Guidance Under Section 956 for Determining the Basis of Property Acquired in Certain Nonrecognition Transactions, 36993-36995 [2011-15741]
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Federal Register / Vol. 76, No. 122 / Friday, June 24, 2011 / Rules and Regulations
PART 50—PROTECTION OF HUMAN
SUBJECTS
1. The authority citation for 21 CFR
part 50 continues to read as follows:
■
Authority: 21 U.S.C. 321, 343, 346, 346a,
348, 350a, 350b, 352, 353, 355, 360, 360c–
360f, 360h–360j, 371, 379e, 381; 42 U.S.C.
216, 241, 262, 263b–263n.
2. Revise § 50.23(e)(3) to read as
follows:
■
§ 50.23 Exception from general
requirements.
*
*
*
*
*
(e) * * *
(3) The investigator must submit the
written certification of the
determinations made by the investigator
and an independent physician required
in paragraph (e)(1) or (e)(2) of this
section to the IRB and FDA within 5
working days after the use of the device.
*
*
*
*
*
Dated: June 17, 2011.
Leslie Kux,
Acting Assistant Commissioner for Policy.
[FR Doc. 2011–15816 Filed 6–23–11; 8:45 am]
BILLING CODE 4160–01–P
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Part 882
[Docket No. FDA–1997–N–0040] (formerly
Docket No. 1997N–0484P)
Medical Devices; Neurological
Devices; Clarification of Classification
for Human Dura Mater; Technical
Amendment
AGENCY:
Food and Drug Administration,
HHS.
Final rule; technical
amendment.
ACTION:
The Food and Drug
Administration (FDA) is amending the
device regulations to clarify the
applicability of the device classification
for human dura mater. This action is
being taken to improve the accuracy of
the regulations.
DATES: This final rule is effective June
24, 2011.
FOR FURTHER INFORMATION CONTACT:
Melissa Reisman, Center for Biologics
Evaluation and Research (HFM–17),
Food and Drug Administration, 1401
Rockville Pike, suite 200N, Rockville,
MD 20852–1448, 301–827–6210.
SUPPLEMENTARY INFORMATION: FDA is
clarifying the regulatory authority for
human dura mater in the Agency’s
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SUMMARY:
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codified regulations for part 882 (21
CFR part 882). In the Federal Register
of November 24, 2004 (69 FR 68612),
FDA published a final rule regarding
current good tissue practice for
establishments that manufacture human
cell, tissue, and cellular and tissuebased products (HCT/Ps). That rule
became effective on May 25, 2005. Prior
to the effective date of the final rule,
human dura mater was regulated as a
medical device under § 882.5975. As
stated in the final rule, human dura
mater is now defined under 21 CFR
1271.3(d) as a HCT/P. As such, it is
regulated under section 361 of the
Public Health Service Act (42 U.S.C.
264) and the requirements of 21 CFR
part 1271, including requirements
related to registration and listing, donor
eligibility determinations, and current
good tissue practice. Accordingly, the
device classification contained in
§ 882.5975 is only applicable for human
dura mater recovered prior to the
effective date of the final rule, May 25,
2005. The final rule omitted a
corresponding annotation to § 882.5975
to clarify that the device classification is
only applicable for human dura mater
recovered prior to the effective date of
the final rule. This document clarifies
the regulatory authority for human dura
mater. Publication of this document
constitutes final action under the
Administrative Procedure Act (5 U.S.C.
553). FDA has determined that notice
and public comment are unnecessary
because this amendment is
nonsubstantive.
List of Subjects in 21 CFR Part 882
Medical devices, Neurological
devices.
Therefore, under the Federal Food,
Drug, and Cosmetic Act and under
authority delegated to the Commissioner
of Food and Drugs, 21 CFR part 882 is
amended as follows:
PART 882—NEUROLOGICAL DEVICES
1. The authority citation for 21 CFR
part 882 continues to read as follows:
■
Authority: 21 U.S.C. 351, 360, 360c, 360e,
360j, 371.
2. Section 882.5975 is amended by
adding paragraph (c) to read as follows:
■
§ 882.5975
Human dura mater.
*
*
*
*
*
(c) Scope. The classification set forth
in this section is only applicable to
human dura mater recovered prior to
May 25, 2005.
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36993
Dated: June 17, 2011.
Leslie Kux,
Acting Assistant Commissioner for Policy.
[FR Doc. 2011–15817 Filed 6–23–11; 8:45 am]
BILLING CODE 4160–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9530]
RIN 1545–BH56
Guidance Under Section 956 for
Determining the Basis of Property
Acquired in Certain Nonrecognition
Transactions
Internal Revenue Service (IRS),
Treasury.
ACTION: Final and temporary
regulations.
AGENCY:
This document contains final
and temporary regulations under section
956 of the Internal Revenue Code (Code)
regarding the determination of basis in
certain United States property acquired
by a controlled foreign corporation in
certain nonrecognition transactions that
are intended to repatriate earnings and
profits of the controlled foreign
corporation without U.S. income
taxation. The regulations affect United
States shareholders of a controlled
foreign corporation that acquires United
States property in certain
nonrecognition transactions.
DATES: Effective Date: These regulations
are effective on June 24, 2011.
Applicability Date: For dates of
applicability, see § 1.956–1(e)(6)(vii).
FOR FURTHER INFORMATION CONTACT:
Kristine A. Crabtree at (202) 622–3840
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
SUMMARY:
Background and Explanation of
Provisions
On June 24, 2008, the IRS published
final and temporary regulations under
section 956 (TD 9402) in the Federal
Register (73 FR 35580). On the same
date, the IRS published a notice of
proposed rulemaking (REG–102122–08)
(the proposed regulations) in the
Federal Register (73 FR 35606) crossreferencing the temporary regulations.
The temporary and proposed
regulations provided guidance regarding
the determination of basis in certain
United States property (as defined in
section 956(c)) acquired by a controlled
foreign corporation (as defined in
section 957(a)) in certain nonrecognition
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Federal Register / Vol. 76, No. 122 / Friday, June 24, 2011 / Rules and Regulations
transactions that are intended to
repatriate earnings and profits of the
controlled foreign corporation without
an income inclusion by its United States
shareholders under section 951(a)(1)(B).
The purpose of these regulations is to
prevent a United States shareholder of
a controlled foreign corporation from
avoiding an income inclusion under
section 951(a)(1)(B) where the
controlled foreign corporation acquires
United States property in an exchange
to which these regulations apply and
claims a basis in the United States
property that is less than the amount of
earnings and profits repatriated. No
comments in response to the proposed
regulations were received and no public
hearing was requested or held. This
Treasury decision adopts the proposed
regulations with minor changes,
described below, as final regulations
and removes the corresponding
temporary regulations.
Language was added to § 1.956–
1(e)(6)(iii) to clarify the effect of the
assumption of a liability by a controlled
foreign corporation in connection with
an exchange to which § 1.956–1(e)(6)
applies. The final regulations also
modify § 1.956–1(e)(6)(v) to address the
situation in which the controlled foreign
corporation exchanges specified United
States property the adjusted basis in
which has been determined under
§ 1.956–1(e)(6) for other United States
property, by providing that for purposes
of applying section 956 the controlled
foreign corporation’s adjusted basis in
the other United States property is no
less than its adjusted basis in the
specified United States property as
determined under § 1.956–1(e)(6)(iii). A
cross-reference to the anti-abuse rule of
§ 1.956–1T(b)(4) was also added to
§ 1.956–1(e)(6)(vi), Example 3.
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Effective/Applicability Dates
These final regulations apply to
property acquired in exchanges
occurring on or after June 24, 2011. For
transactions that occur prior to June 24,
2011, see § 1.956–1T(e)(6) as contained
in 26 CFR Part 1 revised as of April 1,
2011.
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
also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations, and because the
regulations do not impose a collection
of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
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Jkt 223001
chapter 6) does not apply. Pursuant to
section 7805(f) of the Code, these
regulations have been submitted to the
Chief Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business.
Drafting Information
The principal author of these
regulations is Kristine A. Crabtree,
Office of Associate Chief Counsel
(International). However, other
personnel from the IRS and the Treasury
Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries
in numerical order to read in part as
follows:
■
Authority: 26 U.S.C. 7805 * * *
Section 1.956–1(e)(6) also issued under 26
U.S.C. 367(b) and 956(e).
Par. 2. Section 1.956–1 is amended by
revising the last sentence of paragraph
(e)(1), revising paragraphs (e)(5) and
(e)(6), and removing paragraph (f).
The revisions read as follows:
■
§ 1.956–1 Shareholder’s pro rata share of
a controlled foreign corporation’s increase
in earnings invested in United States
property.
*
*
*
*
*
(e) * * *
(1) * * * See § 1.956–1(e)(6) for a
special rule for determining amounts
attributable to United States property
acquired as the result of certain
nonrecognition transactions.
*
*
*
*
*
(5) [Reserved]. For further guidance,
see § 1.956–1T(e)(5).
(6) Adjusted basis of property
acquired in certain nonrecognition
transactions—(i) Scope. This paragraph
(e)(6) provides rules for determining,
solely for purposes of applying section
956, the adjusted basis of specified
United States property acquired by a
controlled foreign corporation pursuant
to an exchange in which the controlled
foreign corporation’s basis in such
specified United States property is
determined under section 362(a). This
paragraph (e)(6) also applies if specified
United States property, the adjusted
basis in which has been determined
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under these regulations, is transferred
(in one or more subsequent exchanges)
to a related person (within the meaning
of section 954(d)(3)), pursuant to one or
more exchanges in which the related
person’s adjusted basis in such property
is determined, in whole or in part, by
reference to the transferor controlled
foreign corporation’s adjusted basis in
such property.
(ii) Definition of specified United
States property. For purposes of this
paragraph (e)(6), specified United States
property is stock of a domestic
corporation described in section
956(c)(1)(B) or an obligation of a
domestic corporation described in
section 956(c)(1)(C) that is acquired by
a controlled foreign corporation from
the domestic issuing corporation.
Specified United States property does
not include property described in
section 956(c)(2).
(iii) Adjusted basis of specified United
States property. Solely for purposes of
applying section 956, the adjusted basis
of specified United States property
acquired by a controlled foreign
corporation in connection with an
exchange to which this paragraph (e)(6)
applies shall be no less than the fair
market value of any property transferred
by the controlled foreign corporation in
exchange for such specified United
States property. For purposes of this
paragraph (e)(6), the term property has
the meaning set forth in section 317(a),
but also includes any liability that is
assumed by the controlled foreign
corporation in connection with the
exchange notwithstanding the
application of section 357(a). The
assumption of a liability by the
controlled foreign corporation in
connection with the exchange will be
considered the transfer of property. The
fair market value of such property will
be the amount of the liability assumed.
The fair market value of any property
transferred by the controlled foreign
corporation in exchange for the
specified United States property shall be
determined at the time of the exchange.
(iv) Timing. For purposes of § 1.956–
2(d)(1)(i)(a), a controlled foreign
corporation that acquires specified
United States property in an exchange
to which this paragraph (e)(6) applies
acquires an adjusted basis in such
property at the time of the controlled
foreign corporation’s exchange of
property for such specified United
States property.
(v) Transfers to related persons. If a
controlled foreign corporation transfers
specified United States property, the
adjusted basis in which has been
determined under this paragraph (e)(6),
to a related person (within the meaning
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of section 954(d)(3)) (related person
transferee) in one or more exchanges
pursuant to which the related person
transferee’s adjusted basis in such
specified United States property is
determined, in whole or in part, by
reference to the controlled foreign
corporation’s adjusted basis in such
specified United States property, then,
solely for purposes of applying section
956 following such exchange, the
controlled foreign corporation’s
adjusted basis in any United States
property received in the exchange (or
exchanges) shall be no less than the
aggregate adjusted basis of the specified
United States property as determined
under paragraph (e)(6)(iii) of this
section, and the related person
transferee’s adjusted basis in such
specified United States property shall be
no less than the adjusted basis of such
specified United States property in the
hands of the controlled foreign
corporation as determined under
paragraph (e)(6)(iii) of this section. This
paragraph (e)(6)(v) shall also apply in
the case of one or more successive
transfers of the specified United States
property by a related person transferee
to one or more persons related to the
controlled foreign corporation (within
the meaning of section 954(d)(3)). This
paragraph (e)(6)(v) shall apply
regardless of whether a subsequent
transfer was part of a plan (or series of
related transactions) that includes the
controlled foreign corporation’s
acquisition of the specified United
States property.
(vi) Examples. The rules of this
paragraph (e)(6) are illustrated by the
following examples:
Example 1. (i) Facts. USP, a domestic
corporation, is the common parent of an
affiliated group that joins in the filing of a
consolidated return. USP owns 100 percent
of the stock of US1 and US2, both domestic
corporations and members of the USP
consolidated group. US1 owns 100 percent of
the stock of CFC, a controlled foreign
corporation. US2 issues $100x of its stock to
CFC in exchange for $10x of CFC stock and
$90x cash. US2’s transfer of its stock to CFC
is described in section 351, US2 recognizes
no gain in the exchange under section
1032(a), and CFC’s basis in the US2 stock
acquired in the exchange is determined
under section 362(a).
(ii) Analysis. The US2 stock acquired by
CFC in the exchange constitutes specified
United States property under paragraph
(e)(6)(ii) of this section because CFC acquires
the US2 stock from US2, the issuing
corporation. Therefore, because CFC’s
adjusted basis in the US2 stock is determined
under section 362(a), then for purposes of
applying section 956, CFC’s adjusted basis in
the US2 stock shall, under paragraph
(e)(6)(iii) of this section, be no less than $90x,
the fair market value of the property
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exchanged by CFC for the US2 stock (the
$10x of CFC stock issued in the exchange
does not constitute property for purposes of
paragraph (e)(6)(iii) of this section). Pursuant
to paragraph (e)(6)(iv) of this section, for
purposes of § 1.956–2(d)(1)(i)(a) CFC shall be
treated as acquiring its adjusted basis of no
less than $90x in the US2 stock at the time
of its transfer of property to US2 in exchange
for the US2 stock. The result would be the
same if, instead of CFC transferring $90x of
cash to US2 in the exchange, CFC assumes
a $90x liability of US2.
Example 2. (i) Facts. USP, a domestic
corporation, owns 100 percent of the stock of
USS, a domestic corporation. USP also owns
100 percent of the stock of CFC, a controlled
foreign corporation. USP’s adjusted basis in
its USS stock equals the fair market value of
the USS stock, or $100x. USP transfers its
USS stock to CFC in exchange for $100x of
CFC stock. USP’s transfer of its USS stock to
CFC is described in section 351, USP
recognizes no gain in the exchange under
section 351(a), and CFC’s adjusted basis in
the USS stock acquired in the exchange,
determined under section 362(a), equals
$100x.
(ii) Analysis. The USS stock acquired by
CFC in the exchange does not constitute
specified United States property under
paragraph (e)(6)(ii) of this section because
CFC acquires the USS stock from USP.
Therefore, CFC’s adjusted basis in the USS
stock, for purposes of section 956, is not
determined under this paragraph (e)(6).
Instead, CFC’s adjusted basis in the USS
stock is determined under the general rule of
section 956(a) and under paragraphs (e)(1)
through (4) of this section. As determined
under section 362(a), CFC’s adjusted basis in
the USS stock is $100x.
Example 3. (i) Facts. USP, a domestic
corporation, owns 100 percent of the stock of
CFC1, a controlled foreign corporation. CFC1
holds specified United States property
(within the meaning of paragraph (e)(6)(ii) of
this section) with an adjusted basis of $30x
for purposes of applying section 956 that was
determined under paragraph (e)(6)(iii) of this
section. CFC1 owns 100 percent of the stock
of CFC2, a controlled foreign corporation.
CFC1 transfers the specified United States
property to CFC2 in an exchange described
in section 351. CFC2’s adjusted basis in the
specified United States property is
determined under section 362(a).
(ii) Analysis. In the section 351 exchange,
CFC1 transferred specified United States
property to CFC2 with an adjusted basis that
was determined under paragraph (e)(6)(iii) of
this section. Further, CFC2’s adjusted basis in
the specified United States property is
determined under section 362(a) by
reference, in whole or in part, to CFC1’s
adjusted basis in such property. Therefore,
for purposes of applying section 956,
pursuant to paragraph (e)(6)(v) of this section
CFC2’s adjusted basis in the specified United
States property shall be no less than $30x.
Paragraph (e)(6)(v) of this section would also
apply if CFC2 subsequently transfers the
specified United States property to another
person related to CFC1 (within the meaning
of section 954(d)(3)) if such related person’s
adjusted basis in the specified United States
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36995
property is determined by reference, in
whole or in part, to CFC2’s adjusted basis in
such property. See also § 1.956–1T(b)(4) if
one of the principal purposes of CFC1’s
transfer of property to CFC2 was the
avoidance of the application of section 956
with respect to CFC1.
(vii) Effective/applicability dates. This
paragraph (e)(6) applies to property
acquired in exchanges occurring on or
after June 24, 2011. For transactions that
occur prior to June 24, 2011, see
§ 1.956–1T(e)(6) as contained in 26 CFR
Part 1 revised as of April 1, 2011.
Par. 3. Section 1.956–1T is amended
by removing paragraph (e)(6) and
revising paragraph (f) to read as follows:
■
§ 1.956–1T Shareholder’s pro rata share of
a controlled foreign corporation’s increase
in earnings invested in United States
property (temporary).
*
*
*
*
*
(f) Effective/applicability date.
Paragraph (e)(5) of this section applies
to investments made on or after June 14,
1988.
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
Approved: June 11, 2011.
Emily S. Mahon,
Acting Assistant Secretary of the Treasury
(Tax Policy).
[FR Doc. 2011–15741 Filed 6–23–11; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9529]
RIN 1545–BK01
Requirements for Taxpayers Filing
Form 5472; Correction
Internal Revenue Service (IRS),
Treasury.
ACTION: Correcting amendment.
AGENCY:
This document contains
correcting amendments to temporary
regulations (TD 9529) that were
published in the Federal Register on
Friday, June 10, 2011 (76 FR 33997)
removing the duplicate filing
requirement for Form 5472,
‘‘Information Return of a 25% ForeignOwned U.S. corporation or a Foreign
Corporation Engaged in a U.S. Trade or
Business.’’
DATES: This correction is effective on
June 24, 2011, and is applicable on June
10, 2011.
SUMMARY:
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]]>Agencies
[Federal Register Volume 76, Number 122 (Friday, June 24, 2011)]
[Rules and Regulations]
[Pages 36993-36995]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-15741]
=======================================================================
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9530]
RIN 1545-BH56
Guidance Under Section 956 for Determining the Basis of Property
Acquired in Certain Nonrecognition Transactions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final and temporary regulations under
section 956 of the Internal Revenue Code (Code) regarding the
determination of basis in certain United States property acquired by a
controlled foreign corporation in certain nonrecognition transactions
that are intended to repatriate earnings and profits of the controlled
foreign corporation without U.S. income taxation. The regulations
affect United States shareholders of a controlled foreign corporation
that acquires United States property in certain nonrecognition
transactions.
DATES: Effective Date: These regulations are effective on June 24,
2011.
Applicability Date: For dates of applicability, see Sec. 1.956-
1(e)(6)(vii).
FOR FURTHER INFORMATION CONTACT: Kristine A. Crabtree at (202) 622-3840
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
On June 24, 2008, the IRS published final and temporary regulations
under section 956 (TD 9402) in the Federal Register (73 FR 35580). On
the same date, the IRS published a notice of proposed rulemaking (REG-
102122-08) (the proposed regulations) in the Federal Register (73 FR
35606) cross-referencing the temporary regulations. The temporary and
proposed regulations provided guidance regarding the determination of
basis in certain United States property (as defined in section 956(c))
acquired by a controlled foreign corporation (as defined in section
957(a)) in certain nonrecognition
[[Page 36994]]
transactions that are intended to repatriate earnings and profits of
the controlled foreign corporation without an income inclusion by its
United States shareholders under section 951(a)(1)(B). The purpose of
these regulations is to prevent a United States shareholder of a
controlled foreign corporation from avoiding an income inclusion under
section 951(a)(1)(B) where the controlled foreign corporation acquires
United States property in an exchange to which these regulations apply
and claims a basis in the United States property that is less than the
amount of earnings and profits repatriated. No comments in response to
the proposed regulations were received and no public hearing was
requested or held. This Treasury decision adopts the proposed
regulations with minor changes, described below, as final regulations
and removes the corresponding temporary regulations.
Language was added to Sec. 1.956-1(e)(6)(iii) to clarify the
effect of the assumption of a liability by a controlled foreign
corporation in connection with an exchange to which Sec. 1.956-1(e)(6)
applies. The final regulations also modify Sec. 1.956-1(e)(6)(v) to
address the situation in which the controlled foreign corporation
exchanges specified United States property the adjusted basis in which
has been determined under Sec. 1.956-1(e)(6) for other United States
property, by providing that for purposes of applying section 956 the
controlled foreign corporation's adjusted basis in the other United
States property is no less than its adjusted basis in the specified
United States property as determined under Sec. 1.956-1(e)(6)(iii). A
cross-reference to the anti-abuse rule of Sec. 1.956-1T(b)(4) was also
added to Sec. 1.956-1(e)(6)(vi), Example 3.
Effective/Applicability Dates
These final regulations apply to property acquired in exchanges
occurring on or after June 24, 2011. For transactions that occur prior
to June 24, 2011, see Sec. 1.956-1T(e)(6) as contained in 26 CFR Part
1 revised as of April 1, 2011.
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 also has been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations, and because the
regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Code, these regulations have
been submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Drafting Information
The principal author of these regulations is Kristine A. Crabtree,
Office of Associate Chief Counsel (International). However, other
personnel from the IRS and the Treasury Department participated in
their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.956-1(e)(6) also issued under 26 U.S.C. 367(b) and
956(e).
0
Par. 2. Section 1.956-1 is amended by revising the last sentence of
paragraph (e)(1), revising paragraphs (e)(5) and (e)(6), and removing
paragraph (f).
The revisions read as follows:
Sec. 1.956-1 Shareholder's pro rata share of a controlled foreign
corporation's increase in earnings invested in United States property.
* * * * *
(e) * * *
(1) * * * See Sec. 1.956-1(e)(6) for a special rule for
determining amounts attributable to United States property acquired as
the result of certain nonrecognition transactions.
* * * * *
(5) [Reserved]. For further guidance, see Sec. 1.956-1T(e)(5).
(6) Adjusted basis of property acquired in certain nonrecognition
transactions--(i) Scope. This paragraph (e)(6) provides rules for
determining, solely for purposes of applying section 956, the adjusted
basis of specified United States property acquired by a controlled
foreign corporation pursuant to an exchange in which the controlled
foreign corporation's basis in such specified United States property is
determined under section 362(a). This paragraph (e)(6) also applies if
specified United States property, the adjusted basis in which has been
determined under these regulations, is transferred (in one or more
subsequent exchanges) to a related person (within the meaning of
section 954(d)(3)), pursuant to one or more exchanges in which the
related person's adjusted basis in such property is determined, in
whole or in part, by reference to the transferor controlled foreign
corporation's adjusted basis in such property.
(ii) Definition of specified United States property. For purposes
of this paragraph (e)(6), specified United States property is stock of
a domestic corporation described in section 956(c)(1)(B) or an
obligation of a domestic corporation described in section 956(c)(1)(C)
that is acquired by a controlled foreign corporation from the domestic
issuing corporation. Specified United States property does not include
property described in section 956(c)(2).
(iii) Adjusted basis of specified United States property. Solely
for purposes of applying section 956, the adjusted basis of specified
United States property acquired by a controlled foreign corporation in
connection with an exchange to which this paragraph (e)(6) applies
shall be no less than the fair market value of any property transferred
by the controlled foreign corporation in exchange for such specified
United States property. For purposes of this paragraph (e)(6), the term
property has the meaning set forth in section 317(a), but also includes
any liability that is assumed by the controlled foreign corporation in
connection with the exchange notwithstanding the application of section
357(a). The assumption of a liability by the controlled foreign
corporation in connection with the exchange will be considered the
transfer of property. The fair market value of such property will be
the amount of the liability assumed. The fair market value of any
property transferred by the controlled foreign corporation in exchange
for the specified United States property shall be determined at the
time of the exchange.
(iv) Timing. For purposes of Sec. 1.956-2(d)(1)(i)(a), a
controlled foreign corporation that acquires specified United States
property in an exchange to which this paragraph (e)(6) applies acquires
an adjusted basis in such property at the time of the controlled
foreign corporation's exchange of property for such specified United
States property.
(v) Transfers to related persons. If a controlled foreign
corporation transfers specified United States property, the adjusted
basis in which has been determined under this paragraph (e)(6), to a
related person (within the meaning
[[Page 36995]]
of section 954(d)(3)) (related person transferee) in one or more
exchanges pursuant to which the related person transferee's adjusted
basis in such specified United States property is determined, in whole
or in part, by reference to the controlled foreign corporation's
adjusted basis in such specified United States property, then, solely
for purposes of applying section 956 following such exchange, the
controlled foreign corporation's adjusted basis in any United States
property received in the exchange (or exchanges) shall be no less than
the aggregate adjusted basis of the specified United States property as
determined under paragraph (e)(6)(iii) of this section, and the related
person transferee's adjusted basis in such specified United States
property shall be no less than the adjusted basis of such specified
United States property in the hands of the controlled foreign
corporation as determined under paragraph (e)(6)(iii) of this section.
This paragraph (e)(6)(v) shall also apply in the case of one or more
successive transfers of the specified United States property by a
related person transferee to one or more persons related to the
controlled foreign corporation (within the meaning of section
954(d)(3)). This paragraph (e)(6)(v) shall apply regardless of whether
a subsequent transfer was part of a plan (or series of related
transactions) that includes the controlled foreign corporation's
acquisition of the specified United States property.
(vi) Examples. The rules of this paragraph (e)(6) are illustrated
by the following examples:
Example 1. (i) Facts. USP, a domestic corporation, is the
common parent of an affiliated group that joins in the filing of a
consolidated return. USP owns 100 percent of the stock of US1 and
US2, both domestic corporations and members of the USP consolidated
group. US1 owns 100 percent of the stock of CFC, a controlled
foreign corporation. US2 issues $100x of its stock to CFC in
exchange for $10x of CFC stock and $90x cash. US2's transfer of its
stock to CFC is described in section 351, US2 recognizes no gain in
the exchange under section 1032(a), and CFC's basis in the US2 stock
acquired in the exchange is determined under section 362(a).
(ii) Analysis. The US2 stock acquired by CFC in the exchange
constitutes specified United States property under paragraph
(e)(6)(ii) of this section because CFC acquires the US2 stock from
US2, the issuing corporation. Therefore, because CFC's adjusted
basis in the US2 stock is determined under section 362(a), then for
purposes of applying section 956, CFC's adjusted basis in the US2
stock shall, under paragraph (e)(6)(iii) of this section, be no less
than $90x, the fair market value of the property exchanged by CFC
for the US2 stock (the $10x of CFC stock issued in the exchange does
not constitute property for purposes of paragraph (e)(6)(iii) of
this section). Pursuant to paragraph (e)(6)(iv) of this section, for
purposes of Sec. 1.956-2(d)(1)(i)(a) CFC shall be treated as
acquiring its adjusted basis of no less than $90x in the US2 stock
at the time of its transfer of property to US2 in exchange for the
US2 stock. The result would be the same if, instead of CFC
transferring $90x of cash to US2 in the exchange, CFC assumes a $90x
liability of US2.
Example 2. (i) Facts. USP, a domestic corporation, owns 100
percent of the stock of USS, a domestic corporation. USP also owns
100 percent of the stock of CFC, a controlled foreign corporation.
USP's adjusted basis in its USS stock equals the fair market value
of the USS stock, or $100x. USP transfers its USS stock to CFC in
exchange for $100x of CFC stock. USP's transfer of its USS stock to
CFC is described in section 351, USP recognizes no gain in the
exchange under section 351(a), and CFC's adjusted basis in the USS
stock acquired in the exchange, determined under section 362(a),
equals $100x.
(ii) Analysis. The USS stock acquired by CFC in the exchange
does not constitute specified United States property under paragraph
(e)(6)(ii) of this section because CFC acquires the USS stock from
USP. Therefore, CFC's adjusted basis in the USS stock, for purposes
of section 956, is not determined under this paragraph (e)(6).
Instead, CFC's adjusted basis in the USS stock is determined under
the general rule of section 956(a) and under paragraphs (e)(1)
through (4) of this section. As determined under section 362(a),
CFC's adjusted basis in the USS stock is $100x.
Example 3. (i) Facts. USP, a domestic corporation, owns 100
percent of the stock of CFC1, a controlled foreign corporation. CFC1
holds specified United States property (within the meaning of
paragraph (e)(6)(ii) of this section) with an adjusted basis of $30x
for purposes of applying section 956 that was determined under
paragraph (e)(6)(iii) of this section. CFC1 owns 100 percent of the
stock of CFC2, a controlled foreign corporation. CFC1 transfers the
specified United States property to CFC2 in an exchange described in
section 351. CFC2's adjusted basis in the specified United States
property is determined under section 362(a).
(ii) Analysis. In the section 351 exchange, CFC1 transferred
specified United States property to CFC2 with an adjusted basis that
was determined under paragraph (e)(6)(iii) of this section. Further,
CFC2's adjusted basis in the specified United States property is
determined under section 362(a) by reference, in whole or in part,
to CFC1's adjusted basis in such property. Therefore, for purposes
of applying section 956, pursuant to paragraph (e)(6)(v) of this
section CFC2's adjusted basis in the specified United States
property shall be no less than $30x. Paragraph (e)(6)(v) of this
section would also apply if CFC2 subsequently transfers the
specified United States property to another person related to CFC1
(within the meaning of section 954(d)(3)) if such related person's
adjusted basis in the specified United States property is determined
by reference, in whole or in part, to CFC2's adjusted basis in such
property. See also Sec. 1.956-1T(b)(4) if one of the principal
purposes of CFC1's transfer of property to CFC2 was the avoidance of
the application of section 956 with respect to CFC1.
(vii) Effective/applicability dates. This paragraph (e)(6) applies
to property acquired in exchanges occurring on or after June 24, 2011.
For transactions that occur prior to June 24, 2011, see Sec. 1.956-
1T(e)(6) as contained in 26 CFR Part 1 revised as of April 1, 2011.
0
Par. 3. Section 1.956-1T is amended by removing paragraph (e)(6) and
revising paragraph (f) to read as follows:
Sec. 1.956-1T Shareholder's pro rata share of a controlled foreign
corporation's increase in earnings invested in United States property
(temporary).
* * * * *
(f) Effective/applicability date. Paragraph (e)(5) of this section
applies to investments made on or after June 14, 1988.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: June 11, 2011.
Emily S. Mahon,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-15741 Filed 6-23-11; 8:45 am]
BILLING CODE 4830-01-P
