Bulletin No. 2020–42

HIGHLIGHTS

OF THIS ISSUE





Bulletin No. 2020–42

October 13, 2020

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

INCOME TAX

REG-110059-20, page 904.

This document contains proposed regulations under sections

367 and 954 relating to ownership attribution through foreign entities as a result of the repeal of section 958(b)(4).

The proposed regulations generally limit the application of

the look-through rule in section 954(c)(6) to foreign corporations that are controlled foreign corporations without regard

to downward attribution from foreign persons and modify

certain ownership attribution rules under section 367(a) that

reference section 958(b)(4).

Finding Lists begin on page ii.

T.D. 9908, page 894.

This document contains final regulations under sections 267,

332, 367, 672, 706, 863, 904, 958, and 6049 relating to

ownership attribution through foreign entities as a result of

the repeal of section 958(b)(4). The final regulations generally limit the application of certain rules only to foreign corporations that are controlled foreign corporations without

regard to downward attribution from foreign persons. The

final regulations also provide rules on how to determine ownership for purposes of certain rules in the Code that directly

or indirectly reference section 958(b)(4).

The IRS Mission

Provide America’s taxpayers top-quality service by helping

them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of

internal practices and procedures that affect the rights and

duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service

on the application of the law to the pivotal facts stated in

the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature are

deleted to prevent unwarranted invasions of privacy and to

comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not have the

force and effect of Treasury Department Regulations, but they

may be used as precedents. Unpublished rulings will not be

relied on, used, or cited as precedents by Service personnel in

the disposition of other cases. In applying published rulings and

procedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,

and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless

the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions and Other Related Items, and Subpart B,

Legislation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to these

subjects are contained in the other Parts and Subparts. Also

included in this part are Bank Secrecy Act Administrative

Rulings. Bank Secrecy Act Administrative Rulings are issued

by the Department of the Treasury’s Office of the Assistant

Secretary (Enforcement).

Part IV.—Items of General Interest.

This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index

for the matters published during the preceding months. These

monthly indexes are cumulated on a semiannual basis, and are

published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

October 13, 2020 

Bulletin No. 2020–42

Part I

26 CFR 1.267(a)-3; 1.332-8; 1.367(a)-8; 1.672(f)2; 1.706-1; 1.863-8; 1.863-9; 1.904-5; 1.958-2;

1.6049-5

T.D. 9908

DEPARTMENT OF THE

TREASURY

Internal Revenue Service

26 CFR Part 1

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.

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 §§1.267(a)-3(d), 1.3328(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) 3176934 (not a toll-free number).

October 13, 2020

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, Pub. L. 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 201940, 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

894

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 (REG110059-20) 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

Bulletin No. 2020–42

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 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 interest generally in-

cludes 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

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. P.L. 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).

1

Bulletin No. 2020–42

895

October 13, 2020

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 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.

October 13, 2020

E. Section 1297: PFIC asset test

II. Applicability Dates

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 (REG105474-18) 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.

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 corporations end, the same result applies before such date due to the effective

date of the repeal of section 958(b)(4).

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.

896

III. Effect on Other Documents

Section 5.01 of Notice 2018-13 (20186 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 http://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

Bulletin No. 2020–42

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

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:

Bulletin No. 2020–42

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 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

897

(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

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 con-

October 13, 2020

sistently 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

Old 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 removParagraph

(p)(3)(i)(B)

(p)(3)(ii)(B)

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% (deter-

and adding in its place the language in the

third column:

Add

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)

mined 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

(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)

(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)

October 13, 2020

New Paragraphs

(p)(3)(i)(A) and (B)

(p)(3)(ii)(A) and (B)

(p)(3)(iii)(A) and (B)

(p)(3)(iv)(A) and (B)

ing the language in the second column

Remove

of this Example 1

of this Example 2

paragraphs in the first column as the paragraphs in the second column:

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:

New Paragraphs

(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)

(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)

898

Bulletin No. 2020–42

Old Paragraphs

(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 removParagraph

(q)(2)(ii)(B)(2)

(q)(2)(iv)(B)(2)(i)

(q)(2)(vi)(B)(1)

(q)(2)(vi)(C)

(q)(2)(xi)(C)

(q)(2)(xx)(C)

(q)(2)(xx)(C)

(q)(2)(xx)(D)

(q)(2)(xx)(D)

(q)(2)(xx)(E)

(q)(2)(xx)(F)

Bulletin No. 2020–42

New Paragraphs

(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)

ing the language in the second column

and adding in its place the language in the

third column:

Remove

Add

paragraph (ii)(A) of this Example 2 paragraph (q)(2)(ii)(B)(1) of this section (paragraph (1) in

the results in this Example 2)

paragraph (ii)(A) of this Example 4 paragraph (q)(2)(iv)(B)(1) of this section (paragraph (1)

in the results in this Example 4)

paragraph (ii)(B) of this Example 6 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

paragraph (i) of this Example 6

Example 6)

paragraph (q)(2)(xi)(A) of this section (the facts in this

paragraph (i) of this Example 11

Example 11)

paragraph (q)(2)(xx)(A) of this section (the facts in this

paragraph (i) of this Example 20

Example 20)

paragraph (q)(2)(xx)(B) of this section (the results in this

paragraph (ii) of this Example 20

Example 20)

paragraph (q)(2)(xx)(A) of this section (the facts in this

paragraph (i) of this Example 20

Example 20)

paragraph (q)(2)(xx)(B) of this section (the facts in this

paragraph (ii) of this Example 20

Example 20)

paragraph (q)(2)(xx)(A) of this section (the facts in this

paragraph (i) of this Example 20

Example 20)

paragraph (q)(2)(xx)(A) of this section (the facts in this

paragraph (i) of this Example 20

Example 20)

899

October 13, 2020

Paragraph

(q)(2)(xxii)(C) introductory text

Remove

in paragraph (i) of this Example 22

(q)(2)(xxiii)(C) introductory text paragraph (i) of this Example 23

(q)(2)(xxiii)(C) introductory text paragraph (ii) of this Example 23

(q)(2)(xxiii)(D)

paragraph (i) of this Example 23

(q)(2)(xxiv)(A)

in paragraph (i) of Example 6

9. In each paragraph listed in the first

column, by removing the language in the

Paragraph

(c)(1)(ii)

(c)(4)(iv)

(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)

second column and adding in its place the

language in the third column:

Remove

(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), Example 16, of this section

(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

10. By revising the paragraph (r) subject heading.

11. In paragraph (r)(1)(i), by adding

three sentences at the end of the paragraph.

October 13, 2020

Add

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)

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

The revisions and addition read as follows:

§1.367(a)-8 Gain recognition agreement

requirements.

*****

900

(k) * * *

(14) * * *

(ii) * * * If, as a result of the disposition or other event, a foreign corporation

acquires the transferred stock or securi-

Bulletin No. 2020–42

ties 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 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:

Bulletin No. 2020–42

§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

§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 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

901

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 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

October 13, 2020

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 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

October 13, 2020

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

902

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. 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

Bulletin No. 2020–42

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.

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 Constructive ownership of

stock.

*****

Bulletin No. 2020–42

(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.

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) * * *

903

(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 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).

(Filed by the Office of the Federal Register on September 21, 2020, 8:45 a.m., and published in the issue of the Federal Register for September 22, 2020,

85 F.R. 59428)

October 13, 2020

Part IV

Notice of Proposed

Rulemaking

Ownership Attribution

Under Section 958 for

Purposes of Sections

367(a) and 954(c)(6)

REG-110059-20

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed 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. The proposed regulations modify the ownership attribution rules applicable to outbound transfers of stock or

securities of a domestic corporation under

section 367(a). The proposed regulations

also narrow the scope of foreign corporations that are treated as controlled foreign

corporations for purposes of the lookthrough rule under section 954(c)(6). The

proposed regulations affect United States

persons that transfer stock or securities of

a domestic corporation to a foreign corporation that are subject to section 367(a),

and United States shareholders of foreign

corporations.

DATES: Written or electronic comments

and requests for a public hearing must be

received by November 20, 2020. Requests

for a public hearing must be submitted as

prescribed in the “Comments and Requests for a Public Hearing” section.

ADDRESSES: Commenters are strongly

encouraged to submit public comments

electronically. Submit electronic submissions via the Federal eRulemaking Portal

at www.regulations.gov (indicate IRS and

REG-110059-20) by following the online

instructions for submitting comments.

Once submitted to the Federal eRulemaking Portal, comments cannot be edited

October 13, 2020

or withdrawn. The IRS expects to have

limited personnel available to process

public comments that are submitted on

paper through mail. Until further notice,

any comments submitted on paper will be

considered to the extent practicable. The

Department of the Treasury (Treasury

Department) and the IRS will publish for

public availability any comment submitted electronically, and to the extent practicable on paper, to its public docket. Send

paper submissions to: CC:PA:LPD:PR

(REG- REG-110059-20), room 5203, Internal Revenue Service, PO Box 7604,

Ben Franklin Station, Washington, D.C.

20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Christina G. Daniels at (202)

317-6934 or Lynlee C. Baker at (202)

317-6937; concerning submissions of

comments or requests for a public hearing, Regina Johnson at (202) 317-5177

(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

I. Sections 318 and 958(b)(4)

Section 958 provides rules for determining direct, indirect, and constructive

stock ownership. Under section 958(a)(1),

stock is considered owned by a person if

it is owned directly or is owned indirectly through certain foreign entities under

section 958(a)(2). Under section 958(b),

the constructive stock ownership rules

of section 318 apply, with certain modifications, to the extent that the effect is to

treat any United States person as a United

States shareholder within the meaning of

section 951(b) (“U.S. shareholder”) of a

foreign corporation, to treat a person as

a related person within the meaning of

section 954(d)(3), to treat the stock of a

domestic corporation as owned by a U.S.

shareholder of a controlled foreign corporation within the meaning of section 957

(“CFC”) for purposes of section 956(c)

(2), or to treat a foreign corporation as a

CFC.

904

As in effect before repeal, section

958(b)(4) provided that section 318(a)(3)

(A), (B), and (C) (providing for so-called

“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”). 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 U.S. shareholders in

which or with which such taxable years

of the foreign corporations end, section

958(b)(4) was repealed by section 14213

of the Tax Cuts and Jobs Act, Public Law

115-97 (2017) (the “Act”). 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 CFC.

In other words, as a result of the repeal

of section 958(b)(4), section 958(b) now

provides for downward attribution from a

foreign person to a United States person

in circumstances in which section 958(b),

before the Act, did not so provide. As a

result, among other consequences, United

States persons that were not previously

treated as U.S. shareholders may be treated as U.S. shareholders, and foreign corporations that were not previously treated

as CFCs may be treated as CFCs.

On October 2, 2019, the Treasury Department and the IRS published proposed

regulations (REG-104223-18) relating

to the repeal of section 958(b)(4) in the

Federal Register (84 FR 52398) (the

“2019 proposed regulations”). The 2019

proposed regulations are issued as final

regulations in the Rules and Regulations

section of this issue of the Federal Register. Consistent with the purpose underlying the 2019 proposed regulations, these

proposed regulations propose additional

changes that are intended to ensure that

certain rules under sections 367(a) and

954(c)(6) apply in the same manner in

which they applied before the repeal of

section 958(b)(4).

Bulletin No. 2020–42

II. Section 367(a)

Section 367(a)(1) generally provides

that if a United States person transfers

property to a foreign corporation in connection with an exchange described in

section 332, 351, 354, 356, or 361, the

foreign corporation will not be treated as

a corporation for purposes of determining

the extent to which gain is recognized on

the transfer.

Section 1.367(a)-3 provides rules regarding the treatment of transfers of stock

or securities by a United States person to

a foreign corporation in an exchange described in section 367(a)(1) (“outbound

transfer”). Section 1.367(a)-3(b)(1) generally requires a United States person to enter into a gain recognition agreement, pursuant to rules under §1.367(a)-8, to obtain

nonrecognition treatment on an outbound

transfer of stock or securities of a foreign

corporation if the United States person

owns at least five percent (applying the

attribution rules of section 318, as modified by section 958(b)) of the transferee

foreign corporation immediately after the

transfer. To obtain nonrecognition treatment on outbound transfers of stock or

securities of a domestic corporation (the

“U.S. target company”), §1.367(a)-3(c)(1)

generally requires the U.S. target company to meet certain reporting requirements

and that each of four conditions is satisfied: (1) fifty percent or less of both the total voting power and the total value of the

stock of the transferee foreign corporation

is received in the transaction, in the aggregate, by U.S. transferors; (2) fifty percent

or less of each of the total voting power and the total value of the stock of the

transferee foreign corporation is owned,

in the aggregate, immediately after the

transfer by United States persons that are

either officers or directors of the U.S. target company or that are five-percent target shareholders (as defined in §1.367(a)3(c)(5)(iii)); (3) either the United States

person is not a five-percent transferee

shareholder (as defined in §1.367(a)-3(c)

(5)(ii)), or the United States person enters into a gain recognition agreement as

provided in §1.367(a)-8; and (4) the active trade or business test (as defined in

§1.367(a)-3(c)(3)) is satisfied. For purposes of applying these tests, §1.367(a)-3(c)

(4)(iv) states that, except as otherwise pro-

Bulletin No. 2020–42

vided, the stock attribution rules of section

318, as modified by section 958(b), apply

in determining the ownership or receipt of

stock, securities, or other property.

III. Section 954(c)(6)

Section 954(c)(6)(A) generally provides that for purposes of section 954(c),

dividends, interest, rents, and royalties received or accrued by a CFC from a CFC

that is a related person are not treated as

foreign personal holding company income

to the extent attributable or properly allocable (determined under rules similar to

the rules of section 904(d)(3)(C) and (D))

to income of the related person that is neither subpart F income nor income treated

as effectively connected with the conduct of a trade or business in the United

States (the “section 954(c)(6) exception”).

In general, and subject to certain limitations, the section 954(c)(6) exception is

intended to make U.S.-based multinational corporations more competitive with

foreign-based multinational corporations

by allowing U.S.-based multinational corporations to reinvest their active foreign

earnings where they are needed without

giving rise to immediate additional taxation under the subpart F provisions. See

H.R. Rep. No. 109-304 at 45 (2005).

Section 954(c)(6)(A) provides that the

Secretary shall prescribe such regulations

as may be necessary or appropriate to carry out the provision, including regulations

to prevent the abuse of the purposes of the

provision. As most recently extended by

the Further Consolidated Appropriations

Act, Public Law 116–94 (2020), section

954(c)(6) applies to taxable years of foreign corporations beginning after December 31, 2005, and before January 1, 2021,

and to taxable years of U.S. shareholders

with or within which such taxable years of

foreign corporations end.

Notice 2007-9, 2007-5 I.R.B. 401, describes guidance that the Treasury Department and the IRS intend to issue regarding the application of section 954(c)(6),

including certain anti-abuse rules. That

notice, in section 7(d), provides, in relevant part:

When the use of options or similar interests causes a foreign corporation to

become a CFC payor, and a principal

purpose for the use of the options or

905

similar interests is to qualify dividends,

interest, rents, or royalties paid by the

foreign corporation for the section

954(c)(6) exception, the dividends,

interest, rents, or royalties received or

accrued from such foreign corporation

will not be treated as being received or

accrued from a CFC payor and, therefore, will not be eligible for the section

954(c)(6) exception.

A rule similar to that in section 7(d) of

Notice 2007-9 was included in §1.954-1(f)

(2)(iv), T.D. 9883, 84 FR 69107 (2019).

Explanation of Provisions

I. Changes in Connection with Section

367(a)

As discussed in part II of the Background section of this preamble,

§1.367(a)-3(c)(4)(iv) states that, except as

otherwise provided, the constructive stock

ownership rules of section 318, as modified by section 958(b), apply for purposes

of determining the ownership or receipt

of stock, securities or other property under §1.367(a)-3(c). The repeal of section

958(b)(4) and the resulting application of

section 318(a)(3)(A), (B), and (C) to the

stock ownership tests under §1.367(a)3(c)(1) can cause a transfer that previously would have satisfied the conditions

set forth in §1.367(a)-3(c)(1) to no longer

qualify for the exception to section 367(a)

(1) because, for example, more shareholders are now considered to be five-percent

target shareholders as a result of downward attribution. The conditions set forth

in §1.367(a)-3(c)(1) and the attribution

rule in §1.367(a)-3(c)(4)(iv) were promulgated when section 958(b)(4) did not

allow for downward attribution from foreign persons.

The Treasury Department and the IRS

have determined that, for purposes of applying §1.367(a)-3(c)(1)(i), (ii), and (iv), a

United States person’s constructive ownership interest should not include an interest that is treated as owned as a result of

downward attribution from a foreign person as it would inappropriately treat the

United States person as owning an interest

it would not have owned under the rules

in effect when those regulations were promulgated. The Treasury Department and

IRS have determined, however, that the

October 13, 2020

constructive ownership rules as they apply to the condition set forth in §1.367(a)3(c)(1)(iii) (which requires that either the

United States person is not a five-percent

transferee shareholder or the United States

person must enter into a gain recognition

agreement) should not be modified, and

thus will continue to take into account

downward attribution. The continued application of downward attribution for purposes of §1.367(a)-3(c)(1)(iii) results in a

consistent application of the gain recognition agreement provisions for outbound

transfers of stock or securities of domestic

and foreign corporations. Although the

Act’s repeal of section 958(b)(4) may require a United States person to enter into

a gain recognition agreement in connection with an outbound transfer of stock

or securities of a foreign corporation to

obtain nonrecognition treatment when no

such agreement would have been required

before the Act, no changes are being proposed to §1.367(a)-3(b)(1) because the

Treasury Department and the IRS have

decided this result is appropriate in light

of the policies of section 367(a) and the

Act.

Therefore, and in accordance with the

regulatory authority provided in section

367(a), the proposed regulations revise

§1.367(a)-3(c)(4)(iv) to apply the attribution rules of section 318, as modified

by section 958(b) but without applying

section 318(a)(3)(A), (B), and (C) to treat

a United States person as owning stock

that is owned by a foreign person, for all

purposes of §1.367(a)-3(c) other than for

purposes of determining whether a U.S.

person is a five-percent transferee shareholder under §1.367(a)-3(c)(1)(iii).

II. Changes in Connection with Section

954(c)(6)

As discussed in part III of the Background section of this preamble, Congress

enacted section 954(c)(6) to generally

allow U.S.-based multinational corporations to reinvest their active foreign earnings (in other words, earnings of CFCs

subject to U.S. tax deferral) where they

are needed outside the United States without giving rise to immediate additional

taxation under the subpart F provisions.

Accordingly, the section 954(c)(6) exception is intended to apply to payments be-

October 13, 2020

tween CFCs of a U.S.-based multinational

group that have active foreign earnings

that are subject to the subpart F provisions. If a foreign corporation is a CFC

solely by reason of downward attribution

from a foreign person, however, most or

all of that foreign corporation’s earnings

typically are not under U.S. taxing jurisdiction (that is, subject to the subpart F

and GILTI provisions or, in some cases,

taxed in the United States when distributed to its owners) and, as a result, amounts

paid or accrued by that foreign corporation to another foreign corporation that

is a CFC (without regard to downward

attribution) should not be eligible for the

section 954(c)(6) exception. For example,

assume a foreign corporation (FC1) is a

CFC (without regard to downward attribution) and a member of a foreign parented

multinational group, the common parent

of which is not a CFC, and another foreign

corporation (FC2) that is also a member

of the multinational group is a CFC but

solely by reason of downward attribution

and does not have any U.S. shareholders

that own (within the meaning of section

958(a)) stock in such CFC (a “section

958(a) U.S. shareholder”). FC1 makes a

loan to FC2. In the absence of regulations,

interest received by FC1 from FC2 would

be eligible for the exception under section

954(c)(6) even though the income of FC2

is not taxed by the United States. In comparison, if FC1 made a loan to the foreign

parent instead of to FC2, interest received

by FC1 from the foreign parent would not

be eligible for the exception under section

954(c)(6).

Therefore, in accordance with the regulatory authority provided in section 954(c)

(6)(A), the proposed regulations limit the

application of the section 954(c)(6) exception to amounts received or accrued

from foreign corporations that are CFCs

without applying section 318(a)(3)(A),

(B), and (C) to treat a United States person as owning stock that is owned by a

foreign person. The modification in these

proposed regulations is consistent with the

treatment of interest received by FC1 in

the example if instead of making the loan

to FC2, FC1 made the loan to the foreign

parent of the group and with the purposes

of the anti-abuse rules set forth in section

7(d) of Notice 2007-9 and §1.954-1(f)(2)

(iv).

906

Comments are requested as to whether, and if so, to what extent, the section

954(c)(6) exception should be available in

cases in which a related foreign payor corporation (that is a CFC solely as a result of

downward attribution) has section 958(a)

U.S. shareholders and therefore is partially under U.S. taxing jurisdiction.

III. Applicability Dates

The regulations under section 367(a)

are proposed to apply to transfers made on

or after September 21, 2020.

Subject to special rules for certain entity classification elections and changes

in taxable years, the regulations under

section 954(c)(6) are proposed to apply

to payments or accruals of dividends, interest, rents, and royalties made by a foreign corporation during taxable years of

the foreign corporation ending on or after

September 21, 2020, and to taxable years

of United States shareholders in which or

with which such taxable years of the foreign corporation end.

The proposed regulations further provide that taxpayers may choose to apply

the rules under section 367 or 954(c)(6),

once filed as final regulations in the Federal Register, to the last taxable year of a

foreign corporation beginning before January 1, 2018, and each subsequent taxable

year of the foreign corporation, subject

to a consistency requirement. See section

7805(b)(7).

Finally, a taxpayer may rely on the

proposed regulations under section 367

or 954(c)(6) with respect to any taxable

year before the date that these regulations

are published as final regulations in the

Federal Register, provided that the taxpayer and persons that are related (within

the meaning of section 267 or 707) to the

taxpayer consistently rely on the proposed

regulations under section 367 or 954(c)

(6), respectively, with respect to all foreign corporations.

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,

Bulletin No. 2020–42

U.S. Government Publishing Office,

Washington, DC 20402, or by visiting the

IRS website at http://www.irs.gov.

Special Analyses

These proposed 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 proposed

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 proposed

regulations are intended to ensure that certain rules under sections 367(a) and 954(c)

(6) apply in the same manner in which

they applied before the repeal of section

958(b)(4). The proposed regulations do

not impose any new costs on taxpayers.

Consequently, the Treasury Department

and the IRS have determined that the proposed 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 rules on small entities.

Pursuant to section 7805(f), this notice

of proposed rulemaking has been submitted to the Chief Counsel for Advocacy

of the Small Business Administration for

comment on its impact on small business.

The Treasury Department and the IRS

request comments on the impact of these

proposed regulations on small business

entities.

Comments and Requests for a Public

Hearing

Before these proposed amendments

to the regulations are adopted as final

regulations, consideration will be given

to comments that are submitted timely

to the IRS as prescribed in the preamble

under the “ADDRESSES” section. The

Treasury Department and the IRS request

comments on all aspects of the proposed

regulations. Any electronic comments

submitted, and to the extent practicable

any paper comments submitted, will be

Bulletin No. 2020–42

made available at www.regulations.gov or

upon request.

As noted in the preamble to the 2019

proposed regulations, the Treasury Department and the IRS intend to update the

regulations under section 267 to take into

account the changes made to that section

by Pub. L. 108-357 in future guidance.

The Treasury Department and the IRS

also intend to update the regulations under section 163(e) to take into account the

changes made to that section by Pub. L.

108-357 in future guidance. The Treasury

Department and the IRS request comments on the appropriate scope of such

guidance.

A public hearing will be scheduled if

requested in writing by any person who

timely submits electronic or written comments. Requests for a public hearing are

also encouraged to be made electronically.

If a public hearing is scheduled, notice of

the date and time for the public hearing

will be published in the Federal Register. Announcement 2020-4, 2020-17 IRB

1, provides that until further notice, public hearings conducted by the IRS will be

held telephonically. Any telephonic hearing will be made accessible to people with

disabilities.

Drafting Information

The principal authors of the proposed

regulations are Karen J. Cate, Christina G.

Daniels, and Lynlee C. Baker of the Office

of Associate Chief Counsel (International). However, other personnel from the

Treasury Department and the IRS participated in the development of the proposed

regulations.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the

Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for

part 1 is amended by adding an entry for

907

§1.954(c)(6)-2 in numerical order to read

in part as follows:

Authority: 26 U.S.C. 7805.

*****

Section 1.954(c)(6)-2 issued under 26

U.S.C. 954(c)(6)(A).

*****

Par. 2. Section 1.367(a)-3 is amended

by revising paragraph (c)(4)(iv) and adding two sentences at the end of paragraph

(c)(11)(ii) to read as follows:

§1.367(a)-3 Treatment of transfers

of stock or securities to foreign

corporations.

*****

(c) * * *

(4) * * *

(iv) Attribution rule. Except as otherwise provided in this section, the rules of

section 318, as modified by the rules of

section 958(b) but without applying section 318(a)(3)(A), (B), and (C) so as to

consider a U.S. person as owning stock

which is owned by a person who is not a

U.S. person, apply for purposes of determining the ownership or receipt of stock,

securities, or other property under this

paragraph. For purposes of determining

whether a U.S. person is a five-percent

transferee shareholder under paragraph (c)

(1)(iii) of this section, however, the rules

of section 318, as modified by the rules of

section 958(b) (taking into account section 318(a)(3)(A), (B), and (C) so as to

consider a U.S. person as owning stock

which is owned by a person who is not a

U.S. person), apply.

*****

(11) * * *

(ii) * * * Paragraph (c)(4)(iv) of this

section applies to transfers occurring on

or after September 21, 2020. For transfers occurring before September 21, 2020,

a taxpayer may apply paragraph (c)(4)

(iv) of this section to transfers occurring

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 persons that are related

(within the meaning of section 267 or 707)

to the taxpayer consistently apply this

paragraph with respect to all transfers to

all foreign corporations.

*****

October 13, 2020

Par. 3. Section 1.954(c)(6)-2 is added

to read as follows:

§1.954(c)(6)-2 Definition of controlled

foreign corporation for purposes of

section 954(c)(6).

(a) Controlled foreign corporation.

For purposes of section 954(c)(6), 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.

(b) Applicability dates—(1) In general. Except as provided in paragraph (b)

(2) of this section, this section applies to

October 13, 2020

payments or accruals of dividends, interest, rents, and royalties made by a foreign

corporation during taxable years of the

foreign corporation ending on or after

September 21, 2020, and taxable years

of United States shareholders in which

or with which such taxable years of the

foreign corporation end. This section

also applies to taxable years of a foreign

corporation ending before September 21,

2020, and taxable years of United States

shareholders in which or with which such

taxable years of the foreign corporation

end, resulting from an entity classification

election made under §301.7701-3 of this

chapter, or resulting from a change in taxable year under section 898, with respect

to the foreign corporation that was effective on or before September 21, 2020 but

was filed on or after September 21, 2020.

(2) Special rule. A taxpayer may apply

this section to the last taxable year of a

908

foreign corporation beginning before January 1, 2018, and each subsequent taxable

year of the foreign corporation ending before September 21, 2020, 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 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.

Sunita Lough,

Deputy Commissioner for Services

and Enforcement.

(Filed by the Office of the Federal Register on September 21, 2020, 8:45 a.m., and published in the issue of the Federal Register for September 22, 2020,

85 F.R. 59481)

Bulletin No. 2020–42

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as “rulings”) that

have an effect on previous rulings use the

following defined terms to describe the

­effect:

Amplified describes a situation where

no change is being made in a prior published position, but the prior position is

being extended to apply to a variation of

the fact situation set forth therein. Thus, if

an earlier ruling held that a principle applied to A, and the new ruling holds that

the same principle also applies to B, the

earlier ruling is amplified. (Compare with

modified, below).

Clarified is used in those instances

where the language in a prior ruling is being made clear because the language has

caused, or may cause, some confusion. It

is not used where a position in a prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously published ruling and points out an essential

difference between them.

Modified is used where the substance

of a previously published position is being

changed. Thus, if a prior ruling held that a

principle applied to A but not to B, and the

new ruling holds that it applies to both A

and B, the prior ruling is modified because

it corrects a published position. (Compare

with amplified and clarified, above).

Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions.

This term is most commonly used in a ruling

that lists previously published rulings that

are obsoleted because of changes in laws or

regulations. A ruling may also be obsoleted

because the substance has been included in

regulations subsequently adopted.

Revoked describes situations where the

position in the previously published ruling

is not correct and the correct position is

being stated in a new ruling.

Superseded describes a situation where

the new ruling does nothing more than

restate the substance and situation of a

previously published ruling (or rulings).

Thus, the term is used to republish under

the 1986 Code and regulations the same

position published under the 1939 Code

and regulations. The term is also used

when it is desired to republish in a single

ruling a series of situations, names, etc.,

that were previously published over a

period of time in separate rulings. If the

new ruling does more than restate the substance of a prior ruling, a combination of

terms is used. For example, modified and

superseded describes a situation where the

substance of a previously published ruling

is being changed in part and is continued

without change in part and it is desired to

restate the valid portion of the previously published ruling in a new ruling that is

self contained. In this case, the previously

published ruling is first modified and then,

as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names of

countries, is published in a ruling and that

list is expanded by adding further names

in subsequent rulings. After the original

ruling has been supplemented several

times, a new ruling may be published that

includes the list in the original ruling and

the additions, and supersedes all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of cases in litigation, or the outcome of a Service study.

Abbreviations

The following abbreviations in current use

and formerly used will appear in material

published in the Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

E.O.—Executive Order.

ER—Employer.

Bulletin No. 2020–42

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contributions Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

i

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statement of Procedural Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

October 13, 2020

Numerical Finding List1

Bulletin 2020–42

Announcements:

2020-8, 2020-32 I.R.B. 244

2020-9, 2020-32 I.R.B. 244

2020-10, 2020-33 I.R.B. 385

2020-11, 2020-33 I.R.B. 385

2020-13, 2020-35 I.R.B. 492

2020-14, 2020-36 I.R.B. 549

2020-15, 2020-38 I.R.B. 577

2020-16, 2020-38 I.R.B. 578

2020-17, 2020-40 I.R.B. 794

2020-12, 2020-41 I.R.B. 893

Notices:

2020-43, 2020-27 I.R.B. 1

2020-45, 2020-27 I.R.B. 3

2020-46, 2020-27 I.R.B. 7

2020-47, 2020-27 I.R.B. 7

2020-49, 2020-27 I.R.B. 8

2020-50, 2020-28 I.R.B. 35

2020-48, 2020-29 I.R.B. 72

2020-51, 2020-29 I.R.B. 73

2020-52, 2020-29 I.R.B. 79

2020-53, 2020-30 I.R.B. 151

2020-54, 2020-31 I.R.B. 226

2020-56, 2020-32 I.R.B. 239

2020-57, 2020-32 I.R.B. 240

2020-58, 2020-34 I.R.B. 419

2020-55, 2020-35 I.R.B. 467

2020-61, 2020-35 I.R.B. 468

2020-62, 2020-35 I.R.B. 476

2020-63, 2020-35 I.R.B. 491

2020-60, 2020-36 I.R.B. 514

2020-64, 2020-36 I.R.B. 519

2020-65, 2020-38 I.R.B. 567

2020-68, 2020-38 I.R.B. 567

2020-69, 2020-39 I.R.B. 604

2020-59, 2020-40 I.R.B. 782

2020-66, 2020-40 I.R.B. 785

2020-71, 2020-40 I.R.B. 786

2020-72, 2020-40 I.R.B. 789

2020-73, 2020-41 I.R.B. 886

2020-74, 2020-41 I.R.B. 887

Proposed Regulations:—Continued

REG-112042-19, 2020-34 I.R.B. 422

REG-132766-18, 2020-34 I.R.B. 436

REG-132434-17, 2020-35 I.R.B. 508

REG-116475-19, 2020-37 I.R.B. 553

REG-107911-18, 2020-40 I.R.B. 795

REG-110059-20, 2020-42 I.R.B. 904

Revenue Procedures:

2020-16, 2020-27 I.R.B. 10

2020-31, 2020-27 I.R.B. 12

2020-35, 2020-29 I.R.B. 82

2020-36, 2020-32 I.R.B. 243

2020-37, 2020-33 I.R.B. 381

2020-38, 2020-36 I.R.B. 522

2020-39, 2020-36 I.R.B. 546

2020-40, 2020-38 I.R.B. 575

2020-41, 2020-40 I.R.B. 793

2020-42, 2020-41 I.R.B. 891

Revenue Rulings:

2020-14, 2020-28 I.R.B. 33

2020-15, 2020-32 I.R.B. 233

2020-16, 2020-37 I.R.B. 550

2020-17, 2020-37 I.R.B. 552

2020-18, 2020-39 I.R.B. 584

2020-19, 2020-40 I.R.B. 611

2020-20, 2020-41 I.R.B. 880

2020-21, 2020-41 I.R.B. 882

Treasury Decisions:

9899, 2020-29 I.R.B. 62

9900, 2020-30 I.R.B. 143

9903, 2020-32 I.R.B. 235

9901, 2020-33 I.R.B. 266

9902, 2020-33 I.R.B. 349

9904, 2020-34 I.R.B. 413

9907, 2020-38 I.R.B. 559

9906, 2020-39 I.R.B. 579

9905, 2020-40 I.R.B. 614

9915, 2020-41 I.R.B. 882

9908, 2020-42 I.R.B. 894

Proposed Regulations:

REG-119307-19, 2020-28 I.R.B. 44

REG-112339-19, 2020-30 I.R.B. 155

REG-117589-18, 2020-30 I.R.B. 184

REG-125716-18, 2020-30 I.R.B. 197

REG-123027-19, 2020-31 I.R.B. 229

REG-130081-19, 2020-32 I.R.B. 246

REG-127732-19, 2020-33 I.R.B. 385

REG-111879-20, 2020-34 I.R.B. 421

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2019–27 through 2019–52 is in Internal Revenue Bulletin

2019–52, dated December 27, 2019.

1

October 13, 2020

ii

Bulletin No. 2020–42

Finding List of Current Actions on

Previously Published Items1

Bulletin 2020–42

A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2019–27 through 2019–52 is in Internal Revenue Bulletin

2019–52, dated December 27, 2019.

1

Bulletin No. 2020–42

iii

October 13, 2020

Internal Revenue Service

Washington, DC 20224

Official Business

Penalty for Private Use, $300

INTERNAL REVENUE BULLETIN

The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue

Bulletins are available at www.irs.gov/irb/.

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