Guidance Under Section 958 on Determining Stock Ownership, 3648-3656 [2022-00066]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 87, Number 16 (Tuesday, January 25, 2022)]
[Rules and Regulations]
[Pages 3648-3656]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-00066]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9960]
RIN 1545-BP79


Guidance Under Section 958 on Determining Stock Ownership

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations regarding the 
treatment of domestic partnerships for purposes of determining amounts 
included in the gross income of their partners with respect to foreign 
corporations. The final regulations affect United States persons that 
own stock of foreign corporations through domestic partnerships and 
domestic partnerships that are United States shareholders of foreign 
corporations.

DATES: 
    Effective date: These regulations are effective on January 25, 
2022.
    Applicability dates: For dates of applicability, see Sec. Sec.  
1.956-1(g)(4) and 1.958-1(d)(4).

FOR FURTHER INFORMATION CONTACT: Edward J. Tracy at (202) 317-6934 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On October 10, 2018, the Department of the Treasury (``Treasury 
Department'') and the IRS published proposed regulations (REG-104390-
18) under sections 951, 951A, 1502, and 6038 in the Federal Register 
(83 FR 51072) that included guidance with respect to the treatment of 
domestic partnerships that own stock in controlled foreign 
corporations, as defined in section 957 (``CFCs''), for purposes of 
section 951A (the ``2018 proposed regulations''). The 2018 proposed 
regulations set forth a ``hybrid approach'' that generally treated a 
domestic partnership that is a United States shareholder, as defined in 
section 951(b) (``U.S. shareholder''), with respect to a CFC (``U.S. 
shareholder partnership'') as an entity with respect to its partners 
that are not U.S. shareholders (``non-U.S. shareholder partners'') but 
as an aggregate of its partners with respect to its partners that are 
U.S. shareholders (``U.S. shareholder partners'').
    On June 21, 2019, the Treasury Department and the IRS published 
final regulations (TD 9866) in the Federal Register (84 FR 29288, as 
corrected at 84 FR 44223, 84 FR 44693, and 84 FR 53052) under sections 
951, 951A, 1502, and 6038 that include guidance with respect to the 
treatment of domestic partnerships that own stock in CFCs for purposes 
of section 951A (the ``final section 951A regulations''). Instead of 
the ``hybrid approach'' described in the 2018 proposed regulations, the 
final section 951A regulations generally treat a domestic partnership 
as an aggregate of all of its partners for purposes of computing income 
inclusions under section 951A (and other provisions that apply by 
reference to section 951A). Sec.  1.951A-1(e)(1). That is, under the 
final section 951A regulations, partners do not take into account a 
distributive share of the partnership's section 951A inclusion with 
respect to the partnership-owned CFCs but instead are treated as 
proportionately owning the stock of the partnership-owned CFCs. See id. 
Thus, as in the case of foreign partnerships, income inclusions under 
section 951A are determined directly by U.S. shareholder partners of a 
domestic partnership that owns CFCs. The final section 951A regulations 
apply to taxable years of foreign corporations beginning after December 
31, 2017, and to taxable years of U.S. shareholders in which or with 
which those taxable years of foreign corporations end. Sec.  1.951A-7.
    Concurrent with the issuance of the final section 951A regulations, 
the Treasury Department and the IRS published proposed regulations 
(REG-101828-19) under sections 951, 951A, 954, 956, 958, and 1502 in 
the Federal Register (84 FR 29114, as corrected at 84 FR 37807) (the 
``2019 proposed regulations''). Consistent with the approach adopted in 
the final section 951A regulations, the 2019 proposed regulations 
generally extended the treatment of domestic partnerships as aggregates 
of their partners for purposes of determining income inclusions under 
section 951 and for purposes of provisions that apply by reference to 
section 951. Proposed Sec.  1.958-1(d).
    On August 22, 2019, the Treasury Department and the IRS published 
Notice 2019-46, 2019-37 I.R.B. 695, which announced the intent to issue 
regulations that would permit, in certain cases, the ``hybrid 
approach'' described

[[Page 3649]]

in the 2018 proposed regulations to be applied to domestic partnerships 
or S corporations for taxable years ending before June 22, 2019.
    On July 23, 2020, the Treasury Department and the IRS published 
final regulations (TD 9902) in the Federal Register (85 FR 44620, as 
corrected at 85 FR 64040 and 85 FR 79853) related to the portion of the 
2019 proposed regulations under sections 951A and 954 addressing the 
treatment of income subject to a high rate of foreign tax.
    A notice of proposed rulemaking published in the Proposed Rules 
section of this issue of the Federal Register (REG-118250-20) provides 
guidance on the treatment of domestic partnerships and S corporations 
that own passive foreign investment companies (as defined in section 
1297(a)) (``PFICs'') and their domestic partners and shareholders, as 
well as on other PFIC and CFC-related issues (the ``2022 proposed PFIC 
regulations'').
    This rulemaking finalizes the portion of the 2019 proposed 
regulations that generally treat domestic partnerships as aggregates of 
their partners for purposes of determining income inclusions under 
section 951 and for purposes of provisions that apply specifically by 
reference to section 951 (the ``final regulations'').
    In the 2019 proposed regulations, the Treasury Department and the 
IRS requested comments on the other provisions in the Internal Revenue 
Code (``Code'') that apply by reference to ownership within the meaning 
of section 958(a) for which aggregate treatment for domestic 
partnerships would be appropriate. The 2019 proposed regulations also 
requested comments on the aggregate treatment of domestic partnerships 
in specific areas, including for purposes of determining the 
controlling domestic shareholders of a CFC and for purposes of applying 
the PFIC regime. The Treasury Department and the IRS received three 
comments in response to the 2019 proposed regulations, each of which 
were considered in these final regulations. No public hearing on the 
2019 proposed regulations was held because there were no requests to 
speak.

Summary of Comments and Explanation of Revisions

    Comments outside the scope of this rulemaking are generally not 
addressed but may be considered in connection with future guidance 
projects. All written comments received in response to the proposed 
regulations that are being finalized in this rulemaking are available 
at www.regulations.gov or upon request.

I. Application of Section 956

    Subject to certain exceptions, the 2019 proposed regulations 
treated domestic partnerships as aggregates of their partners for 
purposes of sections 951 and 951A and for purposes of any other 
provision that applies by reference to section 951 or section 951A. 
Proposed Sec.  1.958-1(d)(1) and (2). Although section 951(a)(1)(B) 
requires a U.S. shareholder of a CFC to include in gross income the 
amount determined under section 956 with respect to the U.S. 
shareholder (to the extent not excluded from gross income under section 
959(a)(2)), section 956 itself does not specifically apply by reference 
to section 951 (or section 951A). Accordingly, the final regulations 
clarify that aggregate treatment of domestic partnerships applies for 
purposes of section 956(a) and any provisions that specifically apply 
by reference to section 956(a) (such as Sec.  1.956-1(a)(2)) to ensure 
that a U.S shareholder partner determines a section 956 amount with 
respect to CFCs owned through a domestic partnership as part of the 
U.S. shareholder partner's section 951(a) inclusion. Sec.  1.958-
1(d)(1) and (d)(3)(iii). Aggregate treatment does not apply, however, 
for purposes of section 956(c) or (d) (or provisions that apply by 
reference to these sections) because treating a domestic partnership as 
an entity separate from its partners is more appropriate to carry out 
the purposes of these provisions. See, e.g., Sec.  1.956-4(e) 
(providing rules concerning the application of section 956 to, for 
example, obligations of partnerships). As discussed in the preamble to 
the 2019 proposed regulations, the treatment of a partnership as an 
entity or an aggregate is determined in part based on the policies 
underlying the specific provision at issue. See 84 FR 29115-29116.
    To avoid similar confusion regarding the scope of Sec.  1.958-1(d), 
the final regulations replace the language ``any other provision that 
applies by reference'' to section 951 or section 951A in proposed Sec.  
1.958-1(d)(1) with ``any provision that specifically applies by 
reference'' to section 951, section 951A, or section 956(a). The 
addition of the word ``specifically'' is intended to clarify that the 
rule in Sec.  1.958-1(d) applies only to the particular provision 
within a Code section or regulation that applies specifically by 
reference to section 951, section 951A, or section 956(a) rather than 
the section or regulation in its entirety. Additionally, the final 
regulations clarify that the rule in Sec.  1.958-1(d)(1) applies for 
purposes of any provision that specifically applies by reference to 
regulations issued under or relating to the sections identified in 
Sec.  1.958-1(d)(1). Corresponding revisions are made to the cross 
references to Sec.  1.958-1(d) provided in Sec. Sec.  1.951-1(a)(4) and 
1.951A-1(e).
    Certain existing final regulations treat domestic partnerships as 
entities separate from their partners for purposes of section 956. 
Sec.  1.956-1(a)(2)(i) and (iii) and (a)(3)(iv). Because this treatment 
is inconsistent with the aggregate approach, the 2019 proposed 
regulations modified the applicability date of these provisions so they 
would cease to apply once the 2019 proposed regulations were finalized. 
Proposed Sec.  1.956-1(g)(4). Rather than modifying the applicability 
dates as was done in the 2019 proposed regulations, however, the final 
regulations simply remove these provisions. Accordingly, because those 
provisions are being removed as part of the final regulations, the 
proposed applicability date provisions under section 956 are no longer 
relevant and are not being finalized.

II. Passive Foreign Investment Companies

    The preamble to the 2019 proposed regulations requested comments 
with respect to the application of the PFIC regime to domestic 
partnerships that directly or indirectly own PFIC stock, particularly 
with respect to whether elections and income inclusions are more 
appropriate at the level of the domestic partnership or at the level of 
its partners. 84 FR 29120. Comments were received regarding PFIC 
elections and inclusions, the CFC overlap rule in section 1297(d), and 
other PFIC-related issues involving domestic partnerships. These 
comments are addressed in the 2022 proposed PFIC regulations in order 
to provide taxpayers additional opportunity to comment.

III. Related Person Insurance Income

    Section 952(a) provides that subpart F income includes insurance 
income, as defined in section 953. Under section 953(c)(2), related 
person insurance income (``RPII'') is any insurance income (as defined 
in section 953(a)) attributable to a policy of insurance or reinsurance 
that directly or indirectly insures a United States shareholder (as 
defined in section 953(c)(1)(A)) of the controlled foreign corporation 
(as defined in section 953(c)(1)(B)), or a person related to the United 
States shareholder.
    A comment requested that aggregate treatment be applied for 
purposes of determining RPII such that there would only be RPII to the 
extent of the

[[Page 3650]]

domestic partnership's domestic partners, which is the same result as 
for foreign partnerships. The Treasury Department and the IRS agree 
that aggregate principles should apply for purposes of section 953(c). 
However, in order to provide taxpayers an additional opportunity to 
comment, this comment is addressed in the 2022 proposed PFIC 
regulations.

IV. Controlling Domestic Shareholders

    The ``controlling domestic shareholders'' of a CFC make certain 
elections with respect to the CFC, such as electing the method of 
calculating the CFC's earnings and profits under section 964(a) and 
electing to exclude tentative gross tested income items from gross 
tested income under section 951A(c)(2)(A)(i)(III). See Sec. Sec.  
1.964-1(c)(3) and 1.951A-2(c)(7)(viii). Under Sec.  1.964-1(c)(5)(i), 
the controlling domestic shareholders of a CFC are the U.S. 
shareholders that, in the aggregate, own (within the meaning of section 
958(a)) more than 50 percent of the total combined voting power of all 
classes of stock of the CFC entitled to vote and that undertake to act 
on the CFC's behalf. If the ownership requirement is not satisfied, the 
controlling domestic shareholders of the CFC are all of the U.S. 
shareholders that own (within the meaning of section 958(a)) stock of 
the CFC. Id.
    With respect to U.S. shareholder partnerships, the 2019 proposed 
regulations did not apply aggregate treatment for purposes of 
determining a CFC's controlling domestic shareholders, and a domestic 
partnership could qualify as a controlling domestic shareholder of the 
CFC. Proposed Sec.  1.958-1(d)(2). The preamble to the 2019 proposed 
regulations requested comments on whether aggregate treatment should 
apply in this context so that some or all of the U.S. shareholder 
partners, rather than the partnership, would make elections applicable 
to the CFC for purposes of sections 951 and 951A. 84 FR 29119. One 
comment was received that recommended, on balance, that aggregate 
treatment should not apply for purposes of determining the controlling 
domestic shareholders of CFCs under Sec.  1.964-1(c)(5)(i).
    The final regulations do not extend aggregate treatment for 
determining the controlling domestic shareholders of a CFC under Sec.  
1.964-1(c)(5)(i). However, the Treasury Department and the IRS believe 
that aggregate treatment should apply to domestic partnerships for 
purposes of determining the controlling domestic shareholders of a CFC 
under Sec.  1.964-1(c)(5). Thus, the 2022 proposed PFIC regulations 
revise Sec.  1.958-1(d)(2) to provide that aggregate treatment applies 
for purposes of determining the controlling domestic shareholders of a 
CFC. This change is included in the 2022 proposed PFIC regulations to 
give taxpayers an additional opportunity to comment.

V. Previously Taxed Earnings and Profits and Basis Adjustments

    The preamble to the 2019 proposed regulations noted that, 
historically, domestic partnerships had been treated as owning stock 
within the meaning of section 958(a) for purposes of determining their 
section 951 inclusions, and, thus, previously taxed earnings and 
profits (``PTEP'') accounts under section 959 were maintained, and 
related basis adjustments under section 961 were made, at the 
partnership level. 84 FR 29119. As a result, comments were requested on 
appropriate rules, such as necessary adjustments to PTEP and related 
basis amounts, for the transition to the aggregate approach to domestic 
partnerships described in the 2019 proposed regulations once those 
regulations were finalized. 84 FR 29119-20. These issues, and the 
comments received, are beyond the scope of this rulemaking and 
therefore are not addressed herein; however, the Treasury Department 
and the IRS intend to address these comments in a separate guidance 
project involving PTEP (the ``proposed PTEP regulations''). The 
proposed PTEP regulations will provide guidance on a broad range of 
issues, such as the maintenance of PTEP accounts under section 959, the 
treatment of PTEP distributions, and basis adjustments under section 
961, including with respect to CFCs held by partnerships.

VI. Application of Section 1248

    The preamble to the 2019 proposed regulations stated that, subject 
to certain exceptions, aggregate treatment of domestic partnerships 
applied only with respect to sections 951 and 951A, and any provision 
that applies by reference to sections 951 and 951A, and, therefore, did 
not apply for any other purpose of the Code, including section 1248. 84 
FR 29119. Comments were received regarding section 1248, including with 
respect to dispositions by domestic partnerships of CFC stock, 
dispositions of interests in domestic partnerships that own CFC stock, 
and the interaction between section 1248 and section 751.
    The final regulations do not address these comments, which are 
beyond the scope of this rulemaking. The Treasury Department and the 
IRS recognize, however, that section 1248 applies in part by reference 
to section 951 and section 951A (in the latter case, as a result of 
section 951A(f)(1)(A)). See section 1248(b)(1)(A) and (d)(1). 
Therefore, the final regulations clarify that the aggregate approach 
set forth in Sec.  1.958-1(d)(1) does not apply for purposes of section 
1248, which is consistent with the intended scope of the rules as 
described in the preamble to the 2019 proposed regulations. Sec.  
1.958-1(d)(2)(iv). The final regulations do not affect the application 
of Sec.  1.1248-1(a)(4). Future guidance, including the proposed PTEP 
regulations, may address the application of section 1248(b)(1)(A) and 
(d)(1) to transactions involving a domestic partnership's sale of a 
CFC, such as the transaction described in Rev. Rul. 69-124, 1969-1 C.B. 
203.

VII. Non-Grantor Trusts and Estates

    The preamble to the 2019 proposed regulations requested comments on 
whether aggregate treatment should be extended to other pass-through 
entities such as certain trusts or estates. In response to this 
request, one comment recommended that aggregate treatment not be 
extended to domestic non-grantor trusts and domestic estates, noting 
that there is no corollary authority to section 7701(a)(4) (authorizing 
the treatment of domestic partnerships as not domestic when the context 
requires) which would permit the Treasury Department and the IRS to 
treat domestic non-grantor trusts and domestic estates as not domestic. 
The comment further noted that if the domestic non-grantor trust or 
domestic estate had a section 951(a) or section 951A inclusion but did 
not distribute the income to its beneficiaries, the trust or estate 
itself would be liable for tax on that income (unlike a partnership); 
thus, two separate taxing regimes could be necessary if an aggregate 
approach were limited to distributed income. Finally, the comment 
suggested that identifying U.S. shareholders of a CFC the stock of 
which is owned by a domestic non-grantor trust or a domestic estate 
would be complex if the trust or estate had discretionary 
beneficiaries.
    Although aggregate treatment of domestic partnerships for purposes 
of sections 951 and 951A (and provisions that specifically apply by 
reference to those sections) is not based on the grant of authority 
under section 7701(a)(4), the Treasury Department and the IRS 
nevertheless agree, for the other reasons stated in the comment, that 
aggregate treatment should not be extended to domestic non-grantor 
trusts and domestic estates.

[[Page 3651]]

VIII. Other Changes

    The final section 951A regulations generally adopted aggregate 
treatment of domestic partnerships for purposes of section 951A. Sec.  
1.951A-1(e). The preamble to the 2019 proposed regulations noted that 
once those regulations were finalized, Sec.  1.951A-1(e) would be 
unnecessary because that rule would be subsumed by Sec.  1.958-1(d). 84 
FR 29119. The preamble to the 2019 proposed regulations further noted 
that Sec.  1.951-1(h), which treated certain controlled domestic 
partnerships as foreign partnerships for purposes of determining the 
stock of a CFC owned (within the meaning of section 958(a)) by a U.S. 
person, would similarly be unnecessary. Id. No comments addressed those 
proposed regulations. As a result, Sec.  1.951A-1(e) is amended to 
remove paragraphs (e)(1) through (3) and include a general cross-
reference to Sec.  1.958-1(d) in Sec.  1.951A-1(e) for the treatment of 
domestic partnerships for purposes of section 951A. The final 
regulations also remove paragraph (h) of Sec.  1.951-1.

IX. Applicability Dates

A. Application Before Finalization Date
    Proposed Sec.  1.958-1(d)(4) provided that the regulations under 
section 958 would apply to taxable years of foreign corporations 
beginning on or after the date the final regulations are published in 
the Federal Register (the ``finalization date'') and to taxable years 
of U.S. persons in which or with which such taxable years of the 
foreign corporations end (the ``general applicability rule''). However, 
domestic partnerships could apply the regulations, when finalized, to 
taxable years of a foreign corporation beginning after December 31, 
2017, and to taxable years of the domestic partnership in which or with 
which such taxable years of the foreign corporation end, subject to the 
requirement that the partnership, its U.S. shareholder partners, and 
other related domestic partnerships and their U.S. shareholder partners 
consistently apply the regulations with respect to all foreign 
corporations the partnerships own (within the meaning of section 
958(a), determined without regard to proposed Sec.  1.958-1(d)(1)) (the 
``pre-finalization applicability option''). Proposed Sec.  1.958-
1(d)(4). The 2019 proposed regulations also permitted domestic 
partnerships, their U.S. shareholder partners, and related domestic 
partnerships and their U.S. shareholder partners to rely on proposed 
Sec.  1.958-1(d)(4), subject to the same consistency requirement (the 
``reliance option''). See 84 FR 29119.
    One comment made several recommendations with respect to the 
applicability date of proposed Sec.  1.958-1(d). First, the comment 
suggested that the reference to a ``domestic partnership'' in the pre-
finalization applicability option was inconsistent with the reference 
to ``U.S. persons'' in the general applicability rule and recommended 
that the final regulations be revised to reference ``U.S. person'' in 
both places. With respect to the consistency requirements (including 
consistency between years), the comment suggested that U.S. persons 
owning stock of a foreign corporation through a domestic partnership be 
allowed to take individual positions as to whether to apply the pre-
finalization applicability option, subject to all related partners 
taking the same position. The comment noted that an individualized 
approach would allow non-U.S. shareholder partners to decide whether to 
be subject to section 951 inclusions or potentially to be subject to 
the PFIC regime during the period before the finalization date and 
would not materially impact U.S. shareholder partners.
    The reference to ``domestic partnerships'' and their U.S. 
shareholder partners in the pre-finalization applicability option was 
intentional. Although the general applicability rule applies to all 
affected U.S. persons, certain persons may choose to apply the 
regulations before the finalization date. By limiting this group of 
persons to domestic partnerships and their U.S. shareholder partners 
(and related domestic partnerships), the rule aims to strike a balance 
between identifying a small group of persons who may be able to 
coordinate with respect to the decision to apply the pre-finalization 
applicability option versus all persons that may be affected by that 
decision. Accordingly, the suggested revision to reference ``U.S. 
persons'' in the pre-finalization applicability option is not adopted.
    In addition, the suggested revision would allow partners to take 
individualized positions with respect to the pre-finalization 
applicability option and could cause significant administrative, 
partnership accounting, and reporting difficulties. For example, if 
each partner were allowed to take an individual position on the 
applicability date of the regulations, partners following the general 
applicability rule (regardless of the extent of their ownership) might 
receive a distributive share of the partnership's section 951 
inclusions while U.S. shareholder partners applying the pre-
finalization applicability option have direct section 951 inclusions. 
The Treasury Department and the IRS believe that consistency among all 
affected parties in applying the pre-finalization applicability option 
is important for proper administration of the regulations. As a result, 
the Treasury Department and the IRS have determined that the difficulty 
posed by an individualized approach outweighs the potential benefit the 
approach would provide to a partner, and this comment is not adopted. 
The Treasury Department and the IRS are aware that, given the potential 
scope of the consistency requirement, it may be difficult to meet in 
more widely held partnership structures, and thus application of the 
pre-finalization applicability option may be limited.
    The comment recommended that if the individualized approach is not 
adopted, the final regulations should require a formal election in 
order to apply the pre-finalization applicability option instead of the 
consistency requirement. The election would be made only by a domestic 
partnership and all related domestic partnerships and would be binding 
on all domestic partners. The comment asserted that this approach would 
clarify the application of the pre-finalization applicability option by 
avoiding potential uncertainty as to whether all U.S. shareholder 
partners took a consistent position. The comment further suggested that 
a partnership-only election to apply the pre-finalization applicability 
option would prevent U.S. shareholder partners from refusing, without 
justification, to act in accordance with the partnership's election.
    The Treasury Department and the IRS have determined that, although 
the consistency requirement among all related domestic partnerships and 
their U.S. shareholder partners may be difficult to meet in certain 
cases, requiring consistency among all persons required to apply the 
pre-finalization applicability option is important for proper 
administration of the rules. Absent this requirement, U.S. shareholder 
partners could choose not to amend their returns, and therefore 
continue to report under the entity approach, even though the 
partnership and other partners amended their returns and reported under 
the aggregate approach pursuant to the pre-finalization applicability 
option.\1\ In

[[Page 3652]]

addition, maintaining the U.S. shareholder consistency requirement 
minimizes administrative, partnership accounting, and reporting 
difficulties (for example, in connection with PTEP accounts) that could 
arise if a partnership-only election were adopted and one or more U.S. 
shareholder partners chose not to amend their returns in accordance 
with the partnership's election. The consistency requirement is also 
expected to enhance compliance and administration at the U.S. 
shareholder partner-level with respect to amended returns (or 
administrative adjustment requests) because it requires more 
coordination between the partnership and its partners than a 
partnership-only election would require. Under either approach, if a 
partnership chooses the pre-finalization applicability option on an 
amended return (or by initiating an administrative adjustment request), 
any U.S. shareholder partner would receive updated information that it 
no longer has a distributive share of the partnership's section 951 
inclusions but would still need to take into account section 951 
inclusions directly under the aggregate approach. Further, the Treasury 
Department and the IRS are concerned that the lack of coordination 
involved in a partnership-only election, as opposed to the consistency 
requirement, may create uncertainty at the U.S. shareholder partner 
level as to whether the partner merely accounts for the reduction in 
the distributive share from the partnership or must also directly take 
into account income inclusions. Accordingly, this comment is not 
adopted.
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    \1\ A U.S. shareholder partner's liability could differ under an 
aggregate or entity approach if, for example, the partner is a U.S. 
shareholder partner with respect to some, but not all, of the CFCs 
that are owned by the domestic partnership.
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    The comment also requested that the final regulations clarify 
whether the pre-finalization applicability option is available if all 
required parties file amended returns. The Treasury Department and the 
IRS confirm that, subject to the consistency requirement, a domestic 
partnership may apply the regulations on an amended return or through 
initiating an administrative adjustment request under section 6227. In 
instances where a domestic partnership files an amended return (that 
is, in the case of partnerships not subject to sections 6221 through 
6241), its partners (both U.S. shareholder partners and non-U.S. 
shareholder partners) will likely need to also file amended returns in 
order to satisfy the consistency requirement.
    Finally, the comment expressed concern for cases in which a 
domestic partnership filed its income tax return for calendar year 2018 
before the issuance of the 2019 proposed regulations reporting section 
951 inclusions by the partnership in accordance with then current law 
(including issuing Schedules K-1 to its partners) but subsequently 
filed a superseding original or amended return for such taxable year 
relying on the 2019 proposed regulations. In that case, the comment 
recommended that the ability to rely on the 2019 proposed regulations 
should not be contingent upon all U.S. shareholder partners filing 
superseding or amended returns on the same basis and that all partners 
should be permitted to decide separately whether to file a superseding 
or amended return to rely on the proposed regulations. The comment 
further recommended that, if a non-U.S. shareholder partner decides to 
rely on the proposed regulations and the foreign corporation is also a 
PFIC, the mechanism for the non-U.S. shareholder partner to make a QEF 
or mark-to-market election under section 1295 or section 1296, 
respectively, should be simplified and that purging elections should 
not be required solely due to the status of the CFC/PFIC during the 
period before the general applicability rule applies. The comment 
analogized these recommendations to relief provided in Notice 2019-46, 
which permitted domestic partnerships and partners to file returns for 
2018 applying the hybrid approach in the 2018 proposed regulations 
rather than the aggregate approach adopted by the final section 951A 
regulations.
    The Treasury Department and the IRS believe that, in all cases, 
proper administration of the regulations before the general 
applicability rule requires the satisfaction of the consistency 
requirement in Sec.  1.958-1(d)(4)(i) and precludes the ability of non-
U.S. shareholder partners to unilaterally apply the regulations. 
Therefore, the final regulations do not adopt more permissive rules 
because a domestic partnership filed a tax return and issued Schedule 
K-1s to its partners before the issuance of the 2019 proposed 
regulations. Furthermore, the Treasury Department and the IRS find this 
situation sufficiently different from the relief provided in Notice 
2019-46 for domestic partnerships that had already reported a different 
position on a Schedule K-1 based on the 2018 proposed regulations. 
Although the final section 951A regulations applied retroactively and 
superseded the 2018 proposed regulations, the notice provided 
flexibility to apply the 2018 proposed regulations due to the 
compliance burdens associated with the change from the hybrid approach 
in the 2018 proposed regulations to the aggregate approach in the final 
section 951A regulations and the relatively short period until the 
extended filing deadline for calendar-year partnerships. This same 
concern does not exist here because, before the prospective application 
of the regulations under the general applicability rule, taxpayers were 
permitted to rely on the 2019 proposed regulations (in accordance with 
proposed Sec.  1.958-1(d)(4)) or to continue to apply prior law. 
Accordingly, the final regulations do not adopt these comments.
B. Different Taxable Years of the Partnership, Partners, and CFC
    Proposed Sec.  1.958-1(d)(4) provided that Sec.  1.958-1(d), when 
finalized, would apply to taxable years of foreign corporations 
beginning on or after the finalization date and to taxable years of 
U.S. persons in which or with which the taxable years of the foreign 
corporations end. A comment noted that, under this rule, in certain 
circumstances where a fiscal year U.S. shareholder partnership with 
U.S. shareholder partners has a different taxable year than its CFC and 
U.S. shareholder partners, the applicability date could cause the U.S. 
shareholder partners to have two years of section 951 inclusions in the 
same taxable year with respect to the same CFC--that is, a distributive 
share of the partnership's section 951 inclusion from the CFC's last 
taxable year before the application of the final regulations, and a 
direct section 951 inclusion with respect to the first taxable tax year 
of the CFC subject to the final regulations. For example, if a U.S. 
shareholder partnership has a June 30 taxable year and both the CFC it 
owns and its U.S. shareholder partners have a calendar taxable year, 
the final regulations would, under the general applicability rule, 
first apply to the CFC's taxable year ending December 31, 2022. 
Accordingly, for its taxable year ending December 31, 2022, the U.S. 
shareholder partners would have a distributive share of the 
partnership's section 951 inclusion for the CFC's taxable year ending 
December 31, 2021 (for the U.S. shareholder partnership's taxable year 
ending June 30, 2022) and would also have a direct section 951 
inclusion for the CFC's taxable year ending December 31, 2022. The 
comment suggested that if the result in the example is intended, the 
Treasury Department and the IRS should consider treating the transition 
to aggregate treatment as a change in method of accounting with an 
accompanying spread in reporting the second inclusion under section 
481.

[[Page 3653]]

    The result described by the comment (the possibility of a U.S. 
shareholder partner having, in one of its taxable years, a distributive 
share of a partnership's section 951(a) inclusion with respect to a CFC 
for one taxable year of the CFC as well as the U.S. shareholder 
partner's own section 951(a) inclusion with respect to the CFC for the 
CFC's subsequent taxable year) is intended. In situations where a 
partnership and a partner have different taxable years, the partner can 
generally achieve deferral on its share of the partnership's income to 
the extent of the difference between its taxable year and the 
partnership's required taxable year. However, under the final 
regulations, because a domestic partnership is not treated as owning 
stock of a CFC within the meaning of section 958(a) for purposes of 
computing income inclusions with respect to a CFC under section 951 and 
section 951A, the applicable taxable year for income inclusions arising 
as a result of a domestic partnership's ownership of the CFC is the 
U.S. shareholder partner's taxable year, not the partnership's taxable 
year. As a result, the final regulations eliminate any deferral of 
income inclusions under section 951 and section 951A for a U.S. 
shareholder partner with respect to any CFC owned by the U.S. 
shareholder partnership. This elimination of a U.S. shareholder 
partner's deferral with respect to income of any CFC owned by the U.S. 
shareholder partnership, combined with the partner's existing deferral 
of section 951 income inclusions before the application of the final 
regulations, causes the U.S. shareholder partner to recognize two years 
of section 951 income inclusions with respect to any CFC owned by the 
U.S. shareholder partnership in this transition taxable year.
    The Treasury Department and the IRS considered whether the adoption 
of the aggregate approach should be viewed as a change in method of 
accounting under section 446 and, if so, whether an adjustment should 
be imposed under section 481. The Treasury Department and the IRS 
determined that the adoption of the aggregate approach is not a change 
in method of accounting. Accordingly, no adjustment under section 481 
should be imposed.
    Further, even if the adoption of the aggregate approach were 
considered to be a change in accounting method, the Treasury Department 
and the IRS do not believe imposing an adjustment under section 481 
would be appropriate as part of such change. Section 481(a) adjustments 
are intended to prevent the permanent duplication or omission of income 
or expense that would otherwise arise as a result of a change in 
accounting method. However, the change to the aggregate approach under 
section 958 does not give rise to an omission or duplication of any 
item of income or expense. Under the prior entity approach, the 
domestic partnership would be treated as the foreign corporation's 
owner under section 958(a) and would take into account its applicable 
section 951 inclusion in its taxable year in which or with which such 
foreign corporation's taxable year ends. The partnership's section 951 
inclusion would, in turn, be included in each partner's distributive 
share and would be recognized by each partner in the partner's taxable 
year in which or with which the partnership's taxable year ends.
    By contrast, under the new aggregate approach, each U.S. 
shareholder partner of the partnership will be treated as an owner of 
the foreign corporation under section 958(a). As a result, each partner 
will have its own section 951 inclusion for the foreign corporation's 
taxable years beginning on or after January 25, 2022 and will recognize 
the section 951 inclusion in its taxable year in which or with which 
the foreign corporation's taxable year ends.\2\ Therefore, the partners 
would not have a permanent duplication or omission of income or expense 
that would otherwise arise as a result of a change in accounting method 
and require a section 481(a) adjustment.
---------------------------------------------------------------------------

    \2\ In the first taxable year to which the aggregate approach 
applies, the U.S. shareholder partner could in certain cases have 
two section 951 inclusions: (1) Its distributive share of the 
partnership's section 951 inclusion for the CFC's last taxable year 
that begins before January 25, 2022, and (2) its own section 951 
inclusion for the CFC's first taxable year beginning on or after 
January 25, 2022. However, these inclusions represent subpart F 
income with respect to two different taxable years of the CFC. 
Therefore, there is no duplication or omission of the CFC's subpart 
F income to the U.S. shareholder partner.
---------------------------------------------------------------------------

Special Analyses

I. Regulatory Planning and Review--Economic Analysis

    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.

II. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) (``PRA'') 
generally requires that a federal agency obtain the approval of the OMB 
before collecting information from the public, whether such collection 
of information is mandatory, voluntary, or required to obtain or retain 
a benefit.
    There are no information collection requirements associated with 
these final regulations.

III. Regulatory Flexibility Act

    It is hereby certified that these final 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 final regulations may affect a substantial number of small 
entities, but the economic impact is not likely to be significant. 
These regulations treat domestic partnerships as an aggregate of their 
partners for purposes of section 951, which reduces the burden on 
taxpayer partners that are not U.S. shareholders of a CFC owned by a 
partnership because these partners are no longer subject to section 951 
inclusions with respect to CFCs held by the partnership. The 
regulations may also reduce burden on domestic partnerships that hold 
CFCs because these partnerships are no longer required to calculate 
their partners' distributive share of the partnerships' section 951 
inclusions, which will likely lower their compliance costs. In 
addition, the regulations do not impose a collection of information 
burden on any person, including small entities.
    The Treasury Department and the IRS estimate that approximately 
7,500 U.S. partnerships that own CFCs e-filed at least one Form 5471 as 
Category 4 or 5 filers in 2018.\3\ These partnerships had approximately 
1.75 million domestic and foreign partners. To estimate the impact of 
the final regulations related to domestic partnerships on small 
entities, the Treasury Department and the IRS reviewed the percentage 
of filers that own CFCs by class size based on gross receipts. For 
2018, the smaller size classes constituted a relatively small fraction 
of filers that own CFCs, suggesting that many domestic small business 
entities would be unaffected by these regulations. Further, domestic 
partnerships should only constitute a

[[Page 3654]]

portion of the smaller size classes of filers that own CFCs.
---------------------------------------------------------------------------

    \3\ Data are from IRS's Research, Applied Analytics, and 
Statistics division based on data available in the Compliance Data 
Warehouse. Category 4 filer includes a U.S. person who had control 
of a foreign corporation during the annual accounting period of the 
foreign corporation. Category 5 includes a U.S. shareholder who owns 
stock in a foreign corporation that is a CFC and who owned that 
stock on the last day in the tax year of the foreign corporation in 
that year in which it was a CFC. For full definitions, see https://www.irs.gov/pub/irs-pdf/i5471.pdf.
---------------------------------------------------------------------------

    Consequently, the Treasury Department and the IRS have determined 
that the final regulations will not have a significant economic impact 
on a substantial number of small entities. Accordingly, it is hereby 
certified that these regulations will not have a significant economic 
impact on a substantial number of small entities.

IV. Section 7805(f)

    Pursuant to section 7805(f), the proposed regulations preceding the 
final regulations (the 2019 proposed regulations) were submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on their impact on small business. No comments were received.

V. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures in any one year by a state, 
local, or tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. These regulations do not include any Federal mandate that 
may result in expenditures by state, local, or tribal governments, or 
by the private sector in excess of that threshold.

VI. Executive Order 13132: Federalism

    Executive Order 13132 (entitled ``Federalism'') prohibits an agency 
from publishing any rule that has federalism implications if the rule 
either imposes substantial, direct compliance costs on state and local 
governments, and is not required by statute, or preempts state law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These regulations do not have 
federalism implications and do not impose substantial direct compliance 
costs on state and local governments or preempt state law within the 
meaning of the Executive order.

Drafting Information

    The principal author of these regulations is Edward J. Tracy of the 
Office of Associate Chief Counsel (International). However, other 
personnel from the Treasury Department and the IRS participated in 
their development.

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.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805.
* * * * *

0
Par. 2. Section 1.951-1 is amended by:
0
1. Adding paragraph (a)(4);
0
2. Removing paragraph (h);
0
3. Redesignating paragraph (i) as paragraph (h); and
0
4. Removing the last sentence of newly redesignated paragraph (h).
    The addition reads as follows:


Sec.  1.951-1  Amounts included in gross income of United States 
shareholders.

    (a) * * *
    (4) See Sec.  1.958-1(d) for rules regarding the ownership of stock 
of a foreign corporation through a domestic partnership for purposes of 
section 951 and for purposes of any provision that specifically applies 
by reference to section 951 or the regulations in this part under 
section 951.
* * * * *

0
Par. 3. Section 1.951A-1 is amended by revising paragraph (e) to read 
as follows:


Sec.  1.951A-1   General provisions.

* * * * *
    (e) Stock owned through domestic partnerships. See Sec.  1.958-1(d) 
for rules regarding the ownership of stock of a foreign corporation 
through a domestic partnership for purposes of section 951A and for 
purposes of any provision that specifically applies by reference to 
section 951A or the section 951A regulations.
* * * * *

0
Par. 4. Section 1.956-1 is amended by:
0
1. Adding a sentence at the end of paragraph (a)(1);
0
2. Removing the last sentence of paragraph (a)(2)(i);
0
3. Removing paragraphs (a)(2)(iii) and (a)(3)(iv);
0
4. Redesignating paragraph (a)(3)(v) as paragraph (a)(3)(iv);
0
5. Revising the newly redesignated paragraph (a)(3)(iv) heading; and
0
6. Adding a sentence at the end of paragraph (g)(4).
    The additions and revision read as follows:


Sec.  1.956-1  Shareholder's pro rata share of the average of the 
amounts of United States property held by a controlled foreign 
corporation.

    (a) * * * (1) * * * See Sec.  1.958-1(d) for rules regarding the 
ownership of stock of a foreign corporation through a domestic 
partnership for purposes of section 956(a) and for purposes of any 
provision that specifically applies by reference to section 956(a) or 
the regulations in this part under section 956 that relate to section 
956(a).
* * * * *
    (3) * * *
    (iv) Example 4. * * *
* * * * *
    (g) * * *
    (4) * * * For taxable years of controlled foreign corporations 
beginning before January 25, 2022, and taxable years of United States 
shareholders in which or with which such taxable years of foreign 
corporations end, see Sec.  1.956-1(a)(2)(i) and (iii) and (a)(3)(iv) 
as in effect and contained in 26 CFR part 1, as revised April 1, 2021.
* * * * *

0
Par. 5. Section 1.958-1 is amended by:
0
1. Redesignating paragraph (d) as paragraph (f); and
0
2. Adding a new paragraph (d) and reserved paragraph (e).
    The additions read as follows:


Sec.  1.958-1  Direct and indirect ownership of stock.

* * * * *
    (d) Stock of foreign corporations owned through domestic 
partnerships--(1) In general. Except as otherwise provided in paragraph 
(d)(2) of this section, for purposes of sections 951, 951A, and 956(a), 
and for purposes of any provision that specifically applies by 
reference to any of such sections or the regulations in this part under 
section 951, 951A, or 956 (but only as the regulations in this part 
under section 956 relate to section 956(a)), a domestic partnership is 
not treated as owning stock of a foreign corporation

[[Page 3655]]

within the meaning of section 958(a). For purposes of determining the 
persons that own stock of the foreign corporation within the meaning of 
section 958(a) when the preceding sentence applies, stock of a foreign 
corporation owned by a domestic partnership is treated in the same 
manner as stock of a foreign corporation owned by a foreign partnership 
under section 958(a)(2) and paragraph (b) of this section.
    (2) Non-application for certain purposes. Paragraph (d)(1) of this 
section does not apply for purposes of--
    (i) Determining whether any United States person is a United States 
shareholder (as defined in section 951(b));
    (ii) Determining whether any foreign corporation is a controlled 
foreign corporation (CFC) (as defined in section 957(a));
    (iii) Applying section 956(c) and (d);
    (iv) Applying section 1248; or
    (v) Determining whether any United States shareholder is a 
controlling domestic shareholder (as defined in Sec.  1.964-1(c)(5)).
    (3) Examples. The following examples illustrate the application of 
this paragraph (d).
    (i) Example 1--(A) Facts. USP, a domestic corporation, and 
Individual A, a United States citizen unrelated to USP, own 95% and 5%, 
respectively, of PRS, a domestic partnership. PRS owns 100% of the 
single class of stock of FC, a foreign corporation.
    (B) Analysis--(1) United States shareholder and CFC determinations. 
Under paragraphs (d)(2)(i) and (ii) of this section, respectively, the 
determination of whether PRS, USP, and Individual A (each a United 
States person) are United States shareholders of FC, and whether FC is 
a controlled foreign corporation, is made without regard to paragraph 
(d)(1) of this section. PRS, a United States person, owns 100% of the 
total combined voting power or value of the FC stock within the meaning 
of section 958(a). Accordingly, PRS is a United States shareholder 
under section 951(b), and FC is a controlled foreign corporation under 
section 957(a). USP is also a United States shareholder of FC because 
it owns 95% of the total combined voting power or value of the FC stock 
under sections 958(b) and 318(a)(2)(A). Individual A, however, is not a 
United States shareholder of FC because Individual A owns only 5% of 
the total combined voting power or value of the FC stock under sections 
958(b) and 318(a)(2)(A).
    (2) Application of sections 951 and 951A. Under paragraph (d)(1) of 
this section, for purposes of sections 951 and 951A, PRS is not treated 
as owning (within the meaning of section 958(a)) the FC stock; instead, 
for purposes of determining the persons that own the FC stock within 
the meaning of section 958(a), the FC stock is treated as if it were 
owned by a foreign partnership under paragraph (b) of this section. 
Therefore, for purposes of sections 951 and 951A, USP is treated as 
owning 95% of the FC stock under section 958(a), and Individual A is 
treated as owning 5% of the FC stock under section 958(a). USP is a 
United States shareholder of FC, and therefore USP determines its 
income inclusions under sections 951 and 951A directly with respect to 
FC based on its ownership of FC stock under section 958(a). However, 
because Individual A is not a United States shareholder of FC, 
Individual A does not have an income inclusion under section 951 with 
respect to FC or a pro rata share of any amount of FC for purposes of 
section 951A. This is the case even though PRS is a United States 
shareholder of FC.
    (ii) Example 2--(A) Facts. USP, a domestic corporation, and 
Individual A, a United States citizen, own 90% and 10%, respectively, 
of PRS1, a domestic partnership. PRS1 and Individual B, a nonresident 
alien individual, own 90% and 10%, respectively, of PRS2, a domestic 
partnership. PRS2 owns 100% of the single class of stock of FC, a 
foreign corporation. USP, Individual A, and Individual B are unrelated 
to each other.
    (B) Analysis--(1) United States shareholder and CFC determinations. 
Under paragraphs (d)(2)(i) and (ii) of this section, the determination 
of whether PRS1, PRS2, USP, and Individual A (each a United States 
person) are United States shareholders of FC, and whether FC is a 
controlled foreign corporation, is made without regard to paragraph 
(d)(1) of this section. PRS2 owns 100% of the total combined voting 
power or value of the FC stock within the meaning of section 958(a). 
Accordingly, PRS2 is a United States shareholder under section 951(b), 
and FC is a controlled foreign corporation under section 957(a). Under 
sections 958(b) and 318(a)(2)(A), PRS1 is treated as owning 90% of the 
FC stock owned by PRS2. Accordingly, PRS1 is also a United States 
shareholder under section 951(b). Further, under section 958(b)(2), 
PRS1 is treated as owning 100% of the FC stock for purposes of 
determining the FC stock treated as owned by USP and Individual A under 
section 318(a)(2)(A). Therefore, USP is treated as owning 90% of the FC 
stock under section 958(b) (100% x 100% x 90%), and Individual A is 
treated as owning 10% of the FC stock under section 958(b) (100% x 100% 
x 10%). Accordingly, both USP and Individual A are also United States 
shareholders of FC under section 951(b).
    (2) Application of sections 951 and 951A. Under paragraph (d)(1) of 
this section, for purposes of sections 951 and 951A, PRS1 and PRS2 are 
not treated as owning (within the meaning of section 958(a)) the FC 
stock; instead, for purposes of determining the persons that own the FC 
stock within the meaning of section 958(a), as the FC stock is treated 
as if it were owned by foreign partnerships under paragraph (b) of this 
section. Therefore, for purposes of determining the amount included in 
gross income under sections 951 and 951A, under section 958(a) USP is 
treated as owning 81% (100% x 90% x 90%) of the FC stock, and 
Individual A is treated as owning 9% (100% x 90% x 10%) of the FC 
stock. Because USP and Individual A are both United States shareholders 
of FC, USP and Individual A determine their respective inclusions under 
sections 951 and 951A directly with respect to FC based on their 
ownership of FC stock under section 958(a). This is the case even 
though PRS2 is a United States shareholder of FC.
    (iii) Example 3--(A) Facts. Individual A, a United States citizen, 
Individual B, a United States citizen unrelated to Individual A, and 
Individual C, a foreign person unrelated to both Individuals A and B, 
own 10%, 5%, and 85%, respectively, of PRS, a domestic partnership. PRS 
owns 100% of the single class of stock of FC, a foreign corporation. FC 
holds an account receivable from PRS that constitutes an obligation of 
a United States person within the meaning of section 956(c)(1)(C) and 
Sec.  1.956-2(a)(1)(iii).
    (B) Analysis--(1) United States shareholder and CFC determinations. 
Under paragraphs (d)(2)(i) and (ii) of this section, respectively, the 
determination of whether PRS, Individual A, and Individual B (each a 
United States person) are United States shareholders of FC, and whether 
FC is a controlled foreign corporation, is made without regard to 
paragraph (d)(1) of this section. PRS, a United States person, owns 
100% of the total combined voting power or value of the FC stock within 
the meaning of section 958(a). Accordingly, PRS is a United States 
shareholder under section 951(b), and FC is a controlled foreign 
corporation under section 957(a). Individual A is also a United States 
shareholder of FC because it owns 10% of the total combined voting 
power or

[[Page 3656]]

value of the FC stock under sections 958(b) and 318(a)(2)(A). 
Individual B, however, is not a United States shareholder of FC because 
Individual B owns only 5% of the total combined voting power or value 
of the FC stock under sections 958(b) and 318(a)(2)(A).
    (2) Application of section 956(a). Under paragraph (d)(1) of this 
section, for purposes of section 956(a), PRS is not treated as owning 
(within the meaning of section 958(a)) the FC stock; instead, for 
purposes of determining the persons that own the FC stock within the 
meaning of section 958(a), as the FC stock is treated as if it were 
owned by a foreign partnership under paragraph (b) of this section. 
Therefore, for purposes of section 956(a), under section 958(a) 
Individual A is treated as owning 10% of the FC stock, and Individual B 
is treated as owning 5% of the FC stock. Individual A is a United 
States shareholder of FC, and therefore Individual A determines the 
amount it must include in gross income under section 951(a)(1)(B) by 
reason of the PRS obligation held by FC based on its ownership of FC 
stock under section 958(a) as determined under paragraph (d)(1) of this 
section. However, because Individual B is not a United States 
shareholder of FC, Individual B does not have an amount to include in 
income under sections 956(a) and 951(a)(1)(B).
    (3) Application of section 956(c) and (d). Under paragraph 
(d)(2)(iii) of this section, for purposes of section 956(c) and (d), 
the determination of whether FC holds United States property is made 
without regard to paragraph (d)(1) of this section. Therefore, PRS is 
treated as owning stock of FC within the meaning of section 958(a) for 
purposes of determining the amount of United States property held by FC 
arising from its note receivable from PRS.
    (4) Applicability dates--(i) Paragraphs (d)(1) through (3) of this 
section. Paragraphs (d)(1) through (3) of this section apply to taxable 
years of foreign corporations beginning on or after January 25, 2022, 
and to taxable years of United States persons in which or with which 
such taxable years of foreign corporations end. For taxable years of a 
foreign corporation that precede the taxable years described in the 
preceding sentence, a domestic partnership may apply paragraphs (d)(1) 
through (3) of this section in their entirety to taxable years of a 
foreign corporation beginning after December 31, 2017, and to taxable 
years of the domestic partnership in which or with which such taxable 
years of the foreign corporation end, provided that the partnership, 
its partners that are United States shareholders of the foreign 
corporation, and other domestic partnerships that bear relationships 
described in section 267(b) or 707(b) to the partnership (and their 
United States shareholder partners) consistently apply paragraphs 
(d)(1) through (3) of this section with respect to all foreign 
corporations whose stock the domestic partnerships own within the 
meaning of section 958(a) (determined without regard to paragraph 
(d)(1) of this section).
    (ii) Rules applicable before January 25, 2022. For taxable years of 
foreign corporations beginning before January 25, 2022, and to taxable 
years of United States persons in which or with which such taxable 
years of foreign corporations end, see Sec. Sec.  1.951-1(h) and 
1.951A-1(e) as in effect and contained in 26 CFR part 1, as revised 
April 1, 2021.
    (e) [Reserved]
* * * * *

0
Par. 6. Section 1.1502-51 is amended by revising the last sentence in 
paragraph (b) to read as follows:


Sec.  1.1502-51   Consolidated section 951A.

* * * * *
    (b) * * * In addition, see Sec.  1.951A-1(e) (cross-referencing 
Sec.  1.958-1(d)).
* * * * *

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
    Approved: December 8, 2021.
Lily Batchelder,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2022-00066 Filed 1-24-22; 8:45 am]
BILLING CODE 4830-01-P