Ownership Attribution Under Section 958 Including for Purposes of Determining Status as Controlled Foreign Corporation or United States Shareholder, 59428-59436 [2020-17549]

Download as PDF 59428 Federal Register / Vol. 85, No. 184 / Tuesday, September 22, 2020 / Rules and Regulations DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9908] RIN 1545–B052 Ownership Attribution Under Section 958 Including for Purposes of Determining Status as Controlled Foreign Corporation or United States Shareholder Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. AGENCY: This document contains final regulations relating to the modification of section 958(b) of the Internal Revenue Code (‘‘Code’’) by the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. This document finalizes the proposed regulations published on October 2, 2019. The final regulations affect United States persons that have ownership interests in, or that make or receive payments to or from, certain foreign corporations. DATES: Effective date: These regulations are effective on September 22, 2020. Applicability dates: For dates of applicability, see §§ 1.267(a)–3(d), 1.332–8(b), 1.367(a)–8(r)(1)(i), 1.672(f)– 2(e), 1.706–1(b)(6)(v)(A), 1.863–8(h), 1.863–9(l), 1.904–5(o), 1.958–2(h), and 1.6049–5(g). FOR FURTHER INFORMATION CONTACT: Christina G. Daniels, (202) 317–6934 (not a toll-free number). SUPPLEMENTARY INFORMATION: SUMMARY: Background As in effect before its repeal, section 958(b)(4) provided that section 318(a)(3)(A), (B), and (C) (providing for downward attribution) was not to be applied so as to consider a United States person as owning stock owned by a person who is not a United States person (a ‘‘foreign person’’). Section 14213 of the Tax Cuts and Jobs Act, Public Law 115–97 (the ‘‘Act’’) repealed section 958(b)(4), effective for the last taxable year of foreign corporations beginning before January 1, 2018, and each subsequent year of the foreign corporations, and for the taxable years of United States shareholders (as defined in section 951(b)) (‘‘U.S. shareholders’’) in which or with which such taxable years of the foreign corporations end. As a result of this repeal, stock of a foreign corporation owned by a foreign person can be attributed to a United States person under section 318(a)(3) for various VerDate Sep<11>2014 16:32 Sep 21, 2020 Jkt 250001 purposes, including for purposes of determining whether a United States person is a U.S. shareholder of the foreign corporation and, therefore, whether the foreign corporation is a controlled foreign corporation (within the meaning of section 957) (‘‘CFC’’). On October 2, 2019, the Department of the Treasury (‘‘Treasury Department’’) and the IRS published proposed regulations (REG–104223–18) relating to the repeal of section 958(b)(4) by the Act, in the Federal Register (84 FR 52398) (the ‘‘proposed regulations’’). Additional guidance related to the repeal of section 958(b)(4), including relief from certain information reporting requirements and safe harbors for determining whether a foreign corporation is a CFC and for determining certain items of a CFC (such as taxable income and earnings and profits) based on alternative information, was issued along with the proposed regulations. See Revenue Procedure 2019–40, 2019–43 I.R.B. 982. No public hearing on the proposed regulations was requested or held. All of the written comments that were received by the Treasury Department and the IRS in response to the proposed regulations are available at www.regulations.gov or upon request. This Treasury decision adopts the proposed regulations as final regulations with the modifications discussed in the Summary of Comments and Explanation of Revisions section of this preamble. Comments outside of the scope of this rulemaking are generally not addressed but may be considered in connection with future guidance. A notice of proposed rulemaking published in the Proposed Rules section of this issue of the Federal Register (REG–110059–20) provides regulations under section 954(c)(6) to ensure that the operation of section 954(c)(6) is consistent with its application before the Act’s repeal of section 958(b)(4). The notice of proposed rulemaking also modifies the regulations under section 367(a) regarding the direct or indirect transfer of stock or securities of a domestic corporation by a United States person (as defined in section 7701(a)(30)) to a foreign corporation to ensure the attribution rules are applied consistently following the Act’s repeal of section 958(b)(4). Summary of Comments and Explanation of Revisions I. Changes in Connection With Repeal of Section 958(b)(4) A. Overview The final regulations, like the proposed regulations, generally make PO 00000 Frm 00052 Fmt 4700 Sfmt 4700 modifications to ensure that the operation of certain rules outside of subpart F of subchapter N of chapter 1 of the Code (‘‘subpart F’’) are consistent with their application before the Act’s repeal of section 958(b)(4). Comments generally supported the approach of the proposed regulations but requested additional modifications, as discussed in more detail in this Summary of Comments and Explanation of Revisions. B. Section 267: Deduction for Certain Payments to Foreign Related Persons Section 267(a)(2) sets forth a matching rule that generally provides that if a payment is made to a related person and is not includible in the payee’s gross income until paid, the amount is not allowable as a deduction to the taxpayer until the amount is includible in the gross income of the payee (‘‘general matching rule’’). Pursuant to regulations issued under section 267(a)(3)(A),1 subject to certain exceptions, a taxpayer must use the cash method of accounting for deductions of amounts owed to a related foreign person (‘‘foreign payee rule’’). The foreign payee rule does not apply to the following amounts: (i) A foreign source amount, other than interest, that is not effectively connected with the conduct of a U.S. trade or business; (ii) an amount, other than interest, that is exempt from U.S. taxation pursuant to a treaty obligation of the United States; and (iii) an amount that is effectively connected with the conduct of a U.S trade or business (although payments in this clause (iii) are subject to the general matching rule of section 267(a)(2)). See § 1.267(a)–3(b) and (c)(1) and (2). Section 267(a)(3)(B)(i) provides that, notwithstanding the foreign payee rule in section 267(a)(3)(A), in the case of any item payable to a CFC, a deduction is allowable to the payor for any taxable year before the year in which the payment is made only to the extent that an amount attributable to the item is includible during such prior taxable year in the gross income of a United States person who owns (within the meaning of section 958(a)) stock in such CFC (‘‘CFC payee rule’’). Under the proposed regulations, however, an amount (other than interest) that is income of a related foreign person and exempt from U.S. taxation pursuant to a treaty obligation of the United States 1 In 2004, section 267(a)(3) was amended to redesignate existing section 267(a)(3) as section 267(a)(3)(A), and a new section 267(a)(3)(B) was added. Public Law 108–357. The regulations in § 1.267(a)–3 were issued in 1993, under section 267(a)(3) as it existed at the time, currently section 267(a)(3)(A). E:\FR\FM\22SER1.SGM 22SER1 Federal Register / Vol. 85, No. 184 / Tuesday, September 22, 2020 / Rules and Regulations was not subject to the CFC payee rule if the related foreign person is a CFC that did not have any U.S. shareholders that owned (within the meaning of section 958(a)) stock in such CFC (a ‘‘section 958(a) U.S. shareholder’’). See proposed § 1.267(a)–3(c)(4). A comment received shortly before the proposed regulations were published suggested that the regulations should broadly provide that, with respect to all payments subject to section 267(a)(3), the CFC payee rule in section 267(a)(3)(B)(i) applies only to the extent a recipient CFC has one or more section 958(a) U.S. shareholders and that it should be applied without regard to the repeal of section 958(b)(4). Consistent with the purpose of the general matching rule in section 267(a)(2) and in order for the foreign payee rule in section 267(a)(3)(A) to apply consistently with its application before the repeal of section 958(b)(4), the Treasury Department and the IRS agree that, with respect to all payments (including interest) subject to section 267(a)(3), the CFC payee rule in section 267(a)(3)(B)(i) should not apply if a recipient CFC does not have any section 958(a) U.S. shareholders who are required to include amounts in income with respect to the CFC. However, the Treasury Department and the IRS do not agree that the CFC payee rule should be applied without regard to the repeal of section 958(b)(4), because that could permit the avoidance of the CFC payee rule (and the purposes of the matching rule in general) in foreign-parented structures where a section 958(a) U.S. shareholder is required to include amounts in income with respect to a recipient foreign corporation that is a CFC due solely to the repeal of section 958(b)(4). Accordingly, the exception from the CFC payee rule in proposed § 1.267(a)–3(c)(4) is expanded in the final regulations to apply to all amounts payable to a related foreign person that is a CFC that does not have any section 958(a) U.S. shareholders. See § 1.267(a)– 3(c)(4). As a result, the foreign payee rule in section 267(a)(3)(A) and the regulations under that section will apply to those payments exempt from the application of the CFC payee rule. However, the CFC payee rule continues to apply to a CFC that has a section 958(a) shareholder even if the foreign corporation is a CFC due solely to the repeal of section 958(b)(4). C. Section 881(c): Portfolio Interest Section 881(c) exempts from tax under section 881(a) U.S.-source portfolio interest received by a foreign corporation (‘‘portfolio interest exception’’). For this purpose, portfolio VerDate Sep<11>2014 16:32 Sep 21, 2020 Jkt 250001 interest generally includes interest paid on a debt obligation that is in registered form but excludes, among other things, interest received by a CFC from a related person (within the meaning of section 864(d)(4)). See section 881(c)(2) and (3). The repeal of section 958(b)(4) results in foreign corporations that were previously not CFCs (and thus potentially eligible for the portfolio interest exception for interest received from related persons) being ineligible for the exception on such interest. A comment requested that the general approach of the proposed regulations to exclude, where appropriate, CFCs that are CFCs solely as a result of the repeal of section 958(b)(4) be extended to the portfolio interest exception so that CFCs that were not previously CFCs could continue to be eligible for the portfolio interest exception. The rules set forth in the proposed regulations were all issued pursuant to specific grants of regulatory authority, and the Treasury Department and the IRS have determined that there is no statutory or regulatory authority to modify the limitation on the portfolio interest exception for payments received by CFCs from a related person. Accordingly, the recommendation is not adopted. The comment also requested that the Treasury Department and the IRS issue guidelines for withholding agents that might not be in a position to know whether a payee was affected by the repeal of section 958(b)(4) and thus might not know whether the payee qualifies for the portfolio interest exception or whether the withholding agent may be required to withhold under section 1442. The comment posited scenarios in which a U.S. payor would not necessarily have the information to determine whether a foreign corporation payee is a CFC and thus would err on the side of withholding as if it were a CFC. A withholding agent is generally subject to an actual knowledge or reason to know standard. See § 1.1441–7(b)(1). A withholding agent is considered to have reason to know with respect to a claim relevant to withholding under chapter 3 (including section 1442) if ‘‘its knowledge of relevant facts or of statements contained in the withholding certificates or other documentation is such that a reasonably prudent person in the position of the withholding agent would question the chapter 3 claims made.’’ See § 1.1441–7(b)(2). The Treasury Department and the IRS have concluded that this standard is appropriate for withholding agents, and additional rules applicable only to portfolio interest are not necessary. Moreover, it would be outside of the PO 00000 Frm 00053 Fmt 4700 Sfmt 4700 59429 scope of this rulemaking to provide rules generally applicable to the standard of diligence applicable to withholding agents. Accordingly, the suggestion is not adopted. D. Section 1248: Gain From Certain Sales or Exchanges of Stock in Certain Foreign Corporations Section 1248(a) provides that certain gain recognized on the sale or exchange of stock of a foreign corporation by a United States person is included in the gross income of that person as a dividend if (i) the foreign corporation was a CFC at any time during the fiveyear period ending on the date of the sale or exchange, and (ii) the United States person owned or is considered to have owned, within the meaning of section 958, 10 percent or more of the total combined voting power of the foreign corporation at any time during that five-year period. A comment suggested that, consistent with the approach taken in the proposed regulations with respect to other sections, section 958(b) should be applied without regard to the repeal of section 958(b)(4) for purposes of section 1248 to prevent unintended consequences. The final regulations do not adopt this comment because the Treasury Department and the IRS have determined that section 958(b), as modified by the Act, should apply for purposes of section 1248. This treatment is consistent with the application of section 958(b) for purposes of the subpart F provisions, and this consistent treatment is appropriate because one of the types of transactions that the repeal of section 958(b)(4) was intended to address—that is, transactions used to avoid the subpart F provisions, including decontrolling a foreign subsidiary to convert a CFC to a nonCFC—could also be used to avoid the section 1248 provisions. E. Section 1297: PFIC Asset Test The proposed regulations modified the definition of a CFC for purposes of section 1297(e) to disregard downward attribution from foreign persons. See proposed § 1.1297–1(d)(1)(iii)(A). On July 11, 2019, the Treasury Department and the IRS published other proposed regulations (REG–105474–18) under § 1.1297–1 in the Federal Register (84 FR 33120) (the ‘‘PFIC proposed regulations’’). The Treasury Department and the IRS have decided to finalize proposed § 1.1297–1(d)(1)(iii)(A) as part of the Treasury Decision finalizing the PFIC proposed regulations. E:\FR\FM\22SER1.SGM 22SER1 59430 Federal Register / Vol. 85, No. 184 / Tuesday, September 22, 2020 / Rules and Regulations F. Section 6049: Chapter 61 Reporting Provisions Generally, under chapter 61 of subtitle F of the Code, a payor must report to the IRS (using the appropriate Form 1099) certain payments or transactions with respect to United States persons that are not exempt recipients. The regulations under chapter 61 generally provide that the scope of payments or transactions subject to reporting under chapter 61 depends, in part, on whether or not the payor is a U.S. payor (as defined in § 1.6049–5(c)(5)(i)), which generally includes United States persons and their foreign branches, as well as CFCs. To mitigate the increased Form 1099 reporting by foreign corporations that may have no direct or indirect owners that are United States persons, in accordance with the regulatory authority provided in section 6049(a), proposed § 1.6049–5(c)(5)(i)(C) provided that a U.S. payor includes only a CFC that is a CFC without regard to downward attribution from a foreign person. A comment requested that the exception from Form 1099 reporting be expanded to all CFCs, even if they would be CFCs without regard to the repeal of section 958(b)(4), due to the burden of the required reporting and the interaction with the requirements of local law to which CFCs are subject. Because the comment does not relate to the consequences of the repeal of section 958(b)(4), it is outside of the scope of these regulations. As a result, the rules in proposed § 1.6049–5 are finalized as proposed. II. Applicability Dates These regulations generally apply on or after October 1, 2019. For taxable years before taxable years covered by the regulations, a taxpayer may generally apply the rules set forth in the final regulations to the last taxable year of a foreign corporation beginning before January 1, 2018, and each subsequent taxable year of the foreign corporation, and to taxable years of U.S. shareholders in which or with which such taxable years of the foreign corporation end, provided that the taxpayer and United States persons that are related (within the meaning of section 267 or 707) to the taxpayer consistently apply the relevant rule with respect to all foreign corporations. See section 7805(b)(7). Moreover, although § 1.958–2 applies to taxable years of foreign corporations ending on or after October 1, 2019, and taxable years of U.S. shareholders in which or with which such taxable years of foreign VerDate Sep<11>2014 17:19 Sep 21, 2020 Jkt 250001 corporations end, the same result applies before such date due to the effective date of the repeal of section 958(b)(4). III. Effect on Other Documents Section 5.01 of Notice 2018–13 (2018– 6 I.R.B. 341) is obsolete as of September 22, 2020. Statement of Availability of IRS Documents IRS Revenue Procedures, Revenue Rulings, notices, and other guidance cited in this document are published in the Internal Revenue Bulletin and are available from the Superintendent of Documents, U.S. Government Publishing Office, Washington, DC 20402, or by visiting the IRS website at https://www.irs.gov. Special Analyses These regulations are not subject to review under section 6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement (April 11, 2018) between the Treasury Department and the Office of Management and Budget regarding review of tax regulations. It is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities within the meaning of section 601(6) of the Regulatory Flexibility Act (5 U.S.C. chapter 6). The regulations do not impose any new costs on taxpayers. Moreover, the regulations generally affect CFCs and U.S. shareholders of CFCs. CFCs, as foreign corporations, are not considered small entities. Nor are U.S. taxpayers considered small entities to the extent the taxpayers are natural persons or entities other than small entities. Thus, the regulations generally only affect small entities if a U.S. taxpayer that is a U.S. shareholder of a CFC is a small entity. Consequently, the Treasury Department and the IRS have determined that the regulations will not have a significant economic impact on a substantial number of small entities. Notwithstanding this certification, the Treasury Department and the IRS invite comments on the impacts of these regulations on small entities. Pursuant to section 7805(f), the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business. No comments were received. PO 00000 Frm 00054 Fmt 4700 Sfmt 4700 Drafting Information The principal authors of the regulations are Karen J. Cate and Christina G. Daniels of the Office of Associate Chief Counsel (International). However, other personnel from the Treasury Department and the IRS participated in the development of the regulations. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows: PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by revising the entry for § 1.267(a)–3 and adding an entry for § 1.332–8 in numerical order to read as follows: ■ Authority: 26 U.S.C. 7805 * * * * * * * * Section 1.267(a)–3 also issued under 26 U.S.C. 267(a)(3)(A) and (a)(3)(B)(ii). * * * * * Section 1.332–8 also issued under 26 U.S.C. 332(d)(4). * * * * * Par. 2. Section 1.267(a)–3 is amended: 1. In paragraph (c)(2), the first sentence, by removing the language ‘‘or (a)(3)’’. ■ 2. By revising paragraph (c)(4). ■ 3. In paragraph (d), by revising the second sentence and adding five sentences at the end of the paragraph. The revisions and additions read as follows: ■ ■ § 1.267(a)–3 Deduction of amounts owed to related foreign persons. * * * * * (c) * * * (4) Certain amounts owed to certain controlled foreign corporations. An amount that is income of a related foreign person is exempt from the application of section 267(a)(3)(B)(i) if the related foreign person is a controlled foreign corporation that does not have any United States shareholders (as defined in section 951(b)) that own (within the meaning of section 958(a)) stock of the controlled foreign corporation. However, in this case, the amount is subject to the application of section 267(a)(3)(A) in the same manner as if the related foreign person were a foreign corporation that is not a controlled foreign corporation. (d) * * * Except as otherwise provided in this paragraph (d), the regulations in this section issued under E:\FR\FM\22SER1.SGM 22SER1 Federal Register / Vol. 85, No. 184 / Tuesday, September 22, 2020 / Rules and Regulations section 267 apply to all other deductible amounts that are incurred after July 31, 1989, but do not apply to amounts that are incurred pursuant to a contract that was binding on September 29, 1983, and at all times thereafter (unless the contract was renegotiated, extended, renewed, or revised after that date). Paragraph (c)(2) of this section applies to payments accrued on or after October 22, 2004. For payments accrued before October 22, 2004, see § 1.267(a)–3(c)(2), as contained in 26 CFR part 1, revised as of April 1, 2004. Paragraph (c)(4) of this section applies to payments accrued on or after October 1, 2019. For payments accrued before October 1, 2019, a taxpayer may apply paragraph (c)(4) of this section for payments accrued during the last taxable year of a foreign corporation beginning before January 1, 2018, and each subsequent taxable year of the foreign corporation, provided that the taxpayer and United States persons that are related (within the meaning of section 267 or 707) to the taxpayer consistently apply such paragraph with respect to all foreign corporations. For payments accrued before October 22, 2004, see § 1.267(a)– 3(c)(4), as contained in 26 CFR part 1, revised as of April 1, 2004. ■ Par. 3. Section 1.332–8 is added to read as follows: § 1.332–8 Recognition of gain on liquidation of certain holding companies. (a) Definition of controlled foreign corporation. For purposes of section 332(d)(3), a controlled foreign corporation has the meaning provided in section 957, determined without applying section 318(a)(3)(A), (B), and (C) so as to consider a United States person as owning stock which is owned by a person who is not a United States person. (b) Applicability date. This section applies to distributions in complete liquidation occurring on or after October 1, 2019, and to distributions in complete liquidation occurring before October 1, 2019, that result from an entity classification election made under § 301.7701–3 of this chapter that is filed on or after October 1, 2019. For distributions in complete liquidation occurring before October 1, 2019, other 59431 than distributions in complete liquidation occurring before October 1, 2019, that result from an entity classification election made under § 301.7701–3 of this chapter that is filed on or after October 1, 2019, a taxpayer may apply this section to distributions in complete liquidation occurring during the last taxable year of a distributee foreign corporation beginning before January 1, 2018, and each subsequent taxable year of the foreign corporation, provided that the taxpayer and United States persons that are related (within the meaning of section 267 or 707) to the taxpayer consistently apply this section with respect to all foreign corporations. ■ Par. 4. Section 1.367(a)-8 is amended: ■ 1. In paragraph (k)(14)(ii), by revising the second sentence. ■ 2. In paragraph (p)(3), by designating Examples 1 through 4 as paragraphs (p)(3)(i) through (iv), respectively. ■ 3. In newly redesignated paragraphs (p)(3)(i) through (iv), by redesignating the paragraphs in the first column as the paragraphs in the second column: Old paragraphs New paragraphs (p)(3)(i)(i) and (ii) ...................................................................................... (p)(3)(ii)(i) and (ii) ..................................................................................... (p)(3)(iii)(i) and (ii) ..................................................................................... (p)(3)(iv)(i) and (ii) .................................................................................... 4. In each newly redesignated paragraph listed in the first column, by removing the language in the second ■ (p)(3)(i)(A) and (B). (p)(3)(ii)(A) and (B). (p)(3)(iii)(A) and (B). (p)(3)(iv)(A) and (B). column and adding in its place the language in the third column: Paragraph Remove Add (p)(3)(i)(B) ............................ this Example 1 ................................................................ (p)(3)(ii)(B) ............................ this Example 2 ................................................................ in paragraph (p)(3)(i)(A) of this section (the facts of this Example 1). in paragraph (p)(3)(ii)(A) of this section (the facts of this Example 2). 5. In paragraph (q)(2), by removing the language ‘‘at least 5% (applying the attribution rules of section 318, as modified by section 958(b))’’ wherever it appears and adding the language ‘‘at least 5% (determined as provided in ■ paragraph (k)(14)(ii) of this section)’’ in its place. ■ 6. In paragraph (q)(2), by designating Examples 1 through 25 as paragraphs (q)(2)(i) through (xxv), respectively. Old paragraphs New paragraphs (q)(2)(i)(i) and (ii) ...................................................................................... (q)(2)(ii)(i) and (ii) ..................................................................................... (q)(2)(ii)(B)(A) and (B) .............................................................................. (q)(2)(iii)(i) and (ii) ..................................................................................... (q)(2)(iv)(i) and (ii) .................................................................................... (q)(2)(iv)(B)(A) and (B) ............................................................................. (q)(2)(iv)(B)(2)(1) through (3) ................................................................... (q)(2)(v)(i) and (ii) ..................................................................................... (q)(2)(vi)(i) through (iii) ............................................................................. (q)(2)(vi)(B)(A) and (B) ............................................................................. (q)(2)(vi)(B)(2)(1) through (3) ................................................................... VerDate Sep<11>2014 16:32 Sep 21, 2020 Jkt 250001 7. In newly redesignated paragraphs (q)(2)(i) through (xxv), by redesignating the paragraphs in the first column as the paragraphs in the second column: ■ PO 00000 Frm 00055 Fmt 4700 (q)(2)(i)(A) and (B). (q)(2)(ii)(A) and (B). (q)(2)(ii)(B)(1) and (2). (q)(2)(iii)(A) and (B). (q)(2)(iv)(A) and (B). (q)(2)(iv)(B)(1) and (2). (q)(2)(iv)(B)(2)(i) through (iii). (q)(2)(v)(A) and (B). (q)(2)(vi)(A) through (C). (q)(2)(vi)(B)(1) and (2). (q)(2)(vi)(B)(2)(i) through (iii). Sfmt 4700 E:\FR\FM\22SER1.SGM 22SER1 59432 Federal Register / Vol. 85, No. 184 / Tuesday, September 22, 2020 / Rules and Regulations Old paragraphs New paragraphs (q)(2)(vii)(i) and (ii) .................................................................................... (q)(2)(viii)(i) and (ii) ................................................................................... (q)(2)(ix)(i) and (ii) .................................................................................... (q)(2)(x)(i) and (ii) ..................................................................................... (q)(2)(x)(B)(A) through (C) ........................................................................ (q)(2)(xi)(i) through (iii) ............................................................................. (q)(2)(xii)(i) and (ii) .................................................................................... (q)(2)(xii)(B)(A) through (C) ...................................................................... (q)(2)(xiii)(i) and (ii) ................................................................................... (q)(2)(xiv)(i) and (ii) ................................................................................... (q)(2)(xiv)(B)(A) and (B) ........................................................................... (q)(2)(xv)(i) and (ii) ................................................................................... (q)(2)(xvi)(i) and (ii) ................................................................................... (q)(2)(xvii)(i) and (ii) .................................................................................. (q)(2)(xvii)(B)(A) through (C) .................................................................... (q)(2)(xvii)(B)(3)(1) through (3) ................................................................. (q)(2)(xviii)(i) and (ii) ................................................................................. (q)(2)(xix)(i) and (ii) ................................................................................... (q)(2)(xx)(i) through (vi) ............................................................................ (q)(2)(xx)(B)(A) and (B) ............................................................................ (q)(2)(xx)(B)(1)(1) and (2) ......................................................................... (q)(2)(xxi)(i) and (ii) ................................................................................... (q)(2)(xxi)(B)(A) through (C) ..................................................................... (q)(2)(xxii)(i) through (iii) ........................................................................... (q)(2)(xxii)(B)(A) through (C) .................................................................... (q)(2)(xxii)(C)(A) through (C) .................................................................... (q)(2)(xxiii)(i) through (iv) .......................................................................... (q)(2)(xxiii)(B)(A) through (D) ................................................................... (q)(2)(xxiii)(C)(A) and (B) .......................................................................... (q)(2)(xxiv)(i) and (ii) ................................................................................. (q)(2)(xxv)(i) and (ii) .................................................................................. 8. In each newly redesignated paragraph listed in the first column, by removing the language in the second ■ (q)(2)(vii)(A) and (B). (q)(2)(viii)(A) and (B). (q)(2)(ix)(A) and (B). (q)(2)(x)(A) and (B). (q)(2)(x)(B)(1) through (3). (q)(2)(xi)(A) through (C). (q)(2)(xii)(A) and (B). (q)(2)(xii)(B)(1) through (3). (q)(2)(xiii)(A) and (B). (q)(2)(xiv)(A) and (B). (q)(2)(xiv)(B)(1) and (2). (q)(2)(xv)(A) and (B). (q)(2)(xvi)(A) and (B). (q)(2)(xvii)(A) and (B). (q)(2)(xvii)(B)(1) through (3). (q)(2)(xvii)(B)(3)(i) through (iii). (q)(2)(xviii)(A) and (B). (q)(2)(xix)(A) and (B). (q)(2)(xx)(A) through (F). (q)(2)(xx)(B)(1) and (2). (q)(2)(xx)(B)(1)(i) and (ii). (q)(2)(xxi)(A) and (B). (q)(2)(xxi)(B)(1) through (3). (q)(2)(xxii)(A) through (C). (q)(2)(xxii)(B)(1) through (3). (q)(2)(xxii)(C)(1) through (3). (q)(2)(xxiii)(A) through (D). (q)(2)(xxiii)(B)(1) through (4). (q)(2)(xxiii)(C)(1) and (2). (q)(2)(xxiv)(A) and (B). (q)(2)(xxv)(A) and (B) column and adding in its place the language in the third column: Paragraph Remove Add (q)(2)(ii)(B)(2) ....................... paragraph (ii)(A) of this Example 2 ................................. (q)(2)(iv)(B)(2)(i) ................... paragraph (ii)(A) of this Example 4 ................................. (q)(2)(vi)(B)(1) ...................... paragraph (ii)(B) of this Example 6 ................................. (q)(2)(vi)(C) .......................... paragraph (i) of this Example 6 ...................................... (q)(2)(xi)(C) .......................... paragraph (i) of this Example 11 .................................... (q)(2)(xx)(C) ......................... paragraph (i) of this Example 20 .................................... (q)(2)(xx)(C) ......................... paragraph (ii) of this Example 20 ................................... (q)(2)(xx)(D) ......................... paragraph (i) of this Example 20 .................................... (q)(2)(xx)(D) ......................... paragraph (ii) of this Example 20 ................................... (q)(2)(xx)(E) .......................... paragraph (i) of this Example 20 .................................... (q)(2)(xx)(F) .......................... paragraph (i) of this Example 20 .................................... (q)(2)(xxii)(C) introductory text. (q)(2)(xxiii)(C) introductory text. (q)(2)(xxiii)(C) introductory text. (q)(2)(xxiii)(D) ....................... in paragraph (i) of this Example 22 ................................ (q)(2)(xxiv)(A) ....................... in paragraph (i) of Example 6 ......................................... paragraph (q)(2)(ii)(B)(1) of this section (paragraph (1) in the results in this Example 2). paragraph (q)(2)(iv)(B)(1) of this section (paragraph (1) in the results in this Example 4). paragraph (q)(2)(vi)(B)(2) of this section (paragraph (2) in the results in this Example 6). paragraph (q)(2)(vi)(A) of this section (the facts in this Example 6). paragraph (q)(2)(xi)(A) of this section (the facts in this Example 11). paragraph (q)(2)(xx)(A) of this section (the facts in this Example 20). paragraph (q)(2)(xx)(B) of this section (the results in this Example 20). paragraph (q)(2)(xx)(A) of this section (the facts in this Example 20). paragraph (q)(2)(xx)(B) of this section (the facts in this Example 20). paragraph (q)(2)(xx)(A) of this section (the facts in this Example 20). paragraph (q)(2)(xx)(A) of this section (the facts in this Example 20). paragraph (q)(2)(xxii)(A) of this section (the facts in this Example 22). paragraph (q)(2)(xxiii)(A) of this section (the facts in this Example 23). paragraph (q)(2)(xxiii)(B) of this section (the results in this Example 23). paragraph (q)(2)(xxiii)(A) of this section (the facts in this Example 23). paragraph (q)(2)(vi)(A) of this section (the facts in Example 6) VerDate Sep<11>2014 16:32 Sep 21, 2020 paragraph (i) of this Example 23 .................................... paragraph (ii) of this Example 23 ................................... paragraph (i) of this Example 23 .................................... Jkt 250001 PO 00000 Frm 00056 Fmt 4700 Sfmt 4700 E:\FR\FM\22SER1.SGM 22SER1 Federal Register / Vol. 85, No. 184 / Tuesday, September 22, 2020 / Rules and Regulations 9. In each paragraph listed in the first column, by removing the language in ■ the second column and adding in its place the language in the third column: Paragraph Remove (c)(1)(ii) ................................. (c)(4)(iv) ................................ (q)(2) of this section, Example 6 ..................................... paragraph (q)(2) of this section, Examples 1, 2, 3, and 5. (q)(2) of this section, Example 2 ..................................... (q)(2) of this section, Example 4 ..................................... (q)(2) of this section, Example 3 ..................................... (q)(2) of this section, Example 11 ................................... (q)(2) of this section, Example 5 ..................................... (q)(2) of this section, Example 6 ..................................... (q)(2) of this section, Example 7 ..................................... (q)(2) of this section, Example 8 ..................................... (q)(2) of this section, Example 9 ..................................... (q)(2) of this section, Example 20 ................................... paragraph (q)(2), Examples 4, 6, 10, 12, 17, 21, and 23 of this section. (q)(2) of this section, Example 13 ................................... (q)(2) of this section, Example 14 ................................... (q)(2) of this section, Example 15 ................................... (q)(2) of this section, Example 16 ................................... (q)(2) of this section, Example 18 ................................... (q)(2) of this section, Example 19 ................................... (q)(2) of this section, Example 22 ................................... (q)(2) of this section, Example 22 ................................... (q)(2) of this section, Example 20 ................................... paragraph (q)(2) of this section, Examples 24 and 25 ... (j)(1) ...................................... (k)(1) introductory text .......... (k)(1)(ii) ................................. (k)(1)(iii) ................................ (k)(6)(i) ................................. (k)(6)(i) ................................. (k)(6)(ii) ................................. (k)(6)(iii) ................................ (k)(8) ..................................... (k)(12)(i) ............................... (k)(14) introductory text ........ (m)(1) ................................... (n)(1) .................................... (o)(1)(ii) ................................ (o)(1)(iii) introductory text ..... (o)(5)(i)(A) ............................ (o)(5)(i)(B) ............................ (o)(5)(i)(C) ............................ (o)(5)(i)(D) ............................ (o)(6) .................................... (r)(2)(i) .................................. 10. By revising the paragraph (r) subject heading. ■ 11. In paragraph (r)(1)(i), by adding three sentences at the end of the paragraph. The revisions and addition read as follows: ■ § 1.367(a)–8 Gain recognition agreement requirements. * * * * * (k) * * * (14) * * * (ii) * * * If, as a result of the disposition or other event, a foreign corporation acquires the transferred stock or securities or, as applicable, substantially all the assets of the transferred corporation, the condition of this paragraph (k)(14)(ii) is satisfied only if the U.S. transferor owns at least five percent (applying the attribution rules of section 318, as modified by section 958(b) but without applying section 318(a)(3)(A), (B), and (C) so as to consider the U.S. transferor as owning stock which is owned by a person who is not a United States person) of the total voting power and the total value of the outstanding stock of such foreign corporation. * * * * * (r) Applicability dates—(1) * * * (i) * * * Paragraph (k)(14)(ii) of this section applies to transfers occurring on or after October 1, 2019, and to transfers occurring before October 1, 2019, that result from an entity classification election made under § 301.7701–3 of VerDate Sep<11>2014 16:32 Sep 21, 2020 Jkt 250001 59433 Add (q)(2)(vi) of this section. paragraphs (q)(2)(i), (ii), (iii), and (v) of this section. (q)(2)(ii) of this section. (q)(2)(iv) of this section. (q)(2)(iii) of this section. (q)(2)(xi) of this section. (q)(2)(v) of this section. (q)(2)(vi) of this section. (q)(2)(vii) of this section. (q)(2)(viii) of this section. (q)(2)(ix) of this section. (q)(2)(xx) of this section. paragraphs (q)(2)(iv), (vi), (x), (xii), (xvii), (xxi), and (xxiii) of this section. (q)(2)(xiii) of this section. (q)(2)(xiv) of this section. (q)(2)(xv) of this section. (q)(2)(xvi) of this section. (q)(2)(xviii) of this section. (q)(2)(xix) of this section. (q)(2)(xxii) of this section. (q)(2)(xxii) of this section. (q)(2)(xx) of this section. paragraphs (q)(2)(xxiv) and (xxv) of this section this chapter that is filed on or after October 1, 2019. For transfers occurring before October 1, 2019, other than transfers occurring before October 1, 2019, that result from an entity classification election made under § 301.7701–3 of this chapter that is filed on or after October 1, 2019, a taxpayer may apply paragraph (k)(14)(ii) of this section to transfers occurring during the last taxable year of a transferee foreign corporation beginning before January 1, 2018, and each subsequent taxable year of the foreign corporation, provided that the taxpayer and United States persons that are related (within the meaning of section 267 or 707) to the taxpayer consistently apply such paragraph with respect to all foreign corporations. For transfers occurring before October 1, 2019, other than transfers occurring before October 1, 2019, that result from an entity classification election made under § 301.7701–3 of this chapter that is filed on or after October 1, 2019, where the taxpayer does not apply paragraph (k)(14)(ii) of this section as described in the preceding sentence, see paragraph (k)(14)(ii) of this section as in effect and contained in 26 CFR part 1, as revised April 1, 2020. * * * * * ■ Par. 5. Section 1.672(f)–2 is amended by revising paragraphs (a) and (e) to read as follows: § 1.672(f)–2 Certain foreign corporations. (a) Application of general rule in this section. Subject to the provisions of PO 00000 Frm 00057 Fmt 4700 Sfmt 4700 paragraph (b) of this section, if the owner of any portion of a trust upon application of the grantor trust rules without regard to section 672(f) is a controlled foreign corporation or a passive foreign investment company (as defined in section 1297), the corporation is treated as a domestic corporation for purposes of applying the rules of § 1.672(f)-1. For purposes of this section, a controlled foreign corporation has the meaning provided in section 957, determined without applying section 318(a)(3)(A), (B), and (C) so as to consider a United States person as owning stock which is owned by a person who is not a United States person. * * * * * (e) Applicability dates. Except as provided in this paragraph (e), the rules of this section apply to taxable years of shareholders of controlled foreign corporations and passive foreign investment companies beginning after August 10, 1999, and taxable years of controlled foreign corporations and passive foreign investment companies ending with or within such taxable years of the shareholders. The provisions in paragraph (a) of this section relating to the controlled foreign corporations taken into account for purposes of this section apply to taxable years of foreign corporations ending on or after October 1, 2019, and taxable years of United States shareholders in which or with which such taxable years E:\FR\FM\22SER1.SGM 22SER1 59434 Federal Register / Vol. 85, No. 184 / Tuesday, September 22, 2020 / Rules and Regulations of foreign corporations end. For taxable years of foreign corporations ending before October 1, 2019, and taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, a taxpayer may apply such provisions to the last taxable year of a foreign corporation beginning before January 1, 2018, and each subsequent taxable year of the foreign corporation, and to taxable years of United States shareholders in which or with which such taxable years of the foreign corporation end, provided that the taxpayer and United States persons that are related (within the meaning of section 267 or 707) to the taxpayer consistently apply such provisions with respect to all foreign corporations. For taxable years of foreign corporations ending before October 1, 2019, and taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, where the taxpayer does not apply the provisions of paragraph (a) of this section relating to controlled foreign corporations, see paragraph (a) of this section as in effect and contained in 26 CFR part 1, as revised April 1, 2020. ■ Par. 6. Section 1.706–1 is amended: ■ 1. By revising paragraph (b)(6)(ii). ■ 2. By revising the paragraph (b)(6)(v) subject heading. ■ 3. In paragraph (b)(6)(v)(A), by revising the first sentence and adding three sentences after the first sentence. The revisions and addition read as follows: § 1.706–1 Taxable years of partner and partnership. * * * * * (b) * * * (6) * * * (ii) Definition of foreign partner. For purposes of this paragraph (b)(6), a foreign partner is any partner that is not a United States person (as defined in section 7701(a)(30)), except that a partner that is a controlled foreign corporation (within the meaning of section 957(a)) in which a United States shareholder (as defined in section 951(b)) owns (within the meaning of section 958(a)) stock is not treated as a foreign partner. * * * * * (v) Applicability dates—(A) * * * The provisions of this paragraph (b)(6) (other than paragraph (b)(6)(iii) of this section and paragraph (b)(6)(ii) of this section to the extent described in the next sentence) apply to partnership taxable years, other than those of an existing partnership, that begin on or after July 23, 2002. The provisions in paragraph (b)(6)(ii) of this section VerDate Sep<11>2014 16:32 Sep 21, 2020 Jkt 250001 relating to controlled foreign corporations apply to taxable years of foreign corporations ending on or after October 1, 2019, and taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. For taxable years of foreign corporations ending before October 1, 2019, and taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, a taxpayer may apply such provisions to the last taxable year of a foreign corporation beginning before January 1, 2018, and each subsequent taxable year of the foreign corporation, and to taxable years of United States shareholders in which or with which such taxable years of the foreign corporation end, provided that the taxpayer and United States persons that are related (within the meaning of section 267 or 707) to the taxpayer consistently apply such provisions with respect to all foreign corporations. For taxable years of foreign corporations ending before October 1, 2019, and taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, where the taxpayer does not apply the provisions of paragraph (b)(6)(ii) of this section relating to controlled foreign corporations, see paragraph (b)(6)(ii) of this section as in effect and contained in 26 CFR part 1, as revised April 1, 2020. * * * * * * * * ■ Par. 7. Section 1.863–8 is amended: ■ 1. In paragraph (b)(2)(ii), by revising the first sentence and adding a sentence at the end of the paragraph. ■ 2. By revising paragraph (h). The revisions and addition read as follows: § 1.863–8 Source of income derived from space and ocean activity under section 863(d). * * * * * (b) * * * (2) * * * (ii) * * * Space and ocean income derived by a controlled foreign corporation (CFC) is income from sources within the United States. * * * For purposes of this section, a CFC has the meaning provided in section 957, determined without applying section 318(a)(3)(A), (B), and (C) so as to consider a United States person as owning stock which is owned by a person who is not a United States person. * * * * * (h) Applicability dates. Except as provided in this paragraph (h), this PO 00000 Frm 00058 Fmt 4700 Sfmt 4700 section applies to taxable years beginning on or after December 27, 2006. The provisions in paragraph (b)(2)(ii) of this section relating to the meaning of a CFC apply to taxable years of foreign corporations ending on or after October 1, 2019. For taxable years of foreign corporations ending before October 1, 2019, a taxpayer may apply such provisions to the last taxable year of a foreign corporation beginning before January 1, 2018, and each subsequent taxable year of the foreign corporation, provided that the taxpayer and United States persons that are related (within the meaning of section 267 or 707) to the taxpayer consistently apply such provisions with respect to all foreign corporations. For taxable years of foreign corporations ending before October 1, 2019, where the taxpayer does not apply the provisions of paragraph (b)(2)(ii) of this section relating to the meaning of a CFC, see paragraph (b)(2)(ii) of this section as in effect and contained in 26 CFR part 1, as revised April 1, 2020. ■ Par. 8. Section 1.863–9 is amended by revising paragraphs (b)(2)(ii) and (l) to read as follows: § 1.863–9 Source of income derived from communications activity under section 863(a), (d), and (e). * * * * * (b) * * * (2) * * * (ii) International communications income derived by a controlled foreign corporation. International communications income derived by a controlled foreign corporation (CFC) is one-half from sources within the United States and one-half from sources without the United States. For purposes of this section, a CFC has the meaning provided in section 957, determined without applying section 318(a)(3)(A), (B), and (C) so as to consider a United States person as owning stock which is owned by a person who is not a United States person. * * * * * (l) Applicability dates. Except as otherwise provided in this paragraph (l), this section applies to taxable years beginning on or after December 27, 2006. The provisions in paragraph (b)(2)(ii) of this section relating to the meaning of a CFC apply to taxable years of foreign corporations ending on or after October 1, 2019. For taxable years of foreign corporations ending before October 1, 2019, a taxpayer may apply such provisions to the last taxable year of a foreign corporation beginning before January 1, 2018, and each subsequent taxable year of the foreign corporation, provided that the taxpayer E:\FR\FM\22SER1.SGM 22SER1 Federal Register / Vol. 85, No. 184 / Tuesday, September 22, 2020 / Rules and Regulations and United States persons that are related (within the meaning of section 267 or 707) to the taxpayer consistently apply such provisions with respect to all foreign corporations. For taxable years of foreign corporations ending before October 1, 2019, where the taxpayer does not apply the provisions of paragraph (b)(2)(ii) of this section relating to the meaning of a CFC, see paragraph (b)(2)(ii) of this section as in effect and contained in 26 CFR part 1, as revised April 1, 2020. ■ Par. 9. Section 1.904–5 is amended by revising paragraph (a)(4)(i), the first sentence of paragraph (a)(4)(vi), and paragraph (o) to read as follows: § 1.904–5 Look-through rules as applied to controlled foreign corporations and other entities. (a) * * * (4) * * * (i) The term controlled foreign corporation has the meaning given such term by section 957 (taking into account the special rule for certain captive insurance companies contained in section 953(c)), determined without applying section 318(a)(3)(A), (B), and (C) so as to consider a United States person as owning stock which is owned by a person who is not a United States person. * * * * * (vi) The term United States shareholder has the meaning given such term by section 951(b) (taking into account the special rule for certain captive insurance companies contained in section 953(c)), determined without applying section 318(a)(3)(A), (B), and (C) so as to consider a United States person as owning stock which is owned by a person who is not a United States person, except that for purposes of this section, a United States shareholder includes any member of the controlled group of the United States shareholder. * * * * * * * * (o) Applicability dates. Except as otherwise provided in this paragraph (o), this section is applicable for taxable years that both begin after December 31, 2017, and end on or after December 4, 2018. Paragraphs (a)(4)(i) and (vi) of this section are applicable for taxable years of foreign corporations ending on or after October 1, 2019, and taxable years of United States persons ending on or after October 1, 2019. For taxable years of foreign corporations ending before October 1, 2019, and taxable years of United States persons ending before October 1, 2019, a taxpayer may apply such provisions to the last taxable year of a foreign corporation beginning VerDate Sep<11>2014 16:32 Sep 21, 2020 Jkt 250001 before January 1, 2018, and each subsequent taxable year of the foreign corporation, and to taxable years of United States shareholders in which or with which such taxable years of the foreign corporation end, provided that the taxpayer and United States persons that are related (within the meaning of section 267 or 707) to the taxpayer consistently apply such provisions with respect to all foreign corporations. For taxable years of foreign corporations ending before October 1, 2019, and taxable years of United States persons ending before October 1, 2019, where the taxpayer does not apply the provisions of paragraphs (a)(4)(i) and (vi) of this section, see paragraphs (a)(4)(i) and (vi) of this section as in effect and contained in 26 CFR part 1, as revised April 1, 2020. ■ Par. 10. Section 1.958–2 is amended: ■ 1. By removing and reserving paragraph (d)(2). ■ 2. In paragraph (g), by designating Examples 1 through 6 as paragraphs (g)(1) through (6), respectively. ■ 3. In newly designated paragraphs (g)(1) and (2), by removing the language ‘‘paragraph (c)(1)(iii) and (2) of this section’’ and adding the language ‘‘paragraphs (c)(1)(iii) and (c)(2) of this section’’ in its place. ■ 4. By revising newly designated paragraph (g)(4). ■ 5. In paragraph (h), by adding three sentences to the end of the paragraph. ■ 6. By removing the parenthetical authority citation at the end of the section. The revisions and additions read as follows: § 1.958–2 stock. Constructive ownership of * * * * * (g) * * * (4) Example 4. Foreign corporation U owns 100 percent of the one class of stock in domestic corporation V and also 100 percent of the one class of stock in foreign corporation W. Because more than 50 percent in value of the stock of V Corporation is owned by its sole shareholder, U Corporation, V Corporation is considered under paragraph (d)(1)(iii) of this section as owning the stock owned by U Corporation in W Corporation, and accordingly is a United States shareholder of W Corporation. * * * * * (h) * * * Paragraphs (d)(2) and (g)(4) of this section apply to taxable years of foreign corporations ending on or after October 1, 2019, and taxable years of United States shareholders in which or with which such taxable years of foreign corporations end. For taxable years of PO 00000 Frm 00059 Fmt 4700 Sfmt 4700 59435 foreign corporations ending before October 1, 2019, and taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, a taxpayer may apply such provisions to the last taxable year of a foreign corporation beginning before January 1, 2018, and each subsequent taxable year of the foreign corporation, and to taxable years of United States shareholders in which or with which such taxable years of the foreign corporation end, provided that the taxpayer and United States persons that are related (within the meaning of section 267 or 707) to the taxpayer consistently apply such provisions with respect to all foreign corporations. For taxable years of foreign corporations ending before October 1, 2019, and taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, where the taxpayer does not apply the provisions of paragraphs (d)(2) and (g)(4) of this section, see paragraph (d)(2) and (g)(4) of this section as in effect and contained in 26 CFR part 1, as revised April 1, 2020. ■ Par. 11. Section 1.6049–5 is amended by revising paragraphs (c)(5)(i)(C) and (g) to read as follows: § 1.6049–5 Interest and original issue discount subject to reporting after December 31, 1982. * * * * * (c) * * * (5) * * * (i) * * * (C) A controlled foreign corporation within the meaning of section 957, determined without applying section 318(a)(3)(A), (B), and (C) so as to consider a United States person as owning stock which is owned by a person who is not a United States person. * * * * * (g) Applicability dates. Except as otherwise provided in this paragraph (g), this section applies to payments made on or after January 6, 2017. For payments made after June 30, 2014, and before January 6, 2017, see this section as in effect and contained in 26 CFR part 1, as revised April 1, 2016. For payments made after December 31, 2000, and before July 1, 2014, see this section as in effect and contained in 26 CFR part 1, as revised April 1, 2013. Paragraph (c)(5)(i)(C) of this section applies to payments made on or after October 1, 2019. For payments made before October 1, 2019, a taxpayer may apply paragraph (c)(5)(i)(C) of this section for payments during the last taxable year of a foreign corporation E:\FR\FM\22SER1.SGM 22SER1 59436 Federal Register / Vol. 85, No. 184 / Tuesday, September 22, 2020 / Rules and Regulations beginning before January 1, 2018, and each subsequent taxable year of the foreign corporation, provided that the taxpayer and United States persons that are related (within the meaning of section 267 or 707) to the taxpayer consistently apply such paragraph with respect to all foreign corporations. For payments made before October 1, 2019, where the taxpayer does not apply the provisions of paragraph (c)(5)(i)(C) of this section, see paragraph (c)(5)(i)(C) of this section as in effect and contained in 26 CFR part 1, as revised April 1, 2020. Sunita Lough, Deputy Commissioner for Services and Enforcement. Approved: July 24, 2020 David J. Kautter, Assistant Secretary for the Treasury (Tax Policy). [FR Doc. 2020–17549 Filed 9–21–20; 8:45 am] BILLING CODE 4830–01–P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA–R04–OAR–2020–0072; FRL–10013– 73–Region 4] Air Plan Approval; Georgia: Emission Reduction Credits Environmental Protection Agency (EPA). ACTION: Final rule. AGENCY: The Environmental Protection Agency (EPA) is taking final action to approve a State Implementation Plan (SIP) revision submitted by the State of Georgia in a letter dated October 18, 2019. The SIP revision updates Georgia’s rule entitled Emission Reduction Credits which establishes a program for sources in specified counties to apply for credits for voluntary emissions reductions. EPA has evaluated Georgia’s submittal and determined that it meets the applicable requirements of the Clean Air Act (CAA or Act) and EPA regulations. DATES: This rule is effective October 22, 2020. ADDRESSES: EPA has established a docket for this action under Docket Identification No. EPA–R04–OAR– 2020–0072. All documents in the docket are listed on the www.regulations.gov website. Although listed in the index, some information is not publicly available, i.e., Confidential Business Information or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on SUMMARY: VerDate Sep<11>2014 16:32 Sep 21, 2020 Jkt 250001 the internet and will be publicly available only in hard copy form. Publicly available docket materials can either be retrieved electronically via www.regulations.gov or in hard copy at the Air Regulatory Management Section, Air Planning and Implementation Branch, Air and Radiation Division, U.S. Environmental Protection Agency, Region 4, 61 Forsyth Street SW, Atlanta, Georgia 30303–8960. EPA requests that if at all possible, you contact the person listed in the FOR FURTHER INFORMATION CONTACT section to schedule your inspection. The Regional Office’s official hours of business are Monday through Friday 8:30 a.m. to 4:30 p.m., excluding Federal holidays. FOR FURTHER INFORMATION CONTACT: Pearlene Williams, Air Regulatory Management Section, Air Planning and Implementation Branch, Air and Radiation Division, U.S. Environmental Protection Agency, Region 4, 61 Forsyth Street SW, Atlanta, Georgia 30303–8960. Ms. Williams can be reached via telephone at (404) 562–9144 or via electronic mail at williams.pearlene@ epa.gov. SUPPLEMENTARY INFORMATION: I. Background The Georgia Environmental Protection Division (GA EPD) submitted a revision to its SIP in a letter dated October 18, 2019,1 modifying Rule 391–3–1–.03(13), Emission Reduction Credits,2 in the State’s air permitting rules. This submittal revises the counties in which sources may create emission reduction credits (ERCs). This change aligns Georgia’s ERC program with the current status of counties designated nonattainment or contributing to a nonattainment area. Georgia’s October 18, 2019, SIP submittal revises the counties listed in Rule 391–3–1–.03(13)(a) to ensure that only sources in counties currently designated nonattainment—and counties 3 contributing to the ambient air quality in the nonattainment area— may participate in the ERC program. The details of the submittal and EPA’s rationale for approving the changes are discussed in a notice of proposed 1 EPA notes the Agency received the submittal on October 24, 2019. 2 EPA notes that the Agency received several submittals revising the Georgia SIP transmitted with the same October 18, 2019, cover letter. EPA is considering action for these other SIP revisions in separate rulemakings. 3 The NPRM dated May 22, 2020 (85 FR 31112) incorrectly included Rockdale county in the list of five counties being moved from 391–3–1– .03(13)(a)2 to (a)3. The correct list of counties being moved in this action includes Barrow, Carroll, Hall, Spalding, and Walton. Rockdale county remains in the list of counties under (a)2. PO 00000 Frm 00060 Fmt 4700 Sfmt 4700 rulemaking (NPRM) dated May 22, 2020. See 85 FR 31112. Comments were due on the May 22, 2020, NPRM by June 22, 2020. No comments were received on the proposed action. These changes clarify eligibility for sources in certain counties to bank and create ERCs. These changes also make paragraph 391–3–1–.03(13)(a) consistent with current provisions under the State’s Nonattainment New Source Review permitting program.4 EPA also notes that the ERC program is a flexibility tool used by States and affected sources to comply with otherwise applicable requirements and is not expected to impact emissions in the State. Therefore, EPA concludes that these changes are consistent with the CAA and applicable EPA regulations.5 II. Incorporation by Reference In this rule, EPA is finalizing regulatory text that includes incorporation by reference. In accordance with requirements of 1 CFR 51.5, EPA is finalizing the incorporation by reference of Georgia Rule 391–3–1– .03(13), entitled ‘‘Emission Reduction Credits,’’ effective September 26, 2019,6 to clarify which sources in which areas of the State are eligible to create and bank emission reduction credits. EPA has made, and will continue to make, these materials generally available through www.regulations.gov and at the EPA Region 4 Office (please contact the person identified in the FOR FURTHER INFORMATION CONTACT section of this preamble for more information). Therefore, these materials have been approved by EPA for inclusion in the SIP, have been incorporated by reference by EPA into that plan, are fully federally enforceable under sections 110 and 113 of the CAA as of the effective date of the final rulemaking of EPA’s approval, and will be incorporated by reference by the Director of the Federal Register in the next update to the SIP compilation.7 4 See 85 FR 2646 (January 16, 2020). has also concluded that these changes are consistent with applicable guidance on emissions trading, including EPA’s ‘‘Emissions Trading Policy Statement; General Principles for Creation, Banking and Use of Emission Reduction Credits.’’ See 51 FR 43814 (December 4, 1986). 6 Specifically, in this action, EPA is incorporating by reference subsections (a), (d), and (h) of Rule 391–3–1–.03(13) with a state-effective date of September 26, 2019. EPA previously approved and incorporated by reference subsection (f) with a state-effective date of July 18, 2001, and subsections (b), (c), (e), (g), and (i) with a state-effective date of February 6, 2000; those prior approvals are not impacted by this action. EPA has included a clarifying explanation to this effect in the entry for Rule 391–3–1–.03(13) at 40 CFR 52.570(c). 7 See 62 FR 27968 (May 22, 1997). 5 EPA E:\FR\FM\22SER1.SGM 22SER1

Agencies

[Federal Register Volume 85, Number 184 (Tuesday, September 22, 2020)]
[Rules and Regulations]
[Pages 59428-59436]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17549]



[[Page 59428]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9908]
RIN 1545-B052


Ownership Attribution Under Section 958 Including for Purposes of 
Determining Status as Controlled Foreign Corporation or United States 
Shareholder

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to the 
modification of section 958(b) of the Internal Revenue Code (``Code'') 
by the Tax Cuts and Jobs Act, which was enacted on December 22, 2017. 
This document finalizes the proposed regulations published on October 
2, 2019. The final regulations affect United States persons that have 
ownership interests in, or that make or receive payments to or from, 
certain foreign corporations.

DATES: Effective date: These regulations are effective on September 22, 
2020.
    Applicability dates: For dates of applicability, see Sec. Sec.  
1.267(a)-3(d), 1.332-8(b), 1.367(a)-8(r)(1)(i), 1.672(f)-2(e), 1.706-
1(b)(6)(v)(A), 1.863-8(h), 1.863-9(l), 1.904-5(o), 1.958-2(h), and 
1.6049-5(g).

FOR FURTHER INFORMATION CONTACT: Christina G. Daniels, (202) 317-6934 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    As in effect before its repeal, section 958(b)(4) provided that 
section 318(a)(3)(A), (B), and (C) (providing for downward attribution) 
was not to be applied so as to consider a United States person as 
owning stock owned by a person who is not a United States person (a 
``foreign person''). Section 14213 of the Tax Cuts and Jobs Act, Public 
Law 115-97 (the ``Act'') repealed section 958(b)(4), effective for the 
last taxable year of foreign corporations beginning before January 1, 
2018, and each subsequent year of the foreign corporations, and for the 
taxable years of United States shareholders (as defined in section 
951(b)) (``U.S. shareholders'') in which or with which such taxable 
years of the foreign corporations end. As a result of this repeal, 
stock of a foreign corporation owned by a foreign person can be 
attributed to a United States person under section 318(a)(3) for 
various purposes, including for purposes of determining whether a 
United States person is a U.S. shareholder of the foreign corporation 
and, therefore, whether the foreign corporation is a controlled foreign 
corporation (within the meaning of section 957) (``CFC'').
    On October 2, 2019, the Department of the Treasury (``Treasury 
Department'') and the IRS published proposed regulations (REG-104223-
18) relating to the repeal of section 958(b)(4) by the Act, in the 
Federal Register (84 FR 52398) (the ``proposed regulations''). 
Additional guidance related to the repeal of section 958(b)(4), 
including relief from certain information reporting requirements and 
safe harbors for determining whether a foreign corporation is a CFC and 
for determining certain items of a CFC (such as taxable income and 
earnings and profits) based on alternative information, was issued 
along with the proposed regulations. See Revenue Procedure 2019-40, 
2019-43 I.R.B. 982. No public hearing on the proposed regulations was 
requested or held. All of the written comments that were received by 
the Treasury Department and the IRS in response to the proposed 
regulations are available at www.regulations.gov or upon request. This 
Treasury decision adopts the proposed regulations as final regulations 
with the modifications discussed in the Summary of Comments and 
Explanation of Revisions section of this preamble. Comments outside of 
the scope of this rulemaking are generally not addressed but may be 
considered in connection with future guidance.
    A notice of proposed rulemaking published in the Proposed Rules 
section of this issue of the Federal Register (REG-110059-20) provides 
regulations under section 954(c)(6) to ensure that the operation of 
section 954(c)(6) is consistent with its application before the Act's 
repeal of section 958(b)(4). The notice of proposed rulemaking also 
modifies the regulations under section 367(a) regarding the direct or 
indirect transfer of stock or securities of a domestic corporation by a 
United States person (as defined in section 7701(a)(30)) to a foreign 
corporation to ensure the attribution rules are applied consistently 
following the Act's repeal of section 958(b)(4).

Summary of Comments and Explanation of Revisions

I. Changes in Connection With Repeal of Section 958(b)(4)

A. Overview
    The final regulations, like the proposed regulations, generally 
make modifications to ensure that the operation of certain rules 
outside of subpart F of subchapter N of chapter 1 of the Code 
(``subpart F'') are consistent with their application before the Act's 
repeal of section 958(b)(4). Comments generally supported the approach 
of the proposed regulations but requested additional modifications, as 
discussed in more detail in this Summary of Comments and Explanation of 
Revisions.
B. Section 267: Deduction for Certain Payments to Foreign Related 
Persons
    Section 267(a)(2) sets forth a matching rule that generally 
provides that if a payment is made to a related person and is not 
includible in the payee's gross income until paid, the amount is not 
allowable as a deduction to the taxpayer until the amount is includible 
in the gross income of the payee (``general matching rule''). Pursuant 
to regulations issued under section 267(a)(3)(A),\1\ subject to certain 
exceptions, a taxpayer must use the cash method of accounting for 
deductions of amounts owed to a related foreign person (``foreign payee 
rule''). The foreign payee rule does not apply to the following 
amounts: (i) A foreign source amount, other than interest, that is not 
effectively connected with the conduct of a U.S. trade or business; 
(ii) an amount, other than interest, that is exempt from U.S. taxation 
pursuant to a treaty obligation of the United States; and (iii) an 
amount that is effectively connected with the conduct of a U.S trade or 
business (although payments in this clause (iii) are subject to the 
general matching rule of section 267(a)(2)). See Sec.  1.267(a)-3(b) 
and (c)(1) and (2).
---------------------------------------------------------------------------

    \1\ In 2004, section 267(a)(3) was amended to redesignate 
existing section 267(a)(3) as section 267(a)(3)(A), and a new 
section 267(a)(3)(B) was added. Public Law 108-357. The regulations 
in Sec.  1.267(a)-3 were issued in 1993, under section 267(a)(3) as 
it existed at the time, currently section 267(a)(3)(A).
---------------------------------------------------------------------------

    Section 267(a)(3)(B)(i) provides that, notwithstanding the foreign 
payee rule in section 267(a)(3)(A), in the case of any item payable to 
a CFC, a deduction is allowable to the payor for any taxable year 
before the year in which the payment is made only to the extent that an 
amount attributable to the item is includible during such prior taxable 
year in the gross income of a United States person who owns (within the 
meaning of section 958(a)) stock in such CFC (``CFC payee rule''). 
Under the proposed regulations, however, an amount (other than 
interest) that is income of a related foreign person and exempt from 
U.S. taxation pursuant to a treaty obligation of the United States

[[Page 59429]]

was not subject to the CFC payee rule if the related foreign person is 
a CFC that did not have any U.S. shareholders that owned (within the 
meaning of section 958(a)) stock in such CFC (a ``section 958(a) U.S. 
shareholder''). See proposed Sec.  1.267(a)-3(c)(4).
    A comment received shortly before the proposed regulations were 
published suggested that the regulations should broadly provide that, 
with respect to all payments subject to section 267(a)(3), the CFC 
payee rule in section 267(a)(3)(B)(i) applies only to the extent a 
recipient CFC has one or more section 958(a) U.S. shareholders and that 
it should be applied without regard to the repeal of section 958(b)(4). 
Consistent with the purpose of the general matching rule in section 
267(a)(2) and in order for the foreign payee rule in section 
267(a)(3)(A) to apply consistently with its application before the 
repeal of section 958(b)(4), the Treasury Department and the IRS agree 
that, with respect to all payments (including interest) subject to 
section 267(a)(3), the CFC payee rule in section 267(a)(3)(B)(i) should 
not apply if a recipient CFC does not have any section 958(a) U.S. 
shareholders who are required to include amounts in income with respect 
to the CFC. However, the Treasury Department and the IRS do not agree 
that the CFC payee rule should be applied without regard to the repeal 
of section 958(b)(4), because that could permit the avoidance of the 
CFC payee rule (and the purposes of the matching rule in general) in 
foreign-parented structures where a section 958(a) U.S. shareholder is 
required to include amounts in income with respect to a recipient 
foreign corporation that is a CFC due solely to the repeal of section 
958(b)(4). Accordingly, the exception from the CFC payee rule in 
proposed Sec.  1.267(a)-3(c)(4) is expanded in the final regulations to 
apply to all amounts payable to a related foreign person that is a CFC 
that does not have any section 958(a) U.S. shareholders. See Sec.  
1.267(a)-3(c)(4). As a result, the foreign payee rule in section 
267(a)(3)(A) and the regulations under that section will apply to those 
payments exempt from the application of the CFC payee rule. However, 
the CFC payee rule continues to apply to a CFC that has a section 
958(a) shareholder even if the foreign corporation is a CFC due solely 
to the repeal of section 958(b)(4).
C. Section 881(c): Portfolio Interest
    Section 881(c) exempts from tax under section 881(a) U.S.-source 
portfolio interest received by a foreign corporation (``portfolio 
interest exception''). For this purpose, portfolio interest generally 
includes interest paid on a debt obligation that is in registered form 
but excludes, among other things, interest received by a CFC from a 
related person (within the meaning of section 864(d)(4)). See section 
881(c)(2) and (3). The repeal of section 958(b)(4) results in foreign 
corporations that were previously not CFCs (and thus potentially 
eligible for the portfolio interest exception for interest received 
from related persons) being ineligible for the exception on such 
interest.
    A comment requested that the general approach of the proposed 
regulations to exclude, where appropriate, CFCs that are CFCs solely as 
a result of the repeal of section 958(b)(4) be extended to the 
portfolio interest exception so that CFCs that were not previously CFCs 
could continue to be eligible for the portfolio interest exception. The 
rules set forth in the proposed regulations were all issued pursuant to 
specific grants of regulatory authority, and the Treasury Department 
and the IRS have determined that there is no statutory or regulatory 
authority to modify the limitation on the portfolio interest exception 
for payments received by CFCs from a related person. Accordingly, the 
recommendation is not adopted.
    The comment also requested that the Treasury Department and the IRS 
issue guidelines for withholding agents that might not be in a position 
to know whether a payee was affected by the repeal of section 958(b)(4) 
and thus might not know whether the payee qualifies for the portfolio 
interest exception or whether the withholding agent may be required to 
withhold under section 1442. The comment posited scenarios in which a 
U.S. payor would not necessarily have the information to determine 
whether a foreign corporation payee is a CFC and thus would err on the 
side of withholding as if it were a CFC.
    A withholding agent is generally subject to an actual knowledge or 
reason to know standard. See Sec.  1.1441-7(b)(1). A withholding agent 
is considered to have reason to know with respect to a claim relevant 
to withholding under chapter 3 (including section 1442) if ``its 
knowledge of relevant facts or of statements contained in the 
withholding certificates or other documentation is such that a 
reasonably prudent person in the position of the withholding agent 
would question the chapter 3 claims made.'' See Sec.  1.1441-7(b)(2). 
The Treasury Department and the IRS have concluded that this standard 
is appropriate for withholding agents, and additional rules applicable 
only to portfolio interest are not necessary. Moreover, it would be 
outside of the scope of this rulemaking to provide rules generally 
applicable to the standard of diligence applicable to withholding 
agents. Accordingly, the suggestion is not adopted.
D. Section 1248: Gain From Certain Sales or Exchanges of Stock in 
Certain Foreign Corporations
    Section 1248(a) provides that certain gain recognized on the sale 
or exchange of stock of a foreign corporation by a United States person 
is included in the gross income of that person as a dividend if (i) the 
foreign corporation was a CFC at any time during the five-year period 
ending on the date of the sale or exchange, and (ii) the United States 
person owned or is considered to have owned, within the meaning of 
section 958, 10 percent or more of the total combined voting power of 
the foreign corporation at any time during that five-year period. A 
comment suggested that, consistent with the approach taken in the 
proposed regulations with respect to other sections, section 958(b) 
should be applied without regard to the repeal of section 958(b)(4) for 
purposes of section 1248 to prevent unintended consequences.
    The final regulations do not adopt this comment because the 
Treasury Department and the IRS have determined that section 958(b), as 
modified by the Act, should apply for purposes of section 1248. This 
treatment is consistent with the application of section 958(b) for 
purposes of the subpart F provisions, and this consistent treatment is 
appropriate because one of the types of transactions that the repeal of 
section 958(b)(4) was intended to address--that is, transactions used 
to avoid the subpart F provisions, including decontrolling a foreign 
subsidiary to convert a CFC to a non-CFC--could also be used to avoid 
the section 1248 provisions.
E. Section 1297: PFIC Asset Test
    The proposed regulations modified the definition of a CFC for 
purposes of section 1297(e) to disregard downward attribution from 
foreign persons. See proposed Sec.  1.1297-1(d)(1)(iii)(A). On July 11, 
2019, the Treasury Department and the IRS published other proposed 
regulations (REG-105474-18) under Sec.  1.1297-1 in the Federal 
Register (84 FR 33120) (the ``PFIC proposed regulations''). The 
Treasury Department and the IRS have decided to finalize proposed Sec.  
1.1297-1(d)(1)(iii)(A) as part of the Treasury Decision finalizing the 
PFIC proposed regulations.

[[Page 59430]]

F. Section 6049: Chapter 61 Reporting Provisions
    Generally, under chapter 61 of subtitle F of the Code, a payor must 
report to the IRS (using the appropriate Form 1099) certain payments or 
transactions with respect to United States persons that are not exempt 
recipients. The regulations under chapter 61 generally provide that the 
scope of payments or transactions subject to reporting under chapter 61 
depends, in part, on whether or not the payor is a U.S. payor (as 
defined in Sec.  1.6049-5(c)(5)(i)), which generally includes United 
States persons and their foreign branches, as well as CFCs. To mitigate 
the increased Form 1099 reporting by foreign corporations that may have 
no direct or indirect owners that are United States persons, in 
accordance with the regulatory authority provided in section 6049(a), 
proposed Sec.  1.6049-5(c)(5)(i)(C) provided that a U.S. payor includes 
only a CFC that is a CFC without regard to downward attribution from a 
foreign person.
    A comment requested that the exception from Form 1099 reporting be 
expanded to all CFCs, even if they would be CFCs without regard to the 
repeal of section 958(b)(4), due to the burden of the required 
reporting and the interaction with the requirements of local law to 
which CFCs are subject. Because the comment does not relate to the 
consequences of the repeal of section 958(b)(4), it is outside of the 
scope of these regulations. As a result, the rules in proposed Sec.  
1.6049-5 are finalized as proposed.

II. Applicability Dates

    These regulations generally apply on or after October 1, 2019. For 
taxable years before taxable years covered by the regulations, a 
taxpayer may generally apply the rules set forth in the final 
regulations to the last taxable year of a foreign corporation beginning 
before January 1, 2018, and each subsequent taxable year of the foreign 
corporation, and to taxable years of U.S. shareholders in which or with 
which such taxable years of the foreign corporation end, provided that 
the taxpayer and United States persons that are related (within the 
meaning of section 267 or 707) to the taxpayer consistently apply the 
relevant rule with respect to all foreign corporations. See section 
7805(b)(7). Moreover, although Sec.  1.958-2 applies to taxable years 
of foreign corporations ending on or after October 1, 2019, and taxable 
years of U.S. shareholders in which or with which such taxable years of 
foreign corporations end, the same result applies before such date due 
to the effective date of the repeal of section 958(b)(4).

III. Effect on Other Documents

    Section 5.01 of Notice 2018-13 (2018-6 I.R.B. 341) is obsolete as 
of September 22, 2020.

Statement of Availability of IRS Documents

    IRS Revenue Procedures, Revenue Rulings, notices, and other 
guidance cited in this document are published in the Internal Revenue 
Bulletin and are available from the Superintendent of Documents, U.S. 
Government Publishing Office, Washington, DC 20402, or by visiting the 
IRS website at https://www.irs.gov.

Special Analyses

    These regulations are not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Treasury Department and the Office of Management 
and Budget regarding review of tax regulations.
    It is hereby certified that these regulations will not have a 
significant economic impact on a substantial number of small entities 
within the meaning of section 601(6) of the Regulatory Flexibility Act 
(5 U.S.C. chapter 6). The regulations do not impose any new costs on 
taxpayers. Moreover, the regulations generally affect CFCs and U.S. 
shareholders of CFCs. CFCs, as foreign corporations, are not considered 
small entities. Nor are U.S. taxpayers considered small entities to the 
extent the taxpayers are natural persons or entities other than small 
entities. Thus, the regulations generally only affect small entities if 
a U.S. taxpayer that is a U.S. shareholder of a CFC is a small entity.
    Consequently, the Treasury Department and the IRS have determined 
that the regulations will not have a significant economic impact on a 
substantial number of small entities. Notwithstanding this 
certification, the Treasury Department and the IRS invite comments on 
the impacts of these regulations on small entities.
    Pursuant to section 7805(f), the notice of proposed rulemaking 
preceding this regulation was submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business. No comments were received.

Drafting Information

    The principal authors of the regulations are Karen J. Cate and 
Christina G. Daniels of the Office of Associate Chief Counsel 
(International). However, other personnel from the Treasury Department 
and the IRS participated in the development of the regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by revising 
the entry for Sec.  1.267(a)-3 and adding an entry for Sec.  1.332-8 in 
numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.267(a)-3 also issued under 26 U.S.C. 267(a)(3)(A) and 
(a)(3)(B)(ii).
* * * * *
Section 1.332-8 also issued under 26 U.S.C. 332(d)(4).
* * * * *

0
Par. 2. Section 1.267(a)-3 is amended:
0
1. In paragraph (c)(2), the first sentence, by removing the language 
``or (a)(3)''.
0
2. By revising paragraph (c)(4).
0
3. In paragraph (d), by revising the second sentence and adding five 
sentences at the end of the paragraph.
    The revisions and additions read as follows:


Sec.  1.267(a)-3  Deduction of amounts owed to related foreign persons.

* * * * *
    (c) * * *
    (4) Certain amounts owed to certain controlled foreign 
corporations. An amount that is income of a related foreign person is 
exempt from the application of section 267(a)(3)(B)(i) if the related 
foreign person is a controlled foreign corporation that does not have 
any United States shareholders (as defined in section 951(b)) that own 
(within the meaning of section 958(a)) stock of the controlled foreign 
corporation. However, in this case, the amount is subject to the 
application of section 267(a)(3)(A) in the same manner as if the 
related foreign person were a foreign corporation that is not a 
controlled foreign corporation.
    (d) * * * Except as otherwise provided in this paragraph (d), the 
regulations in this section issued under

[[Page 59431]]

section 267 apply to all other deductible amounts that are incurred 
after July 31, 1989, but do not apply to amounts that are incurred 
pursuant to a contract that was binding on September 29, 1983, and at 
all times thereafter (unless the contract was renegotiated, extended, 
renewed, or revised after that date). Paragraph (c)(2) of this section 
applies to payments accrued on or after October 22, 2004. For payments 
accrued before October 22, 2004, see Sec.  1.267(a)-3(c)(2), as 
contained in 26 CFR part 1, revised as of April 1, 2004. Paragraph 
(c)(4) of this section applies to payments accrued on or after October 
1, 2019. For payments accrued before October 1, 2019, a taxpayer may 
apply paragraph (c)(4) of this section for payments accrued during the 
last taxable year of a foreign corporation beginning before January 1, 
2018, and each subsequent taxable year of the foreign corporation, 
provided that the taxpayer and United States persons that are related 
(within the meaning of section 267 or 707) to the taxpayer consistently 
apply such paragraph with respect to all foreign corporations. For 
payments accrued before October 22, 2004, see Sec.  1.267(a)-3(c)(4), 
as contained in 26 CFR part 1, revised as of April 1, 2004.

0
Par. 3. Section 1.332-8 is added to read as follows:


Sec.  1.332-8  Recognition of gain on liquidation of certain holding 
companies.

    (a) Definition of controlled foreign corporation. For purposes of 
section 332(d)(3), a controlled foreign corporation has the meaning 
provided in section 957, determined without applying section 
318(a)(3)(A), (B), and (C) so as to consider a United States person as 
owning stock which is owned by a person who is not a United States 
person.
    (b) Applicability date. This section applies to distributions in 
complete liquidation occurring on or after October 1, 2019, and to 
distributions in complete liquidation occurring before October 1, 2019, 
that result from an entity classification election made under Sec.  
301.7701-3 of this chapter that is filed on or after October 1, 2019. 
For distributions in complete liquidation occurring before October 1, 
2019, other than distributions in complete liquidation occurring before 
October 1, 2019, that result from an entity classification election 
made under Sec.  301.7701-3 of this chapter that is filed on or after 
October 1, 2019, a taxpayer may apply this section to distributions in 
complete liquidation occurring during the last taxable year of a 
distributee foreign corporation beginning before January 1, 2018, and 
each subsequent taxable year of the foreign corporation, provided that 
the taxpayer and United States persons that are related (within the 
meaning of section 267 or 707) to the taxpayer consistently apply this 
section with respect to all foreign corporations.

0
Par. 4. Section 1.367(a)-8 is amended:
0
1. In paragraph (k)(14)(ii), by revising the second sentence.
0
2. In paragraph (p)(3), by designating Examples 1 through 4 as 
paragraphs (p)(3)(i) through (iv), respectively.
0
3. In newly redesignated paragraphs (p)(3)(i) through (iv), by 
redesignating the paragraphs in the first column as the paragraphs in 
the second column:

------------------------------------------------------------------------
             Old paragraphs                       New paragraphs
------------------------------------------------------------------------
(p)(3)(i)(i) and (ii)..................  (p)(3)(i)(A) and (B).
(p)(3)(ii)(i) and (ii).................  (p)(3)(ii)(A) and (B).
(p)(3)(iii)(i) and (ii)................  (p)(3)(iii)(A) and (B).
(p)(3)(iv)(i) and (ii).................  (p)(3)(iv)(A) and (B).
------------------------------------------------------------------------

0
4. In each newly redesignated paragraph listed in the first column, by 
removing the language in the second column and adding in its place the 
language in the third column:

------------------------------------------------------------------------
          Paragraph                  Remove                  Add
------------------------------------------------------------------------
(p)(3)(i)(B)................  this Example 1......  in paragraph
                                                     (p)(3)(i)(A) of
                                                     this section (the
                                                     facts of this
                                                     Example 1).
(p)(3)(ii)(B)...............  this Example 2......  in paragraph
                                                     (p)(3)(ii)(A) of
                                                     this section (the
                                                     facts of this
                                                     Example 2).
------------------------------------------------------------------------

0
5. In paragraph (q)(2), by removing the language ``at least 5% 
(applying the attribution rules of section 318, as modified by section 
958(b))'' wherever it appears and adding the language ``at least 5% 
(determined as provided in paragraph (k)(14)(ii) of this section)'' in 
its place.
0
6. In paragraph (q)(2), by designating Examples 1 through 25 as 
paragraphs (q)(2)(i) through (xxv), respectively.
0
7. In newly redesignated paragraphs (q)(2)(i) through (xxv), by 
redesignating the paragraphs in the first column as the paragraphs in 
the second column:

------------------------------------------------------------------------
             Old paragraphs                       New paragraphs
------------------------------------------------------------------------
(q)(2)(i)(i) and (ii)..................  (q)(2)(i)(A) and (B).
(q)(2)(ii)(i) and (ii).................  (q)(2)(ii)(A) and (B).
(q)(2)(ii)(B)(A) and (B)...............  (q)(2)(ii)(B)(1) and (2).
(q)(2)(iii)(i) and (ii)................  (q)(2)(iii)(A) and (B).
(q)(2)(iv)(i) and (ii).................  (q)(2)(iv)(A) and (B).
(q)(2)(iv)(B)(A) and (B)...............  (q)(2)(iv)(B)(1) and (2).
(q)(2)(iv)(B)(2)(1) through (3)........  (q)(2)(iv)(B)(2)(i) through
                                          (iii).
(q)(2)(v)(i) and (ii)..................  (q)(2)(v)(A) and (B).
(q)(2)(vi)(i) through (iii)............  (q)(2)(vi)(A) through (C).
(q)(2)(vi)(B)(A) and (B)...............  (q)(2)(vi)(B)(1) and (2).
(q)(2)(vi)(B)(2)(1) through (3)........  (q)(2)(vi)(B)(2)(i) through
                                          (iii).

[[Page 59432]]

 
(q)(2)(vii)(i) and (ii)................  (q)(2)(vii)(A) and (B).
(q)(2)(viii)(i) and (ii)...............  (q)(2)(viii)(A) and (B).
(q)(2)(ix)(i) and (ii).................  (q)(2)(ix)(A) and (B).
(q)(2)(x)(i) and (ii)..................  (q)(2)(x)(A) and (B).
(q)(2)(x)(B)(A) through (C)............  (q)(2)(x)(B)(1) through (3).
(q)(2)(xi)(i) through (iii)............  (q)(2)(xi)(A) through (C).
(q)(2)(xii)(i) and (ii)................  (q)(2)(xii)(A) and (B).
(q)(2)(xii)(B)(A) through (C)..........  (q)(2)(xii)(B)(1) through (3).
(q)(2)(xiii)(i) and (ii)...............  (q)(2)(xiii)(A) and (B).
(q)(2)(xiv)(i) and (ii)................  (q)(2)(xiv)(A) and (B).
(q)(2)(xiv)(B)(A) and (B)..............  (q)(2)(xiv)(B)(1) and (2).
(q)(2)(xv)(i) and (ii).................  (q)(2)(xv)(A) and (B).
(q)(2)(xvi)(i) and (ii)................  (q)(2)(xvi)(A) and (B).
(q)(2)(xvii)(i) and (ii)...............  (q)(2)(xvii)(A) and (B).
(q)(2)(xvii)(B)(A) through (C).........  (q)(2)(xvii)(B)(1) through (3).
(q)(2)(xvii)(B)(3)(1) through (3)......  (q)(2)(xvii)(B)(3)(i) through
                                          (iii).
(q)(2)(xviii)(i) and (ii)..............  (q)(2)(xviii)(A) and (B).
(q)(2)(xix)(i) and (ii)................  (q)(2)(xix)(A) and (B).
(q)(2)(xx)(i) through (vi).............  (q)(2)(xx)(A) through (F).
(q)(2)(xx)(B)(A) and (B)...............  (q)(2)(xx)(B)(1) and (2).
(q)(2)(xx)(B)(1)(1) and (2)............  (q)(2)(xx)(B)(1)(i) and (ii).
(q)(2)(xxi)(i) and (ii)................  (q)(2)(xxi)(A) and (B).
(q)(2)(xxi)(B)(A) through (C)..........  (q)(2)(xxi)(B)(1) through (3).
(q)(2)(xxii)(i) through (iii)..........  (q)(2)(xxii)(A) through (C).
(q)(2)(xxii)(B)(A) through (C).........  (q)(2)(xxii)(B)(1) through (3).
(q)(2)(xxii)(C)(A) through (C).........  (q)(2)(xxii)(C)(1) through (3).
(q)(2)(xxiii)(i) through (iv)..........  (q)(2)(xxiii)(A) through (D).
(q)(2)(xxiii)(B)(A) through (D)........  (q)(2)(xxiii)(B)(1) through
                                          (4).
(q)(2)(xxiii)(C)(A) and (B)............  (q)(2)(xxiii)(C)(1) and (2).
(q)(2)(xxiv)(i) and (ii)...............  (q)(2)(xxiv)(A) and (B).
(q)(2)(xxv)(i) and (ii)................  (q)(2)(xxv)(A) and (B)
------------------------------------------------------------------------

0
8. In each newly redesignated paragraph listed in the first column, by 
removing the language in the second column and adding in its place the 
language in the third column:

------------------------------------------------------------------------
          Paragraph                  Remove                  Add
------------------------------------------------------------------------
(q)(2)(ii)(B)(2)............  paragraph (ii)(A) of  paragraph
                               this Example 2.       (q)(2)(ii)(B)(1) of
                                                     this section
                                                     (paragraph (1) in
                                                     the results in this
                                                     Example 2).
(q)(2)(iv)(B)(2)(i).........  paragraph (ii)(A) of  paragraph
                               this Example 4.       (q)(2)(iv)(B)(1) of
                                                     this section
                                                     (paragraph (1) in
                                                     the results in this
                                                     Example 4).
(q)(2)(vi)(B)(1)............  paragraph (ii)(B) of  paragraph
                               this Example 6.       (q)(2)(vi)(B)(2) of
                                                     this section
                                                     (paragraph (2) in
                                                     the results in this
                                                     Example 6).
(q)(2)(vi)(C)...............  paragraph (i) of      paragraph
                               this Example 6.       (q)(2)(vi)(A) of
                                                     this section (the
                                                     facts in this
                                                     Example 6).
(q)(2)(xi)(C)...............  paragraph (i) of      paragraph
                               this Example 11.      (q)(2)(xi)(A) of
                                                     this section (the
                                                     facts in this
                                                     Example 11).
(q)(2)(xx)(C)...............  paragraph (i) of      paragraph
                               this Example 20.      (q)(2)(xx)(A) of
                                                     this section (the
                                                     facts in this
                                                     Example 20).
(q)(2)(xx)(C)...............  paragraph (ii) of     paragraph
                               this Example 20.      (q)(2)(xx)(B) of
                                                     this section (the
                                                     results in this
                                                     Example 20).
(q)(2)(xx)(D)...............  paragraph (i) of      paragraph
                               this Example 20.      (q)(2)(xx)(A) of
                                                     this section (the
                                                     facts in this
                                                     Example 20).
(q)(2)(xx)(D)...............  paragraph (ii) of     paragraph
                               this Example 20.      (q)(2)(xx)(B) of
                                                     this section (the
                                                     facts in this
                                                     Example 20).
(q)(2)(xx)(E)...............  paragraph (i) of      paragraph
                               this Example 20.      (q)(2)(xx)(A) of
                                                     this section (the
                                                     facts in this
                                                     Example 20).
(q)(2)(xx)(F)...............  paragraph (i) of      paragraph
                               this Example 20.      (q)(2)(xx)(A) of
                                                     this section (the
                                                     facts in this
                                                     Example 20).
(q)(2)(xxii)(C) introductory  in paragraph (i) of   paragraph
 text.                         this Example 22.      (q)(2)(xxii)(A) of
                                                     this section (the
                                                     facts in this
                                                     Example 22).
(q)(2)(xxiii)(C)              paragraph (i) of      paragraph
 introductory text.            this Example 23.      (q)(2)(xxiii)(A) of
                                                     this section (the
                                                     facts in this
                                                     Example 23).
(q)(2)(xxiii)(C)              paragraph (ii) of     paragraph
 introductory text.            this Example 23.      (q)(2)(xxiii)(B) of
                                                     this section (the
                                                     results in this
                                                     Example 23).
(q)(2)(xxiii)(D)............  paragraph (i) of      paragraph
                               this Example 23.      (q)(2)(xxiii)(A) of
                                                     this section (the
                                                     facts in this
                                                     Example 23).
(q)(2)(xxiv)(A).............  in paragraph (i) of   paragraph
                               Example 6.            (q)(2)(vi)(A) of
                                                     this section (the
                                                     facts in Example 6)
------------------------------------------------------------------------


[[Page 59433]]

0
9. In each paragraph listed in the first column, by removing the 
language in the second column and adding in its place the language in 
the third column:

------------------------------------------------------------------------
          Paragraph                  Remove                  Add
------------------------------------------------------------------------
(c)(1)(ii)..................  (q)(2) of this        (q)(2)(vi) of this
                               section, Example 6.   section.
(c)(4)(iv)..................  paragraph (q)(2) of   paragraphs
                               this section,         (q)(2)(i), (ii),
                               Examples 1, 2, 3,     (iii), and (v) of
                               and 5.                this section.
(j)(1)......................  (q)(2) of this        (q)(2)(ii) of this
                               section, Example 2.   section.
(k)(1) introductory text....  (q)(2) of this        (q)(2)(iv) of this
                               section, Example 4.   section.
(k)(1)(ii)..................  (q)(2) of this        (q)(2)(iii) of this
                               section, Example 3.   section.
(k)(1)(iii).................  (q)(2) of this        (q)(2)(xi) of this
                               section, Example 11.  section.
(k)(6)(i)...................  (q)(2) of this        (q)(2)(v) of this
                               section, Example 5.   section.
(k)(6)(i)...................  (q)(2) of this        (q)(2)(vi) of this
                               section, Example 6.   section.
(k)(6)(ii)..................  (q)(2) of this        (q)(2)(vii) of this
                               section, Example 7.   section.
(k)(6)(iii).................  (q)(2) of this        (q)(2)(viii) of this
                               section, Example 8.   section.
(k)(8)......................  (q)(2) of this        (q)(2)(ix) of this
                               section, Example 9.   section.
(k)(12)(i)..................  (q)(2) of this        (q)(2)(xx) of this
                               section, Example 20.  section.
(k)(14) introductory text...  paragraph (q)(2),     paragraphs
                               Examples 4, 6, 10,    (q)(2)(iv), (vi),
                               12, 17, 21, and 23    (x), (xii), (xvii),
                               of this section.      (xxi), and (xxiii)
                                                     of this section.
(m)(1)......................  (q)(2) of this        (q)(2)(xiii) of this
                               section, Example 13.  section.
(n)(1)......................  (q)(2) of this        (q)(2)(xiv) of this
                               section, Example 14.  section.
(o)(1)(ii)..................  (q)(2) of this        (q)(2)(xv) of this
                               section, Example 15.  section.
(o)(1)(iii) introductory      (q)(2) of this        (q)(2)(xvi) of this
 text.                         section, Example 16.  section.
(o)(5)(i)(A)................  (q)(2) of this        (q)(2)(xviii) of
                               section, Example 18.  this section.
(o)(5)(i)(B)................  (q)(2) of this        (q)(2)(xix) of this
                               section, Example 19.  section.
(o)(5)(i)(C)................  (q)(2) of this        (q)(2)(xxii) of this
                               section, Example 22.  section.
(o)(5)(i)(D)................  (q)(2) of this        (q)(2)(xxii) of this
                               section, Example 22.  section.
(o)(6)......................  (q)(2) of this        (q)(2)(xx) of this
                               section, Example 20.  section.
(r)(2)(i)...................  paragraph (q)(2) of   paragraphs
                               this section,         (q)(2)(xxiv) and
                               Examples 24 and 25.   (xxv) of this
                                                     section
------------------------------------------------------------------------

0
10. By revising the paragraph (r) subject heading.
0
11. In paragraph (r)(1)(i), by adding three sentences at the end of the 
paragraph.
    The revisions and addition read as follows:


Sec.  1.367(a)-8  Gain recognition agreement requirements.

* * * * *
    (k) * * *
    (14) * * *
    (ii) * * * If, as a result of the disposition or other event, a 
foreign corporation acquires the transferred stock or securities or, as 
applicable, substantially all the assets of the transferred 
corporation, the condition of this paragraph (k)(14)(ii) is satisfied 
only if the U.S. transferor owns at least five percent (applying the 
attribution rules of section 318, as modified by section 958(b) but 
without applying section 318(a)(3)(A), (B), and (C) so as to consider 
the U.S. transferor as owning stock which is owned by a person who is 
not a United States person) of the total voting power and the total 
value of the outstanding stock of such foreign corporation.
* * * * *
    (r) Applicability dates--(1) * * *
    (i) * * * Paragraph (k)(14)(ii) of this section applies to 
transfers occurring on or after October 1, 2019, and to transfers 
occurring before October 1, 2019, that result from an entity 
classification election made under Sec.  301.7701-3 of this chapter 
that is filed on or after October 1, 2019. For transfers occurring 
before October 1, 2019, other than transfers occurring before October 
1, 2019, that result from an entity classification election made under 
Sec.  301.7701-3 of this chapter that is filed on or after October 1, 
2019, a taxpayer may apply paragraph (k)(14)(ii) of this section to 
transfers occurring during the last taxable year of a transferee 
foreign corporation beginning before January 1, 2018, and each 
subsequent taxable year of the foreign corporation, provided that the 
taxpayer and United States persons that are related (within the meaning 
of section 267 or 707) to the taxpayer consistently apply such 
paragraph with respect to all foreign corporations. For transfers 
occurring before October 1, 2019, other than transfers occurring before 
October 1, 2019, that result from an entity classification election 
made under Sec.  301.7701-3 of this chapter that is filed on or after 
October 1, 2019, where the taxpayer does not apply paragraph 
(k)(14)(ii) of this section as described in the preceding sentence, see 
paragraph (k)(14)(ii) of this section as in effect and contained in 26 
CFR part 1, as revised April 1, 2020.
* * * * *

0
Par. 5. Section 1.672(f)-2 is amended by revising paragraphs (a) and 
(e) to read as follows:


Sec.  1.672(f)-2  Certain foreign corporations.

    (a) Application of general rule in this section. Subject to the 
provisions of paragraph (b) of this section, if the owner of any 
portion of a trust upon application of the grantor trust rules without 
regard to section 672(f) is a controlled foreign corporation or a 
passive foreign investment company (as defined in section 1297), the 
corporation is treated as a domestic corporation for purposes of 
applying the rules of Sec.  1.672(f)-1. For purposes of this section, a 
controlled foreign corporation has the meaning provided in section 957, 
determined without applying section 318(a)(3)(A), (B), and (C) so as to 
consider a United States person as owning stock which is owned by a 
person who is not a United States person.
* * * * *
    (e) Applicability dates. Except as provided in this paragraph (e), 
the rules of this section apply to taxable years of shareholders of 
controlled foreign corporations and passive foreign investment 
companies beginning after August 10, 1999, and taxable years of 
controlled foreign corporations and passive foreign investment 
companies ending with or within such taxable years of the shareholders. 
The provisions in paragraph (a) of this section relating to the 
controlled foreign corporations taken into account for purposes of this 
section apply to taxable years of foreign corporations ending on or 
after October 1, 2019, and taxable years of United States shareholders 
in which or with which such taxable years

[[Page 59434]]

of foreign corporations end. For taxable years of foreign corporations 
ending before October 1, 2019, and taxable years of United States 
shareholders in which or with which such taxable years of foreign 
corporations end, a taxpayer may apply such provisions to the last 
taxable year of a foreign corporation beginning before January 1, 2018, 
and each subsequent taxable year of the foreign corporation, and to 
taxable years of United States shareholders in which or with which such 
taxable years of the foreign corporation end, provided that the 
taxpayer and United States persons that are related (within the meaning 
of section 267 or 707) to the taxpayer consistently apply such 
provisions with respect to all foreign corporations. For taxable years 
of foreign corporations ending before October 1, 2019, and taxable 
years of United States shareholders in which or with which such taxable 
years of foreign corporations end, where the taxpayer does not apply 
the provisions of paragraph (a) of this section relating to controlled 
foreign corporations, see paragraph (a) of this section as in effect 
and contained in 26 CFR part 1, as revised April 1, 2020.

0
Par. 6. Section 1.706-1 is amended:
0
1. By revising paragraph (b)(6)(ii).
0
2. By revising the paragraph (b)(6)(v) subject heading.
0
3. In paragraph (b)(6)(v)(A), by revising the first sentence and adding 
three sentences after the first sentence.
    The revisions and addition read as follows:


Sec.  1.706-1  Taxable years of partner and partnership.

* * * * *
    (b) * * *
    (6) * * *
    (ii) Definition of foreign partner. For purposes of this paragraph 
(b)(6), a foreign partner is any partner that is not a United States 
person (as defined in section 7701(a)(30)), except that a partner that 
is a controlled foreign corporation (within the meaning of section 
957(a)) in which a United States shareholder (as defined in section 
951(b)) owns (within the meaning of section 958(a)) stock is not 
treated as a foreign partner.
* * * * *
    (v) Applicability dates--(A) * * * The provisions of this paragraph 
(b)(6) (other than paragraph (b)(6)(iii) of this section and paragraph 
(b)(6)(ii) of this section to the extent described in the next 
sentence) apply to partnership taxable years, other than those of an 
existing partnership, that begin on or after July 23, 2002. The 
provisions in paragraph (b)(6)(ii) of this section relating to 
controlled foreign corporations apply to taxable years of foreign 
corporations ending on or after October 1, 2019, and taxable years of 
United States shareholders in which or with which such taxable years of 
foreign corporations end. For taxable years of foreign corporations 
ending before October 1, 2019, and taxable years of United States 
shareholders in which or with which such taxable years of foreign 
corporations end, a taxpayer may apply such provisions to the last 
taxable year of a foreign corporation beginning before January 1, 2018, 
and each subsequent taxable year of the foreign corporation, and to 
taxable years of United States shareholders in which or with which such 
taxable years of the foreign corporation end, provided that the 
taxpayer and United States persons that are related (within the meaning 
of section 267 or 707) to the taxpayer consistently apply such 
provisions with respect to all foreign corporations. For taxable years 
of foreign corporations ending before October 1, 2019, and taxable 
years of United States shareholders in which or with which such taxable 
years of foreign corporations end, where the taxpayer does not apply 
the provisions of paragraph (b)(6)(ii) of this section relating to 
controlled foreign corporations, see paragraph (b)(6)(ii) of this 
section as in effect and contained in 26 CFR part 1, as revised April 
1, 2020. * * *
* * * * *

0
Par. 7. Section 1.863-8 is amended:
0
1. In paragraph (b)(2)(ii), by revising the first sentence and adding a 
sentence at the end of the paragraph.
0
2. By revising paragraph (h).
    The revisions and addition read as follows:


Sec.  1.863-8  Source of income derived from space and ocean activity 
under section 863(d).

* * * * *
    (b) * * *
    (2) * * *
    (ii) * * * Space and ocean income derived by a controlled foreign 
corporation (CFC) is income from sources within the United States. * * 
* For purposes of this section, a CFC has the meaning provided in 
section 957, determined without applying section 318(a)(3)(A), (B), and 
(C) so as to consider a United States person as owning stock which is 
owned by a person who is not a United States person.
* * * * *
    (h) Applicability dates. Except as provided in this paragraph (h), 
this section applies to taxable years beginning on or after December 
27, 2006. The provisions in paragraph (b)(2)(ii) of this section 
relating to the meaning of a CFC apply to taxable years of foreign 
corporations ending on or after October 1, 2019. For taxable years of 
foreign corporations ending before October 1, 2019, a taxpayer may 
apply such provisions to the last taxable year of a foreign corporation 
beginning before January 1, 2018, and each subsequent taxable year of 
the foreign corporation, provided that the taxpayer and United States 
persons that are related (within the meaning of section 267 or 707) to 
the taxpayer consistently apply such provisions with respect to all 
foreign corporations. For taxable years of foreign corporations ending 
before October 1, 2019, where the taxpayer does not apply the 
provisions of paragraph (b)(2)(ii) of this section relating to the 
meaning of a CFC, see paragraph (b)(2)(ii) of this section as in effect 
and contained in 26 CFR part 1, as revised April 1, 2020.

0
Par. 8. Section 1.863-9 is amended by revising paragraphs (b)(2)(ii) 
and (l) to read as follows:


Sec.  1.863-9  Source of income derived from communications activity 
under section 863(a), (d), and (e).

* * * * *
    (b) * * *
    (2) * * *
    (ii) International communications income derived by a controlled 
foreign corporation. International communications income derived by a 
controlled foreign corporation (CFC) is one-half from sources within 
the United States and one-half from sources without the United States. 
For purposes of this section, a CFC has the meaning provided in section 
957, determined without applying section 318(a)(3)(A), (B), and (C) so 
as to consider a United States person as owning stock which is owned by 
a person who is not a United States person.
* * * * *
    (l) Applicability dates. Except as otherwise provided in this 
paragraph (l), this section applies to taxable years beginning on or 
after December 27, 2006. The provisions in paragraph (b)(2)(ii) of this 
section relating to the meaning of a CFC apply to taxable years of 
foreign corporations ending on or after October 1, 2019. For taxable 
years of foreign corporations ending before October 1, 2019, a taxpayer 
may apply such provisions to the last taxable year of a foreign 
corporation beginning before January 1, 2018, and each subsequent 
taxable year of the foreign corporation, provided that the taxpayer

[[Page 59435]]

and United States persons that are related (within the meaning of 
section 267 or 707) to the taxpayer consistently apply such provisions 
with respect to all foreign corporations. For taxable years of foreign 
corporations ending before October 1, 2019, where the taxpayer does not 
apply the provisions of paragraph (b)(2)(ii) of this section relating 
to the meaning of a CFC, see paragraph (b)(2)(ii) of this section as in 
effect and contained in 26 CFR part 1, as revised April 1, 2020.

0
Par. 9. Section 1.904-5 is amended by revising paragraph (a)(4)(i), the 
first sentence of paragraph (a)(4)(vi), and paragraph (o) to read as 
follows:


Sec.  1.904-5  Look-through rules as applied to controlled foreign 
corporations and other entities.

    (a) * * *
    (4) * * *
    (i) The term controlled foreign corporation has the meaning given 
such term by section 957 (taking into account the special rule for 
certain captive insurance companies contained in section 953(c)), 
determined without applying section 318(a)(3)(A), (B), and (C) so as to 
consider a United States person as owning stock which is owned by a 
person who is not a United States person.
* * * * *
    (vi) The term United States shareholder has the meaning given such 
term by section 951(b) (taking into account the special rule for 
certain captive insurance companies contained in section 953(c)), 
determined without applying section 318(a)(3)(A), (B), and (C) so as to 
consider a United States person as owning stock which is owned by a 
person who is not a United States person, except that for purposes of 
this section, a United States shareholder includes any member of the 
controlled group of the United States shareholder. * * *
* * * * *
    (o) Applicability dates. Except as otherwise provided in this 
paragraph (o), this section is applicable for taxable years that both 
begin after December 31, 2017, and end on or after December 4, 2018. 
Paragraphs (a)(4)(i) and (vi) of this section are applicable for 
taxable years of foreign corporations ending on or after October 1, 
2019, and taxable years of United States persons ending on or after 
October 1, 2019. For taxable years of foreign corporations ending 
before October 1, 2019, and taxable years of United States persons 
ending before October 1, 2019, a taxpayer may apply such provisions to 
the last taxable year of a foreign corporation beginning before January 
1, 2018, and each subsequent taxable year of the foreign corporation, 
and to taxable years of United States shareholders in which or with 
which such taxable years of the foreign corporation end, provided that 
the taxpayer and United States persons that are related (within the 
meaning of section 267 or 707) to the taxpayer consistently apply such 
provisions with respect to all foreign corporations. For taxable years 
of foreign corporations ending before October 1, 2019, and taxable 
years of United States persons ending before October 1, 2019, where the 
taxpayer does not apply the provisions of paragraphs (a)(4)(i) and (vi) 
of this section, see paragraphs (a)(4)(i) and (vi) of this section as 
in effect and contained in 26 CFR part 1, as revised April 1, 2020.

0
Par. 10. Section 1.958-2 is amended:
0
1. By removing and reserving paragraph (d)(2).
0
2. In paragraph (g), by designating Examples 1 through 6 as paragraphs 
(g)(1) through (6), respectively.
0
3. In newly designated paragraphs (g)(1) and (2), by removing the 
language ``paragraph (c)(1)(iii) and (2) of this section'' and adding 
the language ``paragraphs (c)(1)(iii) and (c)(2) of this section'' in 
its place.
0
4. By revising newly designated paragraph (g)(4).
0
5. In paragraph (h), by adding three sentences to the end of the 
paragraph.
0
6. By removing the parenthetical authority citation at the end of the 
section.
    The revisions and additions read as follows:


Sec.  1.958-2  Constructive ownership of stock.

* * * * *
    (g) * * *
    (4) Example 4. Foreign corporation U owns 100 percent of the one 
class of stock in domestic corporation V and also 100 percent of the 
one class of stock in foreign corporation W. Because more than 50 
percent in value of the stock of V Corporation is owned by its sole 
shareholder, U Corporation, V Corporation is considered under paragraph 
(d)(1)(iii) of this section as owning the stock owned by U Corporation 
in W Corporation, and accordingly is a United States shareholder of W 
Corporation.
* * * * *
    (h) * * * Paragraphs (d)(2) and (g)(4) of this section apply to 
taxable years of foreign corporations ending on or after October 1, 
2019, and taxable years of United States shareholders in which or with 
which such taxable years of foreign corporations end. For taxable years 
of foreign corporations ending before October 1, 2019, and taxable 
years of United States shareholders in which or with which such taxable 
years of foreign corporations end, a taxpayer may apply such provisions 
to the last taxable year of a foreign corporation beginning before 
January 1, 2018, and each subsequent taxable year of the foreign 
corporation, and to taxable years of United States shareholders in 
which or with which such taxable years of the foreign corporation end, 
provided that the taxpayer and United States persons that are related 
(within the meaning of section 267 or 707) to the taxpayer consistently 
apply such provisions with respect to all foreign corporations. For 
taxable years of foreign corporations ending before October 1, 2019, 
and taxable years of United States shareholders in which or with which 
such taxable years of foreign corporations end, where the taxpayer does 
not apply the provisions of paragraphs (d)(2) and (g)(4) of this 
section, see paragraph (d)(2) and (g)(4) of this section as in effect 
and contained in 26 CFR part 1, as revised April 1, 2020.

0
Par. 11. Section 1.6049-5 is amended by revising paragraphs 
(c)(5)(i)(C) and (g) to read as follows:


Sec.  1.6049-5  Interest and original issue discount subject to 
reporting after December 31, 1982.

* * * * *
    (c) * * *
    (5) * * *
    (i) * * *
    (C) A controlled foreign corporation within the meaning of section 
957, determined without applying section 318(a)(3)(A), (B), and (C) so 
as to consider a United States person as owning stock which is owned by 
a person who is not a United States person.
* * * * *
    (g) Applicability dates. Except as otherwise provided in this 
paragraph (g), this section applies to payments made on or after 
January 6, 2017. For payments made after June 30, 2014, and before 
January 6, 2017, see this section as in effect and contained in 26 CFR 
part 1, as revised April 1, 2016. For payments made after December 31, 
2000, and before July 1, 2014, see this section as in effect and 
contained in 26 CFR part 1, as revised April 1, 2013. Paragraph 
(c)(5)(i)(C) of this section applies to payments made on or after 
October 1, 2019. For payments made before October 1, 2019, a taxpayer 
may apply paragraph (c)(5)(i)(C) of this section for payments during 
the last taxable year of a foreign corporation

[[Page 59436]]

beginning before January 1, 2018, and each subsequent taxable year of 
the foreign corporation, provided that the taxpayer and United States 
persons that are related (within the meaning of section 267 or 707) to 
the taxpayer consistently apply such paragraph with respect to all 
foreign corporations. For payments made before October 1, 2019, where 
the taxpayer does not apply the provisions of paragraph (c)(5)(i)(C) of 
this section, see paragraph (c)(5)(i)(C) of this section as in effect 
and contained in 26 CFR part 1, as revised April 1, 2020.

Sunita Lough,
Deputy Commissioner for Services and Enforcement.
    Approved: July 24, 2020
David J. Kautter,
Assistant Secretary for the Treasury (Tax Policy).
[FR Doc. 2020-17549 Filed 9-21-20; 8:45 am]
BILLING CODE 4830-01-P

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