Regulations Regarding the Transition Tax Under Section 965 and Related Provisions; Correction, 14260-14261 [2019-07012]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 84, Number 69 (Wednesday, April 10, 2019)]
[Rules and Regulations]
[Pages 14260-14261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-07012]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9846]
RIN 1545-BO51


Regulations Regarding the Transition Tax Under Section 965 and 
Related Provisions; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendments.

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SUMMARY: This document contains corrections to final regulations (TD 
9846) that were published in the Federal Register on Tuesday, February 
5, 2019 (84 FR 1838). The final regulations implement section 965 of 
the Internal Revenue Code (the ``Code''). Section 965 was amended by 
the Tax Cuts and Job Act, which was enacted on December 22, 2017.

DATES: This correction is effective on April 10, 2019.

FOR FURTHER INFORMATION CONTACT: Natalie Punchak at (202) 317-6934 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    The final regulations (TD 9846) that are the subject of this 
correction are issued under section 965 of the Code.

Need for Correction

    As published, the final regulations (TD 9846) contain errors that 
need to be corrected.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Correction of Publication

    Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:

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 1.965-0 is amended by adding the entries for Sec.  
1.965-2(j)(5)(i), the introductory language of Sec.  1.965-2(j)(5)(ii), 
and Sec.  1.965-4(b)(2)(i) to read as follows:


Sec.  1.965-0   Outline of section 965 regulations.

* * * * *


Sec.  1.965-2   Adjustments to earnings and profits and basis.

* * * * *
    (j) * * *
    (5) * * *
    (i) Facts.
    (ii) Analysis.
* * * * *


Sec.  1.965-4   Disregard of certain transactions.

* * * * *
    (b) * * *
    (2) * * *
    (i) Overview.
* * * * *

0
Par. 3. Section 1.965-1 is amended by revising paragraph (f)(13)(ii) to 
read as follows:


Sec.  1.965-1   Overview, general rules, and definitions.

* * * * *
    (f) * * *
    (13) * * *
    (ii) Specified commodity. The term specified commodity means a 
commodity held, or, for purposes of paragraph (f)(18) of this section, 
to be held, by a specified foreign corporation that, in the hands of 
the specified foreign corporation, is property described in section 
1221(a)(1) or 1221(a)(8). This paragraph (f)(13)(ii) does not apply 
with respect to commodities held by a specified foreign corporation in 
its capacity as a dealer or trader in commodities.
* * * * *

0
Par. 4. Section 1.965-2 is amended by revising paragraphs (b)(2) and 
(4) to read as follows:


Sec.  1.965-2   Adjustments to earnings and profits and basis.

* * * * *
    (b) * * *
    (2) The treatment of a distribution by the specified foreign 
corporation to another specified foreign corporation that is made 
before January 1, 2018, and, in the case of a taxable year of a 
specified foreign corporation before its last taxable year that begins 
before January 1, 2018, any other distribution from the specified 
foreign corporation made before the relevant E&P measurement date, is 
determined under section 959.
* * * * *
    (4) The treatment of distributions described in paragraph (b)(2) of 
this section that are disregarded under Sec.  1.965-4 is redetermined 
(if necessary) and the treatment of all distributions from the 
specified foreign corporation other than those described in paragraph

[[Page 14261]]

(b)(2) of this section is determined under section 959.
* * * * *

0
Par. 5. Section 1.965-7 is amended by revising paragraphs 
(c)(3)(iv)(A)(2) and (c)(3)(iv)(B)(4)(viii) to read as follows:


Sec.  1.965-7   Elections, payment, and other special rules.

* * * * *
    (c) * * *
    (3) * * *
    (iv) * * *
    (A) * * *
    (2) Requirement to enter into a transfer agreement. The shareholder 
with respect to which a triggering event occurs and an eligible section 
965(i) transferee (as defined in paragraph (c)(3)(iv)(B)(1) of this 
section) must enter into an agreement with the Commissioner that 
satisfies the requirements of paragraph (c)(3)(iv)(B) of this section.
    (B) * * *
    (4) * * *
    (viii) An acknowledgement that the eligible section 965(i) 
transferor and any successor to the eligible section 965(i) transferor 
will remain jointly and severally liable for the section 965(i) net tax 
liability being assumed by the eligible section 965(i) transferee;
* * * * *

0
Par. 6. Section 1.965-8 is amended by revising the heading of paragraph 
(e) and paragraphs (e)(1) and (g)(1)(ii)(B)(2) to read as follows:


Sec.  1.965-8   Affiliated groups (including consolidated groups).

* * * * *
    (e) Treatment of a consolidated group or other affiliated group as 
a single section 958(a) U.S. shareholder or a single person--(1) In 
general. All members of a consolidated group that are section 958(a) 
U.S. shareholders of a specified foreign corporation are treated as a 
single section 958(a) U.S. shareholder for purposes of section 965(b), 
Sec.  1.965-1(b)(2), and Sec.  1.965-3. Furthermore, all members of a 
consolidated group are treated as a single person for purposes of 
paragraphs (h), (k), and (n) of section 965 and Sec.  1.965-7. In 
addition, all members of an affiliated group that are section 958(a) 
U.S. shareholders of a specified foreign corporation are treated as a 
single section 958(a) U.S. shareholder for purposes of Sec.  1.965-
2(f). Thus, for example, any election governed by section 965(h) and 
Sec.  1.965-7(b) must be made by the agent (within the meaning of Sec.  
1.1502-77) of the group as a single election on behalf of all members 
of the consolidated group. Similarly, the determination of whether the 
transfer of assets by one member to a non-member of the consolidated 
group would constitute an acceleration event under Sec.  1.965-
7(b)(3)(ii)(B) takes into account all of the assets of the consolidated 
group, which for purposes of this determination, includes all of the 
assets of each consolidated group member. In analyzing issues relating 
to the transfer of assets of a consolidated group, appropriate 
adjustments are made to prevent the duplication of assets or asset 
value.
* * * * *
    (g) * * *
    (1) * * *
    (ii) * * *
    (B) * * *
    (2) Determining section 965(a) inclusion amounts under section 
965(b)(5). Under section 965(b) and paragraph (b) of this section, for 
purposes of determining the section 965(a) inclusion amount of a 
section 958(a) U.S. shareholder with respect to a deferred foreign 
income corporation, if, after applying Sec.  1.965-1(b)(2), the section 
958(a) U.S. shareholder is an E&P net surplus shareholder, then the 
U.S. dollar amount of the section 958(a) U.S. shareholder's pro rata 
share of the section 965(a) earnings amount of the deferred foreign 
income corporation is further reduced (but not below zero) by the 
deferred foreign income corporation's allocable share of the section 
958(a) U.S. shareholder's applicable share of the affiliated group's 
aggregate unused E&P deficit. USS3 is the only E&P net deficit 
shareholder in the USP Group, and, therefore, the aggregate unused E&P 
deficit of the USP Group is equal to USS3's excess aggregate foreign 
E&P deficit ($100x). The applicable share of the USP Group's aggregate 
unused E&P deficit of each of USS1 and USS2, respectively, is an amount 
that bears the same proportion to the USP Group's aggregate unused E&P 
deficit as the product of the group ownership percentage of USS1 and 
USS2, respectively, multiplied by the amount that would (but for 
section 965(b)(5) and paragraph (b) of this section) constitute the 
aggregate section 965(a) inclusion amount of USS1 and USS2, 
respectively, bears to the aggregate of such amounts with respect to 
both USS1 and USS2. Therefore, USS1's applicable share of the USP 
Group's aggregate unused E&P deficit is $40 ($100x x ($200x/($200x + 
$300x))) and USS2's applicable share of the USP Group's aggregate 
unused E&P deficit is $60x ($100x x ($300x/($200x + $300x))). Because 
USS1 is a section 958(a) U.S. shareholder with respect to only one 
deferred foreign income corporation, the entire $40x of USS1's 
applicable share of the USP Group's aggregate unused E&P deficit is 
treated as CFC1's allocable share of USS1's applicable share of the USP 
Group's aggregate unused E&P deficit, and thus USS1's section 965(a) 
inclusion amount with respect to CFC1 is reduced to $160x ($200x-$40x). 
Because USS2 is a section 958(a) U.S. shareholder with respect to only 
one deferred foreign income corporation, the entire $60x of USS2's 
applicable share of the USP Group's aggregate unused E&P deficit is 
treated as CFC3's allocable share of USS2's applicable share of the USP 
Group's aggregate unused E&P deficit, and thus USS2's section 965(a) 
inclusion amount with respect to CFC3 is reduced to $240x ($300x-$60x).

Martin V. Franks,
Chief, Publications and Regulations Branch, Legal Processing Division, 
Associate Chief Counsel (Procedure and Administration).
[FR Doc. 2019-07012 Filed 4-9-19; 8:45 am]
 BILLING CODE 4830-01-P