internal Revenue Service
(IRS) raises upon audit the PFIC status of the foreign corporation for
any taxable year of the shareholder;
(ii) The shareholder has agreed in a closing agreement with the
Commissioner, described in paragraph (e)(3) of this section, to
eliminate any prejudice to the interests of the U.S. government, as
determined under paragraph (e)(2) of this section, as a consequence of
the shareholder's inability to file amended returns for its taxable
year in which the CFC qualification date falls or an earlier closed
taxable year in which the shareholder has taken a position that is
inconsistent with the treatment of the foreign corporation as a PFIC;
and
(iii) The shareholder satisfies the procedural requirements set
forth in paragraph (e)(3) of this section.
(2) Prejudice to the interests of the U.S. government. The
interests of the U.S. government are prejudiced if granting relief
would result in the shareholder having a lower tax liability (other
than by a de minimis amount), taking into account applicable interest
charges, for the taxable year that includes the CFC qualification date
(or a prior taxable year in which the taxpayer took a position on a
return that was inconsistent with the treatment of the foreign
corporation as a PFIC) than the shareholder would have had if the
shareholder had properly made the section 1298(b)(1) election in the
time prescribed in paragraph (b)(2) or (c)(3) of this section (or had
not taken a
[[Page 54824]]
position in a return for an earlier year that was inconsistent with the
status of the foreign corporation as a PFIC). The time value of money
is taken into account for purposes of this computation.
(3) Procedural requirements--(i) In general. The amount due with
respect to a late purging election is determined in the same manner as
if the purging election had been timely filed. However, the shareholder
is also liable for interest on the amount due, pursuant to section
6601, determined for the period beginning on the due date (without
extensions) for the taxpayer's income tax return for the year in which
the CFC qualification date falls and ending on the date the late
purging election is filed with the IRS.
(ii) Filing instructions. A late purging election is made by filing
a completed Form 8621-A, ``Return by a Shareholder Making Certain Late
Elections to End Treatment as a Passive Foreign Investment Company.''
(4) Time and manner of making late election--(i) Time for making a
late purging election. A shareholder may make a late purging election
in the manner provided in paragraph (e)(4)(ii) of this section at any
time. The date the election is filed with the IRS will determine the
amount of interest due under paragraph (e)(3) of this section.
(ii) Manner of making a late purging election. A shareholder makes
a late purging election by completing Form 8621-A in the manner
required by that form and this section and filing that form with the
Internal Revenue Service, DP 8621-A, Ogden, UT 84201.
(5) Multiple late elections--(i) General rule. A shareholder of a
foreign corporation may make multiple late purging elections under the
rules of this paragraph (e) or Sec. 1.1298-3(e) to the same extent
such multiple purging elections could have been made if those purging
elections had been filed within the time prescribed under paragraph
(b)(3) or (c)(4) of this section or Sec. 1.1298-3(b)(3) or (c)(4).
(ii) Example. The rule of this paragraph (e)(5) is illustrated by
the following example:
Example. (i) In 1991, X, a U.S. person, acquired a five percent
interest in the stock of FC, a controlled foreign corporation, as
defined in section 957(a). In years 1991, 1992, 1995, 1996 and 1997,
FC satisfied either the income test or the asset test of section
1297(a). X did not make a QEF election with regard to FC. In years
1993 and 1994, FC did not satisfy either the income or the asset
test of section 1291(a). In 1998, X acquired additional stock in FC
such that X was a U.S. shareholder (as defined in section 951(b)) of
FC.
(ii) Because FC qualified as a PFIC in 1991, FC will be treated
as a PFIC with respect to all of the stock held by X, under the
``once a PFIC always a PFIC'' rule of section 1298(b)(1), unless X
makes an election to purge the PFIC taint. Because X ceased to
satisfy either the income or asset test in 1993, X could have made
an election under Sec. 1.1298-3 to purge the PFIC taint of FC for
that year if X had filed such an election within the time prescribed
under Sec. 1.1298-3(b)(3) or (c)(4). If X had done so, the stock X
held in FC would not be treated as stock in a PFIC for the years
1993 and 1994. Because X became a U.S. shareholder of FC in 1998, X
then could have made a deemed sale or deemed dividend election under
this section to purge the PFIC taint of FC for the years 1995
through 1997 if X had filed within the time prescribed under
paragraph (b)(3) or (c)(4) of this section. Accordingly, X may make
a late purging election to purge the PFIC taint of FC for the years
1991 and 1992 under the rules of Sec. 1.1298-3(e) and may also make
a late purging election to purge the PFIC taint of FC for the years
1995 through 1997 under the rules of this paragraph (e).
(f) Effective/applicability date. The rules of this section are
applicable as of December 8, 2005.
Sec. 1.1297-3T [Removed]
0
Par. 7. Section 1.1297-3T is removed.
0
Par. 8. Section 1.1298-0 is revised to read as follows:
Sec. 1.1298-0 Table of contents.
This section contains a listing of the paragraph headings for Sec.
1.1298-3.
Sec. 1.1298-3 Deemed sale or deemed dividend election by a
U.S. person that is a shareholder of a former PFIC.
(a) In general.
(b) Application of deemed sale election rules.
(1) Eligibility to make the deemed sale election.
(2) Effect of the deemed sale election.
(3) Time for making the deemed sale election.
(4) Manner of making the deemed sale election.
(5) Adjustments to basis.
(6) Treatment of holding period.
(c) Application of deemed dividend election rules.
(1) Eligibility to make the deemed dividend election.
(2) Effect of the deemed dividend election.
(3) Post-1986 earnings and profits defined.
(4) Time for making the deemed dividend election.
(5) Manner of making the deemed dividend election.
(6) Adjustments to basis.
(7) Treatment of holding period.
(8) Coordination with section 959(e).
(d) Termination date.
(e) Late purging elections requiring special consent.
(1) In general.
(2) Prejudice to the interests of the U.S. government.
(3) Procedural requirements.
(4) Time and manner of making late election.
(5) Multiple late elections.
(f) Effective/applicability date.
Sec. 1.1298-0T [Removed]
0
Par. 9. Section 1.1298-0T is removed.
0
Par. 10. Section 1.1298-3 is amended by revising paragraphs (e) and (f)
to read as follows:
Sec. 1.1298-3 Deemed sale or deemed dividend election by a U.S.
person that is a shareholder of a former PFIC.
* * * * *
(e) Late purging elections requiring special consent--(1) In
general. This section prescribes the exclusive rules under which a
shareholder of a former PFIC may make a section 1298(b)(1) election
after the time prescribed in paragraph (b)(3) or (c)(4) of this section
for making a deemed sale or a deemed dividend election has elapsed
(late purging election). Therefore, a shareholder may not seek such
relief under any other provisions of the law, including Sec. 301.9100-
3 of this chapter. A shareholder may request the consent of the
Commissioner to make a late purging election for the taxable year of
the shareholder that includes the termination date provided the
shareholder satisfies the requirements set forth in this paragraph (e).
The Commissioner may, in his discretion, grant relief under this
paragraph (e) only if--
(i) In a case where the shareholder is requesting consent under
this paragraph (e) after December 31, 2005, the shareholder requests
such consent before a representative of the Internal Revenue Service
raises upon audit the PFIC status of the foreign corporation for any
taxable year of the shareholder;
(ii) The shareholder has agreed in a closing agreement with the
Commissioner, described in paragraph (e)(3) of this section, to
eliminate any prejudice to the interests of the U.S. government, as
determined under paragraph (e)(2) of this section, as a consequence of
the shareholder's inability to file amended returns for its taxable
year in which the termination date falls or an earlier closed taxable
year in which the shareholder has taken a position that is inconsistent
with the treatment of the foreign corporation as a PFIC; and
(iii) The shareholder satisfies the procedural requirements set
forth in paragraph (e)(3) of this section.
(2) Prejudice to the interests of the U.S. government. The
interests of the U.S. government are prejudiced if granting relief
would result in the shareholder having a lower tax liability
[[Page 54825]]
(other than by a de minimis amount), taking into account applicable
interest charges, for the taxable year that includes the termination
date (or a prior taxable year in which the taxpayer took a position on
a return that was inconsistent with the treatment of the foreign
corporation as a PFIC) than the shareholder would have had if the
shareholder had properly made the section 1298(b)(1) election in the
time prescribed in paragraph (b)(2) or (c)(3) of this section (or had
not taken a position in a return for an earlier year that was
inconsistent with the status of the foreign corporation as a PFIC). The
time value of money is taken into account for purposes of this
computation.
(3) Procedural requirements--(i) In general. The amount due with
respect to a late purging election is determined in the same manner as
if the purging election had been timely filed. However, the shareholder
is also liable for interest on the amount due, pursuant to section
6601, determined for the period beginning on the due date (without
extensions) for the taxpayer's income tax return for the year in which
the termination date falls and ending on the date the late purging
election is filed with the IRS.
(ii) Filing instructions. A late purging election is made by filing
a completed Form 8621-A, ``Return by a Shareholder Making Certain Late
Elections to End Treatment as a Passive Foreign Investment Company.''
(4) Time and manner of making late election--(i) Time for making a
late purging election. A shareholder may make a late purging election
in the manner provided in paragraph (e)(4)(ii) of this section at any
time. The date the election is filed with the IRS will determine the
amount of interest due under paragraph (e)(3) of this section.
(ii) Manner of making a late purging election. A shareholder makes
a late purging election by completing Form 8621-A in the manner
required by that form and this section and filing that form with the
Internal Revenue Service, DP 8621-A, Ogden, UT 84201.
(5) Multiple late elections. For rules regarding the circumstances
under which a shareholder of a foreign corporation may make multiple
late purging elections under this paragraph (e) or Sec. 1.1297-3(e),
see Sec. 1.1297-3(e)(5).
(f) Effective/applicability date. The rules of this section are
applicable as of December 8, 2005.
Sec. 1.1298-3T [Removed]
0
Par. 11. Section 1.1298-3T is removed.
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
0
Par. 12. The authority citation of part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
0
Par. 13. In Sec. 602.101, paragraph (b) is amended by removing the
entry for ``1.1297-3T'' from the table.
Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.
Approved: September 17, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E7-18988 Filed 9-26-07; 8:45 am]
BILLING CODE 4830-01-P