Department of Treasury August 17, 2006 – Federal Register Recent Federal Regulation Documents

In the Rules and Regulations section of this issue of the Federal Register, the IRS is issuing temporary regulations under sections 882 and 884 relating to the determination of the interest expense deduction of foreign corporations engaged in a trade or business within the United States. These regulations update the 1996 final interest expense allocation rules for foreign corporations and take into account changes in the foreign banking industry. The rule changes are necessary to conform the final regulations more closely to current operating conditions in the foreign banking industry, and to harmonize the deemed earnings repatriation from a foreign corporation's trade or business within the United States, with the manner in which dividends are repatriated from U.S. resident companies to their foreign shareholders. These regulations are expected to simplify compliance burdens for many foreign corporations that allocate interest expense to effectively connected income and provide greater latitude to taxpayers in determining when their effectively connected earnings are treated as remitted. The text of these regulations also serves as the text of these proposed regulations.