# Bulletin No. 1996–37

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/agency%3Airs%3Ae11b347951ac84b7

## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

Bulletin No. 1996–37
September 9, 1996

HIGHLIGHTS
OF THIS ISSUE
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.

SPECIAL ANNOUNCEMENT
Announcement 96–89, page 22.
The location of the public hearing on proposed regulations
PS–39–93, relating to deductions available upon demolition
of a building, is changed.

INCOME TAX
T.D. 8681, page 17.
Final regulations under section 7503 of the Code relate to
the time for performance of acts when the last day for
performance falls on a Saturday, Sunday, or legal holiday.
T.D. 8682, page 4.
REG–209827–96, page 19.
Temporary and proposed regulations under section 367 of
the Code amend the final regulations relating to section
355 distributions of stock and securities by domestic
corporations to foreign persons.

EXEMPT ORGANIZATIONS
Announcement 96–87, page 21.
A list is provided of organizations that no longer qualify as

Finding Lists begin on page 25.

organizations to which contributions are deductible under
section 170 of the Code.
Announcement 96–91, page 23.
A list is given of organizations now classified as private
foundations.

ESTATE TAX
Announcement 96–90, page 22.
T.D. 8644, 1996–7 I.R.B. 16, relating to generationskipping transfer tax, is corrected.

EXCISE TAX
Announcement 96–85, page 20.
The Small Business Job Protection Act of 1996 makes
changes to federal excise taxes.

ADMINISTRATIVE
Announcement 96–86, page 21.
T.D. 8664, 1996–20 I.R.B. 7, regarding the reporting on
Form 1042S of certain U.S. bank account deposit interest
paid to an individual who is a nonresident alien of the
United States and a resident of Canada, is corrected.

Mission of the Service
The purpose of the Internal Revenue Service is to
collect the proper amount of tax revenue at the least
cost; serve the public by continually improving the

quality of our products and services; and perform in a
manner warranting the highest degree of public
confidence in our integrity, efficiency and fairness.

Statement of Principles
of Internal Revenue
Tax Administration
The Service also has the responsibility of applying
and administering the law in a reasonable,
practical manner. Issues should only be raised by
examining of ficers when they have merit, never
arbitrarily or for trading purposes. At the same
time, the examining officer should never hesitate
to raise a meritorious issue. It is also important
that care be exercised not to raise an issue or to
ask a court to adopt a position inconsistent with
an established Service position.

The function of the Internal Revenue Service is to
administer the Internal Revenue Code. Tax policy
for raising revenue is determined by Congress.
With this in mind, it is the duty of the Service to
carry out that policy by correctly applying the laws
enacted by Congress; to determine the reasonable
meaning of various Code provisions in light of the
Congressional purpose in enacting them; and to
perform this work in a fair and impartial manner,
with neither a government nor a taxpayer point of view.

Administration should be both reasonable and
vigorous. It should be conducted with as little
delay as possible and with great cour tesy and
considerateness. It should never try to overreach,
and should be reasonable within the bounds of law
and sound administration. It should, however, be
vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax
devices and fraud.

At the heart of administration is interpretation of the
Code. It is the responsibility of each person in the
Service, charged with the duty of interpreting the
law, to try to find the true meaning of the statutory
provision and not to adopt a strained construction in
the belief that he or she is ‘‘protecting the revenue.’’
The revenue is properly protected only when we ascertain and apply the true meaning of the statute.

2

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 and may be obtained from the Superintendent of Documents on a subscription basis. Bulletin
contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold on a
single-copy basis.

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.

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.

Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows:
Subpart A, Tax Conventions, 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).

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.

Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking and the disbarment and suspension list included in
this part, none of these announcements are consolidated in the Cumulative Bulletins.

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,

The first Bulletin for each month includes an index for
the matters published during the preceding month.
These monthly indexes are cumulated on a quarterly and
semiannual basis, and are published in the first Bulletin
of the succeeding quarterly and semi-annual period,
respectively.

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.
For sale by the Superintendent of Documents U.S. Government Printing Office, Washington, D.C. 20402.

3

Part I. Rulings and Decision Under the Internal Revenue Code of 1986
Section 367.—Foreign
Corporations

AGENCY: Internal Revenue Service
(IRS), Treasury.

unless the collection of information displays a valid control number.
For further information concerning
this collection of information, and where
to submit comments on the collection of
information and the accuracy of the
estimated burden, and suggestions for
reducing this burden, please refer to the
preamble to * * * REG–209827–96,
page 19, this Bulletin.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by 26 U.S.C. 6103.

ACTION: Temporary regulations.

Background

SUMMARY: These temporary regulations amend the Income Tax Regulations
relating to the distribution of stock and
securities under section 355 of the Internal Revenue Code of 1986 by a domestic corporation to a person that is not a
United States person. These regulations
are necessary to implement section
367(e)(1) as added by the Tax Reform
Act of 1986. The text of these regulations also serves as the text of * * *
REG–209827–96, page 19, this Bulletin.

On January 16, 1990, temporary regulations under section 367(e)(1) and
367(e)(2) were published in the Federal
Register (55 FR 1406 [TD 8280,
1990–1 C.B. 80]). A cross-referenced
Notice of Proposed Rulemaking was
published on that same date (55 FR
1472 [IA–012–90, 1990–1 C.B. 678]).
These regulations were proposed to
implement section 367(e) of the Internal
Revenue Code of 1986 (Code), as revised by sections 631(d)(1) and 1810(g)
of the Tax Reform Act of 1986 (100
Stat. 2085, 2272, Public Law 99–514
[1986–3 C.B. (Vol. 1) 1, 189, 745]). On
January 15, 1993, final regulations under section 367(e)(1) were published in
the Federal Register.

26 CFR 1.367(e)–1T: Treatment of section 355
distributions by U.S. corporations to foreign persons.

T.D. 8682
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
Treatment of Section 355
Distributions By U.S. Corporations
to Foreign Persons

EFFECTIVE DATE: These regulations
are effective September 13, 1996.
FOR FURTHER INFORMATION CONTACT: Philip L. Tretiak at (202) 622–
3860 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These regulations are being issued
without prior notice and public procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). For this
reason, the collection of information
contained in these regulations has been
reviewed and, pending receipt and
evaluation of public comments, approved by the Office of Management
and Budget under control number 1545–
1487. Responses to this collection of
information are required in order for a
U.S. corporation that distributes domestic stock or securities to a foreign
person to qualify for an exception to the
general rule of taxation provided by the
regulations under section 367(e)(1).
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information

Need for Temporary Regulations
Under the current regulations, in certain circumstances the gain recognition
exception may be dependent on the
form rather than the substance of a
taxpayer’s transaction. As a result, certain taxpayers may be subject to strict
restrictions under this exception, while
other taxpayers arguably may avoid the
restrictions by structuring their transactions in a different fashion (even though
the substance of the transactions is similar). Based on these considerations, it is
determined that immediate regulatory
guidance will ensure the efficient administration of the tax laws and that it
would be impracticable and contrary to
the public interest to issue this Treasury
decision with prior notice under section
553(b).

poration (Distributing) does not recognize gain or loss on the distribution of
the stock or securities of a controlled
corporation (Controlled) to Distributing’s shareholder or shareholders
(Distributee(s)). However, section
367(e)(1) provides that, in the case of
any distribution described in section 355
(or so much of section 356 as relates to
section 355) by a domestic corporation
to a Distributee who is not a United
States person (an outbound section 355
distribution), to the extent provided in
regulations, gain shall be recognized
under principles similar to the principles
of section 367.
The existing regulations under section
367(e)(1) provide different tax treatment
to Distributing in an outbound section
355 distribution depending upon whether
Controlled is a foreign corporation or a
domestic corporation. If Controlled is a
foreign corporation, an outbound section
355 distribution by Distributing is taxable, with no exceptions. If Controlled is
a domestic corporation, however, the
existing regulations provide that the distribution is taxable, but permit three
exceptions: (i) a FIRPTA exception in
cases where both Distributing and Controlled are U.S. real property holding
corporations (as defined in section
897(c)(2)) at the time of the distribution,
(ii) a publicly traded exception in certain
cases where Distributing is publicly
traded in the United States at the time of
the distribution, and (iii) a gain recognition agreement (GRA) exception described in detail below.
The new temporary regulations retain
the general framework of the existing
regulations by permitting no exceptions
in the case of an outbound section 355
distribution of foreign stock and the
same three exceptions in the case of an
outbound section 355 distribution of
domestic stock. However, the new temporary regulations substantially modify
the GRA exception.
The temporary regulations retain
many of the provisions from the existing
regulations. However, the IRS and Treasury have decided to reissue all of the
regulations under section 367(e)(1) as
temporary regulations to obtain a uniform set of regulations.

Explanation of Provisions

GRA exception under the existing regulations

Section 355 provides that, if certain
requirements are met, a distributing cor-

The GRA exception in the existing
regulations contains a number of spe-

4

cific requirements, all of which must be
satisfied for the distributing corporation
to defer taxation under the exception.
In general, if Distributee is a resident
of a country that has an income tax
treaty with the United States and meets
certain other requirements, Distributing
can defer its gain by entering into a
GRA. Under the GRA, if a (foreign)
Distributee sells all or a portion of the
stock of either Distributing or Controlled within 60 months after the close
of the taxable year in which the distribution occurs, Distributing agrees to
amend its return and include the deferred gain in income based upon the
proportion of the stock that is sold by
Distributee. Thus, for example, if
Distributee sells 10 percent of its stock
of Distributing or Controlled, Distributing is required to amend its return to
include 10 percent of the deferred gain.
There is no special rule (i.e., no full
trigger of the deferred gain) if Distributee sells a substantial amount of its
stock of either company. In addition,
there is no special rule that triggers gain
in the case of a nonrecognition transaction (such as the issuance of additional
stock by either Distributing or Controlled to third parties through a public
offering) that results in a substantial
reduction of the percentage of stock
owned by Distributee(s).
The existing regulations generally
provide that the GRA will not be triggered if Distributee transfers the stock
of either Distributing or Controlled in
certain nonrecognition transactions (permitted transactions). The transfer of the
stock of either company in a (second)
section 355 distribution, however, is not
permitted.
In the case of a permitted transaction,
the existing regulations provide special
successor-in-interest rules under which
the deferred gain generally will be taxable unless Distributee maintains a direct or indirect 80 percent interest in the
stock of Distributing and Controlled that
it owned immediately after the distribution. For example, if Distributing distributed the stock of Controlled in an
outbound section 355 distribution that
qualified for the GRA exception and,
within the term of the GRA, Distributee
then contributed the stock of Distributing to a new company (Newco) in a
section 351 exchange and received 100
percent of Newco, the successor-ininterest rules apply. Thus, Distributee
generally would be required to maintain
an 80 percent indirect interest in Distributing. Under these rules, (i) Distributee’s

sale of up to 20 percent of the stock of
Newco, or (ii) Newco’s sale of up to 20
percent of the stock of Distributing
would result in a corresponding trigger
of the deferred gain. The issuance of
new stock by Newco or Distributing of
up to 20 percent to unrelated persons,
however, would not result in any trigger
of the GRA. If, however, Newco (or
Distributing) issued more than 20 percent of its stock to unrelated persons (or
any other nonrecognition transaction reduced Distributee’s indirect interest in
Distributing to below 80 percent as a
result of a nonrecognition transaction),
the entire gain would be triggered.
Reasons for change/overview of temporary regulations
The treatment of non pro rata outbound section 355 distributions is not
adequately addressed in the existing
regulations. For example, assume that a
foreign parent (FP) owns all of the stock
of Distributing, a domestic corporation,
which, in turn, owns all of the stock of
Controlled, also a domestic corporation.
Assume that the distribution of Controlled by Distributing to FP qualifies
for the GRA exception. If FP then
contributes all of the stock of Distributing to a newly-formed foreign corporation (Newco), the successor rules would
apply, and FP would be required to
maintain a direct or indirect 80 percent
interest in Distributing.
The outcome under the existing regulations arguably is substantially different, however, if the corporations structured the distribution as a non pro rata
distribution. For example, assume that
FP first forms Newco and transfers to
Newco a percentage of the Distributing
stock (the percentage equal to the value
of Distributing (without the Controlled
stock) divided by the combined value of
Distributing and Controlled) in an exchange under section 351. Distributing
then distributes the stock of Controlled
to FP in exchange for FP’s stock of
Distributing (a non pro rata section 355
distribution). After the distribution, FP
owns all of the stock of Controlled and
all of the stock of Newco; Newco owns
all of the stock of Distributing. Under
the existing regulations, FP is a
Distributee. However, because FP has
no direct interest in Distributing after
the distribution, the regulations effectively treat FP as a Distributee only with
respect to Controlled. Moreover, because
Newco does not actually receive stock
of Controlled in the distribution (even

5

though its percentage ownership interest
in Distributing increases as a result of
the distribution), it is arguably not a
Distributee with respect to the Distributing stock. As a result, because the
taxpayer structures the transaction in
this manner (rather than a section 355
distribution followed by a section 351
exchange as in the first hypothetical), if
the steps of the transaction are respected
and in the absence of the application of
other sections of the Code, Distributing
could take the position that there are no
restrictions in the existing regulations
with respect to (i) the sale by FP of
Newco stock, or (ii) the sale by Newco
of Distributing stock.
To remedy this potential disparity in
treatment between pro rata and non pro
rata distributions, the temporary regulations expand the definition of
Distributee in the GRA exception (referred to as Foreign Distributee under
such exception) to include all persons
that were shareholders of Distributing
immediately prior to the distribution.
Thus, for example, in the second hypothetical above, Newco and FP would
both be Foreign Distributees. Provided
that nonrecognition treatment is claimed
under the GRA exception with respect
to Newco and FP (referred to as Qualified Foreign Distributees in the case of
Foreign Distributees for which nonrecognition may be claimed), the GRA
would be triggered by either (i) the sale
by FP of Newco stock, or (ii) the sale
by Newco of Distributing stock.
Second, even in the case of pro rata
distributions, the IRS and Treasury believe that the results obtained under the
existing regulations are too dependent
upon the form of the transaction. This is
principally because taxpayers could be
subject to the stricter successor-ininterest rules if their transactions were
structured in a particular way, but might
be subject to the more liberal distributee
rules if the order of the steps of the
particular transaction are reversed.
In the preamble to the existing regulations, the IRS and Treasury stated that
the successor-in-interest rules were ‘‘designed to provide taxpayers with flexibility to restructure their operations,
without imposing undue administrative
burdens on the Service.’’ The IRS solicited taxpayer comments on the scope of
these rules. A number of commentators
have stated that the rules are overly
restrictive.
The temporary regulations harmonize
the treatment of the distributee and
successor-in-interest rules in order to

minimize the importance of the form of
a particular transaction. In addition, as
discussed below, the temporary regulations liberalize the strict successor rules
by replacing the 80-percent threshold
(computed on an individual Distributee
basis) with a 50-percent threshold (computed with reference to all Qualified
Foreign Distributees as a group).
The temporary regulations follow the
existing regulations by providing that a
sale by a Qualified Foreign Distributee
of the stock of either Controlled or
Distributing triggers gain in the same
proportion as the percentage of stock
that is sold. However, the temporary
regulations provide that a sale by Qualified Foreign Distributee(s) of either Distributing or Controlled that results in
a substantial transformation results in
a trigger of the full amount of the
deferred gain. A substantial transformation is defined as a greater than 50percent (direct or indirect) reduction, on
an aggregate basis, in either the total
voting power or the total value of the
stock of Controlled or Distributing held
by Qualified Foreign Distributee(s) immediately after the distribution. The new
temporary regulations also provide that
a nonrecognition transaction that results
in a substantial transformation (such as
the issuance of stock by Distributing or
Controlled in a public offering) generally causes a trigger of the full amount
of the deferred gain. No gain will be
triggered if a nonrecognition transaction
does not result in a substantial transformation.
The temporary regulations also expand the types of post-distribution nonrecognition transactions that are permitted transactions to include section 355
distributions. A post-distribution section
355 transaction may qualify for nonrecognition treatment if the foreign
distributee (referred to as a Substitute
Distributee) that receives stock of Distributing and/or Controlled qualifies as a
Qualified Foreign Distributee. In such
case, the Substitute Distributee will replace the initial Qualified Foreign
Distributee as the person whose ownership interest is considered for purposes
of determining whether a disposition or
substantial transformation has occurred
(on a cumulative, aggregate basis) with
respect to such stock.
In addition, the temporary regulations
provide that foreign persons that owned
stock or securities of Distributing within
two years prior to the distribution and
that own (directly, indirectly, or constructively) 50 percent or more of the

stock of Distributing or Controlled immediately after the distribution will also
be considered Foreign Distributees.
Thus, for example, if F1, a foreign
corporation, transfers the stock of US1
to F2 in exchange for all of the stock of
F2 in a section 351 exchange and,
within two years after the transfer, US1
distributes all of the stock of US2, its
wholly owned subsidiary, to F2 in a
section 355 exchange, F1 is also treated
as a Foreign Distributee under this rule.
(F1 would have been treated as a Foreign Distributee without the operation of
this rule if the section 355 distribution
occurred prior to the section 351 exchange.)
The IRS and the Treasury also believe
that certain procedural aspects of the
GRA exception need modification. The
temporary regulations enhance reporting
and security requirements, extend the
term of the GRA from 5 to 10 years,
and delete other requirements that are
believed to be unnecessary in light of
the modifications herein.
To address the security concerns of
the IRS resulting from the liberalization
of the successor-in-interest rules and the
expansion of permissible post-distribution nonrecognition transactions to include section 355 distributions, the assets of Distributing are more closely
monitored to insure that such corporation has sufficient funds to pay a potential tax on the deferred gain. In addition,
Controlled must agree to be secondarily
liable (after Distributing) for the tax on
the deferred gain.
Moreover, the new temporary regulations extend the term of the GRA from
5 to 10 years in order to conform the
GRA term under section 367(e)(1) to the
GRA term under section 367(a). Under
section 367(a), the GRA term in the
case of outbound stock transfers is 10
years when U.S. transferors own at least
50 percent of the stock of a foreign
transferee company. See § 1.367(a)–
3T(c)(3) and Notice 87–85 (1987–2
C.B. 395). The IRS and Treasury believe that the GRA term under section
367(e)(1) should be no less than the
term under section 367(a) when U.S.
transferors control the transferee because, once the GRA under section
367(e)(1) expires, the sale of Distributing or Controlled stock by a Qualified
Foreign Distributee likely will not be
subject to Federal income taxation. In
contrast, under section 367(a), even if
the GRA lapses, an amount approximating the deferred gain likely will be
subject to Federal income taxation if the

6

U.S. transferor later sells the stock of
the transferee foreign corporation.
Finally, the IRS and Treasury believe
that section 367(e)(1) distributions
should be subject to some form of
section 6038B reporting, as are transfers
described under sections 367(a) and
367(d). Thus, the temporary regulations
extend limited section 6038B reporting
to section 367(e)(1) transactions. The
reporting requirements under section
6038B will be deemed satisfied in the
case of a taxpayer that qualifies for one
of the three exceptions to taxation under
the regulations if the taxpayer complies
with the applicable reporting requirements relating to the relevant exception.
This change is also intended to extend
the statute of limitations under section
6501(c)(8) in cases where distributing
corporations do not properly report their
outbound section 355 distributions.
Separately, the temporary regulations
provide new notice and reporting rules
in cases where Distributing qualifies for
either the FIRPTA or publicly traded
exception.
Specific changes to GRA exception in
temporary regulations
The specific requirements of the GRA
exception, as amended, are as follows:
(A) Ten or fewer qualified foreign
distributees
The existing regulations provide that
Distributing is permitted to claim nonrecognition with respect to 10 or fewer
individual or corporate foreign distributees. A ruling is required in the case
of a foreign distributee that holds its
interest in Distributing through a partnership, trust, or estate (whether foreign
or domestic). This requirement is unchanged in the temporary regulations.
(B) Active trade or business
The existing regulations provide that,
if Distributee is a foreign corporation, it
must be engaged in an active trade or
business. This requirement is removed
in the temporary regulations.
(C) Value of distributing
The existing regulations provide that,
immediately after the distribution, the
value of Distributing must be at least
equal to the value of the distributed
stock and securities. This requirement is
waived by the existing regulations if
Distributing and Controlled are members
of the same consolidated group at the

time of the distribution. This requirement is revised in the temporary regulations to provide that the value of Distributing (the value of its assets less all
of its liabilities) must be at least equal
to the amount of the deferred gain on all
testing dates during the GRA period.
(Alternatively, Distributing may satisfy
this test using the adjusted basis of its
assets instead of fair market value.) A
testing date is the last day of each
taxable year of Distributing and any day
in which Distributing distributes money
or property to its shareholders (regardless of whether such distribution is
treated as a dividend). The waiver in the
existing regulations if Distributing and
Controlled are members of the same
consolidated group is eliminated in the
temporary regulations.
(D) Treaty residence
The existing regulations provide that
all Distributees are required to be residents of a country that maintains a
comprehensive income tax treaty with
the United States that contains an exchange of information provision. This
requirement is not changed in the temporary regulations.
(E) Continuity of interest rule
The existing regulations provide that
the Distributee is required to continue to
own, for a 60-month period, all of the
stock of Distributing and Controlled that
it owns at the time of the distribution.
This requirement is maintained, but the
period is increased to 120 months.
(F) Distributing must remain in
existence
The existing regulations provide that
Distributing cannot go out of existence
pursuant to the distribution. This requirement is maintained in the temporary regulations.
(G) GRA
The existing regulations provide that
Distributing is required to enter into a
5-year GRA and receive annual certifications from Distributees, stating that
they continue to own the stock that they
held immediately after the distribution.
The temporary regulations increase the
GRA term to 10 years.
(H) Annual certifications
The existing regulations provide that
Distributees must provide their certifications directly to Distributing. Under the

temporary regulations, Controlled also
must provide an annual statement to
Distributing, containing information regarding whether any of its Qualified
Foreign Distributees have disposed of
their stock in Controlled during the
relevant taxable year.
Special Analyses
It has been determined that this temporary regulation is not a significant
regulatory action as defined in EO
12866. Therefore, a regulatory assessment is not required. It is hereby certified that this regulation does not have a
significant impact on a substantial number of small entities. This certification is
based on the fact that the number of
corporations that distribute stock or securities to foreign persons in transactions that qualify under section 355, and
thus become subject to the collection of
information contained in these regulations, is estimated to be only 260 per
year. Moreover, because these regulations will primarily affect large multinational corporations with foreign shareholders, it is estimated that out of the
260 annual transactions subject to reporting, very few, if any, will involve
small entities. Therefore, the regulations
do not significantly alter the reporting or
recordkeeping duties of small entities.
Thus, a Regulatory Flexibility Analysis
under the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal
Revenue Code, a copy of these temporary regulations will be submitted to the
Chief Counsel for Advocacy of the
Small Business Administration for comment on their impact on small business.
Drafting Information
The principal author of these regulations is Philip L. Tretiak of the Office of
Associate Chief Counsel (International),
within the Office of Chief Counsel, IRS.
However, other personnel from the IRS
and Treasury Department participated in
their development.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:

7

Part 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by removing the entry
for section 1.367(e)–1 and adding an
entry in numerical order to read as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.367(e)–1T also issued under
26 U.S.C. 367(e)(1) * * *
Par. 2. Sections 1.367(e)–0 and
1.367(e)–1 are removed.
Par. 3. Sections 1.367(e)–0T and
1.367(e)–1T are added to read as follows:
§ 1.367(e)–0T Treatment of section 355
distributions by U.S. corporations to
foreign persons; table of contents.
This section lists captioned paragraphs contained in § 1.367(e)–1T.
§ 1.367(e)–1T Treatment of section 355
distributions by U.S. corporations to
foreign persons.
(a) Purpose and scope.
(b) Recognition of gain required.
(1) In general.
(2) Computation of gain of the distributing corporation.
(3) Treatment of foreign distributee.
(4) Nonapplication of section 367(a)
principles that provide for exceptions to
gain recognition.
(5) Partnerships, trusts, and estates.
(i) In general.
(ii) Written statement.
(6) Anti-abuse rule.
(c) Nonrecognition of gain.
(1) Distribution by a U.S. real property holding corporation of stock in a
second U.S. real property holding corporation.
(2) Distribution by a publicly traded
corporation.
(i) Conditions for nonrecognition.
(ii) Recognition of gain if foreign
distributee owns 5 percent of distributing corporation.
(iii) Reporting requirements.
(iv) Timely filed return.
(v) Relation to other nonrecognition
provisions.
(3) Distribution of certain domestic
stock to 10 or fewer qualified foreign
distributees.
(i) In general.
(ii) Conditions for nonrecognition.
(iii) Agreement to recognize gain.
(iv) Waiver of period of limitation.
(v) Annual certifications and other
reporting requirements.

(vi) Special rule for nonrecognition
transactions.
(vii) Recognition of gain.
(viii) Failure to comply.
(d) Other consequences.
(1) Exchange under section 897(e)(1).
(2) Dividend treatment under section
1248.
(3) Distribution of stock of a passive
foreign investment company. [Reserved]
(4) Reporting under section 6038B.
(e) Examples.
(f) Effective date.
§ 1.367(e)–1T Treatment of section 355
distributions by U.S. corporations to
foreign persons (temporary).
(a) Purpose and scope. This section
provides rules concerning the recognition of gain by a domestic corporation
on a distribution that qualifies for nonrecognition under section 355 of stock
or securities of a domestic or foreign
corporation to a person who is not a
U.S. person. Paragraph (b) of this section states as a general rule that gain
recognition is required on the distribution. Paragraph (c) of this section provides exceptions to the gain recognition
rule for certain distributions of stock or
securities of a domestic corporation.
Paragraph (d) of this section refers to
other consequences of distributions described in this section. Paragraph (e) of
this section provides examples of these
rules. Finally, paragraph (f) of this section specifies the effective date of this
section.
(b) Recognition of gain required—(1)
In general. (i) If a domestic corporation
(distributing corporation) makes a distribution that qualifies for nonrecognition
under section 355 of stock or securities
of a domestic or foreign corporation
(controlled corporation) to a person who
is not a qualified U.S. person, then,
except as provided in paragraph (c) of
this section, the distributing corporation
shall recognize gain (but not loss) on
the distribution under section 367(e)(1).
No gain is required to be recognized
under this section with respect to a
distribution to a qualified U.S. person of
stock or securities that qualifies for
nonrecognition under section 355. For
purposes of this section, a qualified U.S.
person is—
(A) A citizen or resident of the
United States; and
(B) A domestic corporation.

(ii) In the case of stock or securities
owned through a partnership, trust, or
estate, see paragraph (b)(5) of this section.
(2) Computation of gain of the distributing corporation. The gain recognized by the distributing corporation
under paragraph (b)(1) of this section
shall be equal to the excess of the fair
market value of the stock or securities
distributed to persons who are not qualified U.S. persons (determined as of the
time of the distribution) over the distributing corporation’s adjusted basis in the
stock or securities distributed to such
distributees. For purposes of the preceding sentence, the distributing corporation’s adjusted basis in each unit of each
class of stock or securities distributed to
a distributee shall be equal to the distributing corporation’s total adjusted basis in all of the units of the respective
class of stock or securities owned immediately before the distribution, divided
by the total number of units of the class
of stock or securities owned immediately before the distribution.
(3) Treatment of distributee. If the
distribution otherwise qualifies for nonrecognition under section 355, each
distributee shall be considered to have
received stock or securities in a distribution qualifying for nonrecognition under
section 355, even though the distributing
corporation may recognize gain on the
distribution under this section. Thus, the
distributee shall not be considered to
have received a distribution described in
section 301 or a distribution in an
exchange described in section 302(b)
upon the receipt of the stock or securities of the controlled corporation. Except
where section 897(e)(1) and the regulations thereunder cause gain to be recognized by the distributee, the basis of the
distributed domestic or foreign corporation stock in the hands of the foreign
distributee shall be the basis of the
distributed stock determined under section 358 without any increase for any
gain recognized by the domestic corporation on the distribution.
(4) Nonapplication of section 367(a)
principles that provide for exceptions to
gain recognition. Paragraph (b)(1) of
this section requires recognition of gain
notwithstanding the application of any
principles contained in section 367(a) or
the regulations thereunder. The only exceptions to paragraph (b)(1) of this
section are contained in paragraph (c) of
this section. None of these exceptions
applies to distributions of stock or securities of a foreign corporation.

8

(5) Partnerships, trusts, and estates—
(i) In general. For purposes of this
section, stock or securities owned by or
for a partnership (whether foreign or
domestic) shall be considered to be
owned proportionately by its partners. In
applying this principle, the proportionate
share of the stock or securities of the
distributing corporation considered to be
owned by a partner of the partnership at
the time of the distribution shall equal
the partner’s distributive share of gain
that would be realized by the partnership from a sale of stock of the distributing corporation immediately before the
distribution (without regard to whether,
under the particular facts, any gain
would actually be realized on the sale
for U.S. tax purposes), determined under
the rules and principles of sections 701
through 761 and the regulations thereunder. For purposes of this section, stock
or securities owned by or for a trust or
estate (whether foreign or domestic)
shall be considered to be owned proportionately by the persons who would be
treated as owning such stock or securities under sections 318(a)(2)(A) and (B).
In applying section 318(a)(2)(B), if a
trust includes interests that are not
actuarially ascertainable and a principal
purpose of the inclusion of the interests
is the avoidance of section 367(e)(1), all
such interests shall be considered to be
owned by foreign persons. In a case
where an interest holder in a partnership, trust, or estate that owns stock of
the distributing corporation is itself a
partnership, trust, or estate, the rules of
this paragraph (b)(5) apply to individuals or corporations that own (direct or
indirect) interests in the upper-tier partnership, trust or estate.
(ii) Written statement. If, prior to the
date on which the distributing corporation must file its income tax return for
the year of the distribution, the corporation obtains a written statement, signed
under penalties of perjury by an interest
holder in a partnership, trust, or estate
that receives a distribution described in
paragraph (b)(1) of this section from the
corporation, which statement certifies
that the interest holder is a qualified
U.S. person (as defined in paragraph
(b)(1)(i) of this section), no liability
shall be imposed under paragraph (b)(1)
of this section with respect to the distribution to the partnership, trust, or estate
to the extent of the interest holder’s
interest in the partnership, trust, or estate, unless the distributing corporation
knows or has reason to know that the
statement is false, or it is subsequently

determined that the interest holder, in
fact, was not a qualified U.S. person at
the time of the distribution. The written
statement must set forth the amount of
the interest holder’s proportionate interest in the partnership, trust, or estate as
determined under paragraph (b)(5)(i) of
this section and must set forth the
amount of such entity’s proportionate
interest in the distributing and controlled
corporation, as well as the interest holder’s name, taxpayer identification number, home address (in the case of an
individual) or office address and place
of incorporation (in the case of a corporation). The written statement must be
retained by the distributing corporation
with its books and records for a period
of three calendar years following the
close of the last calendar year in which
the corporation relied upon the statement.
(6) Anti-abuse rule. If a domestic
corporation is directly or indirectly
formed or availed of by one or more
foreign persons to hold the stock of a
second domestic corporation for a principal purpose of avoiding the application
of section 367(e)(1) and the requirements of this section, any distribution of
stock or securities to which section 355
applies by such second domestic corporation shall be treated for Federal income tax purposes as a distribution to
such foreign person or persons, followed
by a transfer of the stock or securities to
the first domestic corporation. The
qualification of the distribution to the
foreign person for an exception to the
general gain recognition rule of paragraph (b)(1) of this section, and the
consequences of the transfer to the first
domestic corporation under this section,
shall be determined in accordance with
all of the facts and circumstances.
(c) Nonrecognition of gain—(1) Distribution by a U.S. real property holding
corporation of stock in a second U.S.
real property holding corporation. Gain
shall not be recognized under paragraph
(b) of this section by a domestic corporation making a distribution that qualifies for nonrecognition under section
355 of stock or securities of a domestic
controlled corporation to a person who
is not a qualified U.S. person (as defined in paragraph (b)(1)(i) of this section) if the conditions specified in paragraphs (c)(1)(i) and (ii) of this section
are both satisfied:
(i) Immediately after the distribution,
both the distributing and controlled corporations are U.S. real property holding
corporations (as defined in section

897(c)(2)). For the treatment of the
distribution under section 897, see section 897(e)(l) and the regulations thereunder.
(ii) The distributing corporation attaches to its timely filed Federal income
tax return for the taxable year in which
the distribution occurs a statement titled
‘‘Section 367(e)(1) – Reporting of Section 355 Distribution by U.S. Real Property Holding Corporation’’, signed under
penalties of perjury by an officer of the
corporation, disclosing the following information—
(A) A statement that the distribution
is one to which paragraph (c)(1) of this
section applies; and
(B) A description of the transaction
in which one U.S. real property holding
corporation distributes the stock of another U.S. real property holding corporation in a transaction that is described
under section 355.
(iii) For purposes of this paragraph
(c)(1), an income tax return (including
an amended return) will be considered a
timely filed Federal income tax return if
it is filed prior to the time that the
Internal Revenue Service discovers that
the reporting requirements of this paragraph have not been satisfied.
(2) Distribution by a publicly traded
corporation— (i) Conditions for nonrecognition. Except as provided by paragraph (c)(2)(ii) of this section, gain shall
not be recognized under paragraph (b)
of this section by a domestic corporation
making a distribution that qualifies for
nonrecognition under section 355 of
stock or securities of a domestic controlled corporation to a person who is
not a qualified U.S. person (as defined
in paragraph (b)(1)(i) of this section) if
both of the following conditions are
satisfied:
(A) Stock of the domestic controlled
corporation with a value of more than
80 percent of the outstanding stock of
the corporation is distributed with respect to one or more classes of the
outstanding stock of the distributing corporation that are regularly traded on an
established securities market, as defined
in § 1.897–1(m)(1) and (3), located in
the United States. Stock is considered to
be regularly traded if it is regularly
quoted by brokers or dealers making a
market in such interests. A broker or
dealer is considered to make a market
only if the broker or dealer holds himself out to buy or sell interests in the
stock at the quoted price.

9

(B) The distributing corporation satisfies the reporting requirements contained
in paragraph (c)(2)(iii) of this section.
(ii) Recognition of gain if distributee
owns 5 percent of distributing corporation. If, at the time of the distribution,
the distributing corporation knows or
has reason to know that any distributee
who is not a qualified U.S. person (as
defined in paragraph (b)(1)(i) of this
section) owns, directly, indirectly, or
constructively (using the rules of sections 897(c)(3) and (c)(6)(C), but subject
to the rules of paragraph (b)(5) of this
section), more than 5 percent (by value)
of a class of stock or securities of the
distributing corporation with respect to
which the stock or securities of the
controlled corporation is distributed (a
5-percent shareholder), the distributing
corporation will qualify for nonrecognition under paragraph (c)(2)(i) of this
section if, with respect to such 5-percent
shareholder, either—
(A) The distribution qualifies for
nonrecognition under paragraph (c)(3) of
this section; or
(B) The distributing corporation recognizes gain (but not loss) on the distribution under paragraph (b) of this section.
(iii) Reporting Requirements. To
qualify for nonrecognition treatment under paragraph (c)(2)(i) of this section,
the distributing corporation must attach
to its timely filed Federal income tax
return, for the taxable year in which the
distribution occurs a statement titled
‘‘Section 367(e)(1) – Reporting of Section 355 Distribution by U.S. Publicly
Traded Corporation to Foreign Persons,’’
signed under penalties of perjury by an
officer of the corporation, disclosing the
following information:
(A) A statement that the distribution
is one to which paragraph (c)(2) of this
section applies.
(B) A description of the transaction
in which the distributing corporation
that is publicly traded on a U.S. securities market distributed stock or securities of a domestic controlled corporation.
(C) The U.S. securities market on
which the stock of the distributing corporation is publicly traded.
(D) A statement that, at the time of
the distribution, either—
(1) The distributing corporation does
not know or have reason to know that
any distributee who is not a qualified
U.S. shareholder (as defined in paragraph (b)(1)(i) of this section) is a
5-percent shareholder; or

(2) The distributing corporation
knows or has reason to know that one
or more distributees who are not qualified U.S. persons are 5-percent shareholders, and, that with respect to each
such 5-percent shareholder, either—
(i) Gain will not be recognized because the requirements of paragraph
(c)(3) of this section are satisfied; or
(ii) Gain (but not loss) will be recognized in accordance with paragraph (b)
of this section.
(iv) Timely filed return. For purposes
of this paragraph (c)(2), an income tax
return (including an amended return)
will be considered a timely filed Federal
income tax return if it was received
prior to the time that the Internal Revenue Service discovers that the reporting
requirements of this paragraph (c)(2)
have not been satisfied.
(v) Relation to other nonrecognition
provisions. If the distribution of the
stock and securities of the controlled
corporation also qualifies for nonrecognition under paragraph (c)(1) of this
section, the distributing corporation shall
be entitled to nonrecognition under paragraph (c)(1) of this section and not this
paragraph (c)(2).
(3) Distribution of certain domestic
stock to 10 or fewer qualified foreign
distributees—(i) In general. (A) Gain
shall not be recognized under paragraph
(b) of this section by a domestic corporation making a distribution that qualifies for nonrecognition under section
355 of stock or securities of a domestic
controlled corporation with respect to a
foreign distributee (defined in paragraph
(c)(3)(i)(B) of this section) that is a
qualified foreign distributee (defined in
paragraph (c)(3)(i)(C) of this section),
provided that each of the conditions
contained in paragraph (c)(3)(ii) of this
section is satisfied. If one or more
foreign distributees are not treated as
qualified foreign distributees, the distributing corporation shall recognize a percentage of the gain realized on the
distribution, equal to the percentage of
its stock owned immediately before the
distribution, directly or indirectly, by
foreign distributees who are not qualified foreign distributees. See paragraph
(b)(5) of this section for rules regarding
the ownership of stock held by a partnership, trust, or estate.
(B) For purposes of this paragraph
(c)(3), the term foreign distributee is
any person who is not a qualified U.S.
person (as defined in paragraph (b)(1)(i)
of this section) if such person—

(1) Owned stock or securities of the
distributing corporation immediately
prior to the distribution;
(2) Owned stock or securities of the
distributing corporation within two years
prior to the distribution and directly,
indirectly, or constructively (using the
rules of section 318) owns 50 percent or
more of either the total voting power or
the total value of the stock of the
distributing or controlled corporation
immediately after the distribution; or
(3) Is a transferee or substitute
distributee, as defined in paragraph
(c)(3)(vi)(C) or (D) of this section.
(C) For purposes of this section, except as provided by paragraph
(c)(3)(i)(D) of this section, the term
qualified foreign distributee is a foreign
distributee that, during the entire period
for which the agreement to recognize
gain (described in paragraph (c)(3)(iii)
of this section) is in effect with respect
to the distributee, is either an individual
or a corporation (as defined in section
7701(a)(3)), resident of a foreign country that maintains a comprehensive income tax treaty with the United States
which contains an information exchange
provision. However, no more than ten
foreign distributees in total may be
current or former qualified foreign
distributees (including any transferee or
substitute distributees as defined in paragraph (c)(3)(vi)(C) or (D) of this section) during the entire term of the gain
recognition agreement. See, however,
paragraph (c)(3)(vi)(G) of this section
for special rules applicable to substitute
distributees.
(D) Unless the distributing corporation obtains a ruling from the Internal
Revenue Service to the contrary, no
foreign distributee shall be treated as a
qualified foreign distributee if it holds
its interest in the distributing corporation
through a partnership, trust or estate,
characterized as such under the taxation
laws of the United States or any entity
that is treated as fiscally transparent
under the taxation laws of the foreign
country in which it is a resident if such
country maintains a comprehensive income tax treaty with the United States
which contains an information exchange
provision.
(ii) Conditions for nonrecognition. A
distribution of stock or securities described in paragraph (c)(3)(i) of this
section to a qualified foreign distributee
shall not result in the recognition of
gain if each of the following conditions
is satisfied:

10

(A) If more than ten foreign
distributees, at any time during the entire term of the gain recognition agreement, are eligible to be qualified foreign
distributees, the distributing corporation
shall designate the foreign distributees
to be considered qualified foreign
distributees for which nonrecognition is
claimed under this paragraph (c)(3).
(B) Immediately after the distribution
and on each testing date beginning after
the distribution and during the period
that the agreement to recognize gain
(described in paragraph (c)(3)(iii) of this
section) is in effect, the value of the
distributing corporation (that is, the fair
market value of the assets of the distributing corporation, less all liabilities of
the distributing corporation) must exceed the amount of gain that the distributing corporation realized, but did not
recognize (on or after the distribution)
under this paragraph (c)(3), as a consequence of the distribution with respect
to qualified foreign distributees. This
requirement will be deemed satisfied for
any testing date upon which the adjusted
basis of the distributing corporation’s
assets, less all liabilities of the distributing corporation, exceeds the amount of
the deferred gain. A testing date is—
(1) The last day of any taxable year
of the distributing corporation during
which the agreement to recognize gain
is in effect; and
(2) Any date upon which the distributing corporation distributes property to
its shareholders under section 301(a).
(C) At all times until the close of the
120-month period following the end of
the taxable year of the distributing corporation in which the distribution was
made, except under the circumstances
and subject to the consequences prescribed in paragraphs (c)(3)(vi) and (vii)
of this section, all qualified foreign
distributees must continue to own, directly or indirectly, all of the stock and
securities of the distributing and controlled corporations that the qualified
foreign distributee owned, directly or
indirectly, immediately after the distribution (including any stock and securities
of the distributing or controlled corporation later acquired from the distributing
or controlled corporation for which the
distributee has a holding period determined under section 1223 by reference
to the stock or securities).
(D) The distribution of stock or securities described in paragraph (c)(3)(i) of
this section must not be a distribution
pursuant to which the distributing corporation goes out of existence.

(E) The distributing corporation must
file an agreement to recognize gain, and
the controlled corporation must agree to
be secondarily liable in the event that
the distributing corporation does not pay
the tax due upon a recognition event
described in paragraph (c)(3)(vii) of this
section. The agreement is described in
paragraph (c)(3)(iii) of this section and
filed by the distributing corporation with
its Federal income tax return for its
taxable year in which the distribution is
made.
(F) For each of the taxable years of
the distributing corporation, beginning
with the taxable year of the distribution
and ending with the taxable year that
includes the close of the 120-month
period following the end of the taxable
year of the distributing corporation in
which the distribution was made, all
qualified foreign distributees and the
controlled corporation must provide to
the distributing corporation the annual
certifications described in paragraph
(c)(3)(v) of this section, and the distributing corporation must file the certifications with its tax return.
(iii) Agreement to recognize gain.
The agreement to recognize gain required by this paragraph (c)(3)(iii) shall
be prepared by or on behalf of the
distributing corporation and signed under penalties of perjury by an authorized
officer of the distributing corporation.
An authorized officer of the controlled
corporation must also sign the agreement under penalties of perjury, agreeing to extend the statute of limitations
and accept liability for the tax in the
event that the distributing corporation
fails to pay the tax upon a recognition
event. The agreement provided by the
distributing corporation shall set forth
the following items, under the heading
‘‘GAIN RECOGNITION AGREEMENT
UNDER § 1.367(e)–1T(c)(3)(iii)’’, with
paragraphs labeled to correspond with
such items:
(A) A declaration that the distribution
is one to which paragraph (c)(3) of this
section applies.
(B) A description of each qualified
foreign distributee, which shall include
the qualified foreign distributee’s—
(1) Name;
(2) Address;
(3) Taxpayer identification number (if
any); and
(4) Residence and citizenship (in the
case of an individual) or place of incorporation and country of residence (in the
case of a qualified foreign distributee

that is a corporation for Federal income
tax purposes under section 7701(a)(3)).
(C) A description of the stock and
securities of the distributing and controlled corporations owned (directly or
indirectly) by each qualified foreign
distributee, including—
(1) The number or amount of shares;
(2) The type of stock or securities;
(3) The fair market values of the
stock and securities of the controlled
corporation owned (directly or indirectly) by the qualified foreign
distributee(s), determined immediately
before and immediately after the distribution;
(4) The distributing corporation’s adjusted basis (immediately before the
distribution) in the stock and securities
of the controlled corporation distributed
to the qualified foreign distributees;
(5) The fair market value of the distributing corporation (fair market value
of its assets, less all liabilities of the
distributing corporation) immediately after the distribution. Such amount must
exceed the amount of gain that the
distributing corporation realized, but did
not recognize under this paragraph
(c)(3), on the distribution to qualified
foreign distributees. Alternatively, the
fair market value standard will be
deemed satisfied if the adjusted basis of
the assets of the distributing corporation,
less all liabilities of the distributing
corporation, exceeds the amount of the
deferred gain.
(6) For each applicable valuation, a
summary of the method (including appraisals, if any) used for determining the
fair market values required by this paragraph (c)(3)(iii).
(D) The distributing corporation’s
agreement to recognize gain in accordance with paragraph (c)(3)(vii) of this
section.
(E) The controlled corporation’s
agreement to be secondarily liable for
the distributing corporation’s tax liability, pursuant to the gain recognition
agreement described in this paragraph
(c)(3)(iii).
(F) A waiver of the period of limitations by both the distributing and controlled corporation as described in paragraph (c)(3)(iv) of this section.
(G) An attached statement from each
qualified foreign distributee declaring
that the qualified foreign distributee will
provide to the distributing corporation
the annual certifications described in
paragraph (c)(3)(v)(A) of this section for
each of the taxable years of the distributing corporation, beginning with the

11

taxable year of the distribution and
ending with the taxable year that includes the close of the 120-month period following the taxable year of the
distributing corporation in which the
distribution was made. The attached
statements shall be signed under penalties of perjury by an authorized officer
in the case of any qualified foreign
distributee that is a corporation for Federal income tax purposes or by the
individual in the case of a qualified
foreign distributee that is an individual.
(H) An attached statement from the
controlled corporation declaring that it
will provide to the distributing corporation the annual certifications described
in paragraph (c)(3)(v)(B) of this section.
(I) An agreement by the distributing
corporation to attach to its tax returns
the annual certifications of the qualified
foreign distributees and the controlled
corporation described in paragraphs
(c)(3)(v)(A) and (B) of this section,
respectively, and to meet any other
reporting requirement in accordance
with paragraph (c)(3)(v) of this section.
(iv) Waiver of period of limitation.
The distributing corporation and the
controlled corporation must file, with
the gain recognition agreement described in paragraph (c)(3)(iii) of this
section, a waiver of the period of limitation on the assessment of tax upon the
gain realized on the distribution to the
qualified foreign distributee(s). The
waiver shall be executed on Form 8838,
substitute form, or such other form as
may be prescribed by the Commissioner
for this purpose and shall extend the
period for assessment of such tax to a
date not earlier than the close of the
thirteenth full year following the taxable
year that includes the distribution. A
properly executed Form 8838, substitute
form, or such other form authorized by
this paragraph (c)(3)(iv) shall be deemed
to be consented to and signed by a
Service Center Director or the Assistant
Commissioner (International) for purposes of § 301.6501(c)– 1(d) of this
chapter.
(v) Annual certifications and other
reporting requirements. For each of the
taxable years of the distributing corporation, beginning with the taxable year of
the distribution and ending with the
taxable year that includes the close of
the 120-month period following the end
of the taxable year of the distributing
corporation in which the distribution
was made, the distributing corporation
must file with its Federal income tax

return the annual certifications for that
year described in this paragraph
(c)(3)(v).
(A) Each current qualified foreign
distributee must provide to the distributing corporation an annual certification,
signed under penalties of perjury by an
authorized officer of the qualified foreign distributee that is a corporation or
by the qualified foreign distributee that
is an individual (as the case may be).
Each annual certification must identify
the distribution with respect to which it
is given by setting forth the date and a
summary description of the distribution.
In the annual certification, the qualified
foreign distributee must declare that—
(1) The qualified foreign distributee
continues
to
satisfy
paragraph
(c)(3)(i)(C) of this section; and
(2) The qualified foreign distributee
continues to own, directly or indirectly,
without interruption, the stock and securities of the distributing and controlled
corporations (except to the extent the
stock or securities have been disposed
of in a transfer described in paragraph
(c)(3)(vi) of this section).
(B) The controlled corporation must
provide a certification to the distributing
corporation, signed under penalties of
perjury by an authorized officer of the
corporation, that lists each current qualified foreign distributee holding (directly
or indirectly) stock of the controlled
corporation and its direct or indirect
ownership interest in the controlled corporation at both the first day and the
last day of the taxable year for which
the distributing corporation files its Federal income tax return, and certifies the
accuracy of that list.
(C) The distributing corporation must
attach to the annual certifications described in paragraphs (c)(3)(v)(A) and
(B) of this section, a statement signed
under penalties of perjury by an authorized officer of the corporation, in which
the corporation declares that, to the best
of its knowledge, the annual certifications are true.
(D) The distributing corporation must
also attach to the annual certifications a
separate statement indicating—
(1) The names and addresses of each
current and each former qualified foreign distributee;
(2) The percentage of direct or indirect ownership that the qualified foreign
distributees retain in the distributing
corporation at year-end; and
(3) A certification that the value of
the distributing corporation (or the adjusted basis of its assets), less all of the

liabilities of the distributing corporation
on all testing dates, exceeded the
amount of the gain deferred as of the
testing date.
(vi) Special rule for nonrecognition
transactions. (A) Gain shall not be recognized under paragraph (c)(3)(vii) of
this section if the distributing or controlled corporation is acquired by a
successor-in-interest (described in paragraph (c)(3)(vi)(B) of this section), or
upon a direct or indirect disposition by a
qualified foreign distributee of stock or
securities of a distributing or controlled
corporation (or a successor-in-interest)
that is subject to a gain recognition
agreement described in paragraph
(c)(3)(iii) of this section, if the requirements of this paragraph (c)(3)(vi) are
satisfied and the disposition consists of
a transfer described in section 332, 337,
351, 354, 355, 356, or 361 that does not
result in a substantial transformation (as
defined in paragraph (c)(3)(vii)(B) of
this section). For special rules regarding
transfers described in section 355, see
paragraph (c)(3)(vi)(G) of this section.
(B) For purposes of this section, the
term successor- in-interest refers to any
domestic corporation that acquires the
assets of the distributing or controlled
corporation in a transaction described in
section 381(a) to which this paragraph
(c)(3)(vi) applies.
(C) For purposes of this section, the
term transferee distributee refers to:
(1) Any corporation whose stock or
securities are exchanged for the stock or
securities of the distributing or controlled corporation (or a successor-ininterest), or of another transferee
distributee, in a transaction described in
section 351, 354, or sections 361 and
381(a)(2), to which this paragraph
(c)(3)(vi) applies.
(2) Any corporation that acquires the
assets of any qualified foreign
distributee, transferee distributee or substitute distributee in a transaction described in section 381(a).
(D) For purposes of this section, the
term substitute distributee refers to any
person that acquires the stock or securities of the distributing or controlled
corporation (or a successor-in-interest),
or of a qualified foreign distributee, in a
section 355 distribution.
(E) Gain shall not be recognized under paragraph (c)(3)(vii) of this section
in a transaction involving a transfer of
the assets of the distributing or controlled corporation to a successor-ininterest, only if the following information and agreements are included with

12

the first annual certification thereafter
filed under paragraph (c)(3)(v) of this
section:
(1) A description of the transaction
(including a statement of applicable Internal Revenue Code provisions, and a
description of stock or securities transferred, exchanged, or received in the
transaction).
(2) A description of the successor-ininterest (including the name, address,
taxpayer identification number, and
place of incorporation of the successor
in interest).
(3) An agreement of the successor-ininterest, signed under penalties of perjury by an authorized officer of the
successor-in-interest corporation, to succeed to all of the responsibilities and
duties of the distributing corporation or
the controlled corporation (as the case
may be) under this paragraph (c)(3) as if
the successor-in-interest were the distributing or controlled corporation.
(F) Gain shall not be recognized under paragraph (c)(3)(vii) of this section
in a transaction described in paragraph
(c)(3)(vi)(A) of this section in which a
qualified foreign distributee, directly or
indirectly, disposes of, and a transferee
distributee acquires, stock or securities
of the distributing or controlled corporation (or a successor-in-interest), or another transferee distributee, only if the
transferee distributee is either a qualified
U.S. person or qualifies as a qualified
foreign distributee under this paragraph
(c)(3) and the following information and
agreements are included with the first
annual certification thereafter filed under
paragraph (c)(3)(v) of this section:
(1) A description of the transaction
(including a statement of applicable Internal Revenue Code provisions, and a
description of the stock or securities of
the distributing or controlled corporation
(or a successor-in- interest) owned, directly or indirectly, by qualified foreign
distributees immediately after the transaction).
(2) An agreement of the distributing
corporation and the controlled corporation (amending the agreement described
in paragraph (c)(3)(iii) of this section),
signed under penalties of perjury by an
authorized officer of the corporation, to
recognize gain (in the case of the distributing corporation) and to be secondarily liable (in the case of the controlled
corporation) in accordance with the provisions of this paragraph (c)(3) upon the
occurrence of a disposition, directly or
indirectly, by the foreign transferee
distributee of any stock or securities of

the distributing or controlled corporation
(or a successor-in- interest) (other than a
disposition that itself satisfies the requirements of this paragraph (c)(3)(vi)).
(3) An agreement of each foreign
transferee distributee, signed under penalties of perjury by the individual or an
authorized officer of the corporation, to
comply with all of the responsibilities,
qualifications and duties of a qualified
foreign distributee under this paragraph
(c)(3), with respect to the stock or
securities of the distributing or controlled corporation (or a successor- ininterest) owned, directly or indirectly, by
the transferee distributee.
(G) Gain shall not be recognized under paragraph (c)(3)(vii) of this section
in the case of a section 355 distribution
by a qualified foreign distributee of
stock or securities of the distributing or
controlled corporation (or a successorin-interest), or of another qualified foreign distributee. The qualified foreign
distributee that distributed the stock or
securities is no longer required to comply with the rules of this section applicable to qualified foreign distributees,
provided such person no longer has any
interest, directly or indirectly, in the
distributing and controlled corporation.
Thus, for example, such person is not
counted as a qualified foreign distributee
for purposes of limiting gain recognition
to 10 or fewer foreign distributees. In
order for this provision to apply, the
substitute distributee must either be a
qualified U.S. person or satisfy the
requirements applicable to qualified foreign distributees contained in this paragraph (c)(3) and must include with the
first annual certification thereafter filed
under paragraph (c)(3)(v) of this section
the following information and agreements:
(1) A description of the transaction
(including a statement of applicable Internal Revenue Code sections, and a
description of the stock or securities
distributed in the transaction).
(2) An agreement of the distributing
corporation and the controlled corporation (amending the agreement described
in paragraph (c)(3)(iii) of this section),
signed under penalties of perjury by an
authorized officer of the corporation, to
recognize gain (in the case of the distributing corporation) and to be secondarily liable (in the case of the controlled
corporation) in accordance with the provisions of this paragraph (c)(3) upon the
occurrence of a disposition, directly or
indirectly, by a foreign substitute

distributee of any stock or securities
received by the substitute distributee in
the transaction.
(3) An agreement of each foreign
substitute distributee, signed under penalties of perjury by the individual or
authorized officer of the corporation, to
succeed to all of the responsibilities,
qualifications and duties of a qualified
foreign distributee under this paragraph
(c)(3), with respect to the stock or
securities of the distributing or controlled corporation (or a successor- ininterest) received by such substitute
distributee.
(vii) Recognition of gain. (A) (1) The
distributing corporation must file, within
90 days of a transaction described in
this paragraph (c)(3)(vii)(A), an
amended return for the year of the
distribution and recognize gain realized
but not recognized upon such distribution, if, prior to the close of the 120month period following the end of the
taxable year of the distributing corporation in which the distribution was made,
either—
(i) A qualified foreign distributee
sells (or otherwise disposes of) the stock
or securities of the distributing or controlled corporation that the qualified
foreign distributee owned (directly or
indirectly) (other than pursuant to a
transfer described in paragraph (c)(3)(vi)
of this section); or
(ii) Any other transaction (e.g., a
public offering or reorganization) results
in a substantial transformation (as defined in paragraph (c)(3)(vii)(B) of this
section) in either the distributing or
controlled corporation (or both).
(2) For purposes of this paragraph
(c)(3)(vii)(A), a disposition includes, but
is not limited to, any disposition treated
as a sale or exchange under this subtitle
(e.g., section 301(c)(3)(A), 302(a),
351(b) or 356(a)(1)). For the computation of gain in the case of a sale (or
similar disposition), see paragraph
(c)(3)(vii)(C) of this section. For the
computation of gain in the case of other
transactions,
see
paragraphs
(c)(3)(vii)(D) and (F) of this section. For
special rules regarding substitute
distributees, see paragraph (c)(3)(vii)(E)
of this section.
(B) A transaction is treated as a substantial transformation if, as a result of
such transaction, the qualified foreign
distributees, transferee distributees and
substitute distributees own, in the aggregate, less than 50 percent of either the
total voting power or the total value of
the stock of the distributing or the

13

controlled corporation, directly or indirectly, that the qualified foreign
distributees owned immediately after the
distribution.
(C) In the case of a sale (or similar
disposition), directly or indirectly, by a
qualified foreign distributee of the stock
or securities of the distributing or controlled corporation (or a successor-ininterest) that does not result in a substantial transformation, the distributing
corporation shall be required to recognize a proportionate amount of the gain
realized but not recognized under this
paragraph (c)(3), equal to the percentage
of stock of the distributing or controlled
corporation, as the case may be, sold (or
otherwise disposed of), directly or indirectly, by the qualified foreign
distributee. However, if the sale (or
other disposition) of stock or securities
by a qualified foreign distributee results
in a substantial transformation, the distributing corporation (or its successor-ininterest) must recognize the entire deferred gain that has not already been
recognized under paragraph (c)(3)(vii)
of this section.
(D) In the case of a nonrecognition
transaction that results in a substantial
transformation, the distributing corporation must recognize the entire deferred
gain that has not already been recognized under paragraph (c)(3)(vii) of this
section. If a nonrecognition transaction
does not result in a substantial transformation, the distributing corporation does
not recognize any gain provided that the
requirements of paragraph (c)(3)(vi) of
this section are satisfied.
(E) A sale (or other disposition), directly or indirectly, by a substitute
distributee, of all or a portion of the
stock or securities of the distributing or
controlled corporation (or a successorin-interest) that the substitute distributee
received in the section 355 distribution
shall be treated as a disposition of such
stock or securities by a qualified foreign
distributee (in accordance with paragraph (c)(3)(vii)(C) of this section) for
purposes of computing gain under this
paragraph (c)(3)(vii).
(F) Other transactions or events shall
trigger gain under this paragraph
(c)(3)(vii) as follows:
(1) If a qualified foreign distributee
ceases to satisfy the requirements for a
qualified foreign distributee contained in
paragraph (c)(3)(i)(C) of this section (or
any other specified requirements in
paragraph (c)(3) of this section), the
qualified foreign distributee shall be
treated as if it sold all of the stock and

securities that it owned, directly or indirectly, in the distributing and controlled
corporation (or a successor-in-interest),
on the date that such person ceased to
meet the requirements.
(2) If a substitute distributee ceases
to satisfy the requirements for a qualified foreign distributee contained in
paragraph (c)(3)(i)(C) of this section (or
any other specified requirements in
paragraph (c)(3) of this section), the
substitute distributee shall be treated as
if it sold all of the stock and securities
of the distributing or controlled corporation (or a successor-in-interest) that it
received in the distribution, on the date
that it ceased to meet the requirements.
(3) If the distributing corporation (or
a successor- in-interest) fails to satisfy
the requirement contained in paragraph
(c)(3)(ii)(B) of this section on any testing date during which the agreement to
recognize gain is in effect, such failure
will be treated as if a substantial transformation has occurred on such date.
(4) If either the distributing or controlled corporation (or a successor-ininterest) is acquired in a section 381(a)
exchange and the acquirer is not a
successor- in-interest that satisfies the
requirements of paragraph (c)(3)(vi)(E),
such acquisition will be treated as if a
substantial transformation has occurred
on the date of the acquisition.
(G) A qualified foreign distributee
that sells (or otherwise disposes of) all
of its interest, directly or indirectly, in
the distributing and controlled corporation ceases thereafter to be a qualified
foreign distributee. In addition, where
one qualified foreign distributee owns
all of the stock of another qualified
foreign distributee, and both persons
have identical direct or indirect interests
in the distributing or controlled corporation, the direct or indirect sale (or other
disposition) by one qualified foreign
distributee of all of its interest in the
distributing or controlled corporation
(under paragraph (c)(3)(vii) of this section) will terminate the qualified foreign
distributee status for the second qualified foreign distributee. The principles
of this paragraph (c)(3)(vii) shall generally be applied so that any gain relating
to the same stock of the distributing or
controlled corporation by more than one
person is not taxed more than once
under this paragraph (c)(3)(vii). In any
event, gain recognized pursuant to this
paragraph (c)(3)(vii), on a cumulative
basis, shall not exceed the amount of
gain that the distributing corporation
would have recognized under section

367(e)(1) if its initial distribution of the
stock or securities of the controlled
corporation was fully taxable under
paragraph (b) of this section.
(H) If additional tax is required to be
paid by the distributing corporation (or a
successor-in-interest) for the year of the
distribution, interest must be paid by the
distributing corporation (or the controlled corporation if the distributing
corporation fails to pay the tax due) on
that amount at the rates determined
under section 6621(a)(2) with respect to
the period between the date that was
prescribed for filing the distributing corporation’s original income tax return for
the year of the distribution and the date
on which the additional tax for that year
is paid.
(I) Net operating losses, capital
losses, or credits against tax that were
available in the year of the distribution
and that are unused (whether or not they
have expired since the distribution) at
the time of gain recognition described in
this paragraph (c)(3)(vii) may be applied
(respectively) by the distributing corporation against any gain recognized or tax
owed by reason of this provision, but no
other adjustments shall be made with
respect to any other items of income or
deduction in the year of distribution or
other years.
(viii) Failure to comply. (A) Except
as otherwise provided in paragraph
(c)(3)(viii)(B) of this section, if the
distributing corporation or the controlled
corporation fails to comply in any material respect with the requirements of this
paragraph (c)(3) or with the terms of an
agreement submitted pursuant hereto, or
if the distributing corporation knows or
has reason to know of any failure of
another person to so comply, the distributing corporation shall treat the initial
distribution of the stock or securities of
the controlled corporation as a taxable
exchange in the year of the distribution.
In such event, the period for assessment
of tax shall be extended until three years
after the date on which the Internal
Revenue Service receives actual notice
of such failure to comply.
(B) If a person fails to comply in any
material respect with the requirements
of this paragraph or with the terms of an
agreement submitted pursuant thereto,
the provisions of paragraph (c)(3)(viii)(A) of this section shall not apply if the
person is able to show that such failure
was due to reasonable cause and not
willful neglect, provided that the person
achieves compliance as soon as the
person becomes aware of the failure.

14

Whether a failure to materially comply
was due to reasonable cause shall be
determined by the district director under
all the facts and circumstances.
(d) Other consequences—(1) Exchange under section 897(e)(1). With
respect to the treatment under section
897(e)(1) of a foreign distributee on the
receipt of stock or securities of a domestic or foreign corporation where the
foreign distributee’s interest in the distributing domestic corporation is a
United States real property interest, see
section 897(e)(1) and the regulations
thereunder.
(2) Dividend treatment under section
1248. With respect to the treatment as a
dividend of a portion of the gain recognized by the domestic corporation on
the distribution of the stock of certain
foreign corporations, see sections
1248(a) and (f) and the regulations
thereunder.
(3) Distribution of stock of a passive
foreign investment company. [Reserved]
(4) Reporting under section 6038B.
Notice shall be required under section
6038B with respect to a distribution
described in this section. See
§ 1.6038B–1T(e).
(e) Examples. The rules of paragraphs
(b), (c), and (d) of this section are
illustrated by the examples below. In all
examples, assume that all foreign companies are treated as corporations for
Federal income tax purposes and are not
treated as fiscally transparent under the
taxation laws of the relevant foreign
country.
Example 1. (i) FC, a Country Z company, owns
all of the outstanding stock of DC1, a domestic
corporation. DC1 owns all of the outstanding
stock of DC2, another domestic corporation. The
fair market value of the DC1 stock is 300x, and
FC has a 100x basis in the DC1 stock. The fair
market value of the DC2 stock is 180x, and DC1
has a 80x basis in the DC2 stock. Neither DC1
nor DC2 is a U.S. real property holding corporation. Country Z does not maintain an income tax
treaty with the United States.
(ii) In a transaction qualifying for nonrecognition under section 355, DC1 distributes all of the
stock of DC2 to FC. After the distribution, the
DC1 stock has a fair market value of 120x.
(iii) Under paragraphs (b)(1) and (2) of this
section, DC1 recognizes gain of 100x, which is
the difference between the fair market value
(180x) and the adjusted basis (80x) of the stock
distributed. Under paragraph (d)(1) of this section
and section 358, FC takes a basis of 40x in the
DC1 stock, and a basis of 60x in the DC2 stock.
Example 2. (i) C, a citizen and resident of
Country F, owns all of the stock of DC1, a
domestic corporation. DC1, in turn, owns all of
the stock of DC2, also a domestic corporation.
The fair market value of the DC1 stock is 500x,
and C has a 100x basis in the DC1 stock. The
DC2 stock has a fair market value of 200x, and
DC1 has a 180x basis in the DC2 stock.

(ii) In a transaction qualifying for nonrecognition under section 355, DC1 distributes to C all of
the stock of DC2. DC1 and DC2 are U.S. real
property holding corporations immediately after
the distribution. After the distribution, the DC1
stock has a fair market value of 300x.
(iii) Under paragraph (c)(1) of this section,
provided that DC1 complies with the reporting
requirements contained in paragraph (c)(1)(ii) of
this section, DC1 does not recognize gain on the
distribution of the DC2 stock because DC1 and
DC2 are U.S. real property holding corporations
immediately after the distribution.
(iv) Under section 897(e) and the regulations
thereunder, C is considered to have exchanged
DC1 stock with a fair market value of 200x and
an adjusted basis of 40x for DC2 stock with a fair
market value of 200x. Because DC2 is a U.S. real
property holding corporation, and its stock is a
U.S. real property interest, C does not recognize
any gain under section 897(e) on the distribution.
C takes a basis of 40x in the DC2 stock, and its
basis in the DC1 stock is reduced to 60x pursuant
to section 358.
Example 3. (i) All of the outstanding common
stock of DC, a domestic corporation that is not a
U.S. real property holding corporation, is regularly
traded on an established securities market located
in the United States. None of the foreign shareholders of DC (directly, indirectly, or constructively) owns more than five percent of the common stock of DC. DC owns all of the stock of
DS, a domestic corporation. The stock of DS has
appreciated in the hands of DC.
(ii) In a transaction qualifying for nonrecognition under section 355, DC distributes all of the
stock of DS to the common shareholders of DC.
(iii) Under paragraph (c)(2) of this section, DC
does not recognize gain on the distribution of the
DS stock to any foreign distributee, provided that
DC complies with the reporting requirements
contained in paragraph (c)(2)(iii) of this section.
Each shareholder’s basis in the DC and DS stock
is determined pursuant to section 358.
Example 4. (i) FC, a company resident in
Country X, owns all of the stock of DC1, a
domestic corporation. DC1, in turn, owns all of
the stock of DC2, a domestic corporation. The fair
market value of the DC1 stock is 1,000x, and FC
has a basis in the DC1 stock of 800x. The DC2
stock has a fair market value of 500x at the time
of the distribution, and DC1 has a 100x basis in
the DC2 stock. Neither DC1 nor DC2 is a U.S.
real property holding corporation. Country X
maintains an income tax treaty with the United
States that includes an information exchange provision.
(ii) In a transaction qualifying for nonrecognition under section 355, DC1 distributes to FC all
of the stock of DC2. Immediately after the
distribution, the DC1 stock has a fair market value
of 500x. Thus, the value of DC1 exceeds 400x,
the amount of the deferred gain on the distribution.
(iii) Under paragraph (c)(3) of this section,
DC1 will not recognize gain on the distribution of
the DC2 stock to (foreign distributee) FC if FC is
a qualified foreign distributee (as described in
paragraph (c)(3)(i)(C) of this section) and DC1
enters into a gain recognition agreement (in which
DC2 agrees to be secondarily liable), as described
in paragraph (c)(3)(iii) of this section, and DC1,
DC2 and FC otherwise comply with all of the
provisions of paragraph (c)(3) of this section.
Pursuant to section 358, FC will take a 400x basis
in the DC2 stock and FC’s basis in the DC1 stock
will be reduced to 400x.

Example 5. (i) Assume the same facts as in
Example 4. In addition, two years after DC1’s
distribution of DC2 stock to FC, FC sells 25
percent of the DC2 stock to Y, an unrelated
corporation. One year later, FC sells an additional
30 percent of its DC2 stock to Z, another
unrelated corporation.
(ii) Under paragraph (c)(3)(vii) of this section,
upon FC’s sale of 25 percent of its DC2 stock,
DC1 is required to file an amended return for the
year in which the DC2 stock was distributed to
FC, and recognize 100x of gain, which represents
25 percent of the gain realized but not recognized
on the distribution.
(iii) Upon FC’s second sale of 30 percent of its
DC1 stock, DC1 is required to file another
amended return for the year of the distribution and
recognize the balance of the deferred gain, or
300x, because such sale results in a substantial
transformation (within the meaning of paragraph
(c)(3)(vii)(B) of this section).
Example 6. (i) Assume the same facts as in
Example 5, except that FC did not sell an
additional 30 percent of its DC2 stock. Instead,
DC2 issued additional stock in a public offering
that reduced FC’s interest in DC2 to less than 50
percent.
(ii) The public offering caused a substantial
transformation because, as a result of the public
offering, the interest of FC in DC2 was reduced to
less than 50 percent of the amount of stock that
FC owned in DC2 immediately after the distribution. Thus, the result is the same as in Example 5.
Example 7. (i) Assume the same facts as in
Example 4 In addition, one year after DC1’s
distribution of DC2 stock to FC, FC transfers all
of the DC2 stock to FS, a company resident in
Country X, in exchange for all of the FS stock, in
a transaction described in section 351.
(ii) FS is described as a transferee distributee
under paragraph (c)(3)(vi)(C) of this section. The
transfer by FC of DC2 stock to FS is a nonrecognition transaction under paragraph (c)(3)(vi) of this
section provided all of the requirements in paragraph (c)(3)(vi)(F) of this section are satisfied. (FS
is counted, together with FC, for purposes of
limiting nonrecognition treatment to up to ten
qualified foreign distributees during the time that
the gain recognition agreement is in effect.) DC1
will not recognize gain under the gain recognition
agreement upon FC’s transfer of the stock of DC2
to FS if DC1 enters into a new agreement,
agreeing to recognize gain if FS sells DC2 stock,
and the provisions of paragraph (c)(3)(vi) of this
section are satisfied. A sale by FC of FS stock
would be treated as a recognition event under
paragraph (c)(3)(vii) because such sale would
constitute an indirect disposition by FC of the
DC2 stock.
Example 8. (i) Pl, an entity treated as a
partnership for Federal income tax purposes, owns
all of the outstanding stock of DC1, a domestic
corporation. DC1 owns all of the outstanding
stock of DC2, another domestic corporation. The
fair market value of the DC1 stock is 900x and Pl
has an 900x basis in the DC1 stock. The fair
market value of the DC2 stock is 600x and DC1
has a 400x basis in the DC2 stock. Neither DC1
nor DC2 is a U.S. real property holding corporation.
(ii) FC, a company resident in country X, and
USP, a U.S. corporation, are the sole partners of
Pl. Under the rules and principles of sections 701
through 761, FC is entitled to a 60 percent, and
USP is entitled to a 40 percent, distributive share
of each item of Pl income and loss. Country X

15

maintains an income tax treaty with the United
States that includes an information exchange provision.
(iii) In a distribution qualifying for nonrecognition under section 355, DC1 distributes all of the
stock of DC2 to P1. Paragraph (b)(5)(i) of this
section provides that stock owned by a partnership
is considered to be owned proportionately by its
partners. Under paragraph (b)(5)(ii) of this section,
if USP certifies to DC1 that it is a qualified U.S.
person (and DC1 does not know or have reason to
know that the certification is false), no Federal
income tax shall be imposed with respect to the
distribution by DC1 of DC2 to P1, to the extent of
USP’s 40 percent interest in P1.
(iv) Paragraph (c)(3)(i)(D) of this section provides that no foreign distributee may be treated as
a qualified foreign distributee with respect to stock
of the distributing corporation owned through a
partnership, unless the distributing corporation
receives a ruling from the Internal Revenue Service to the contrary. Thus, DC1 may not avoid
recognition of the remaining 60 percent of the
realized gain (relating to the interest of P1 owned
by FC) by entering into a gain recognition agreement pursuant to paragraph (c)(3) of this section,
unless DC1 obtains a ruling to the contrary.
Example 9. (i) DC1, a domestic corporation,
owns all of the stock of DC2, also a domestic
corporation. The stock of DC1 is owned equally
by three shareholders: A, a domestic corporation,
B, a U.S. citizen, and FB, a Country Y company.
(ii) A short time before DC1 adopted a plan to
distribute the stock of DC2 to its shareholders, but
after the board of directors of DC1 began contemplating the distribution, FB formed Newco, a
domestic corporation, and contributed its DC1
stock to Newco in a transaction qualifying for
nonrecognition under section 351. A valid business
purpose existed for FB’s transfer of the DC1 stock
to Newco, but this purpose would have been
fulfilled irrespective of whether FB transferred the
DC1 stock to Newco before the distribution of
DC2, or after the distribution of DC2 (in which
case FB would have transferred the stock of DC1
and DC2 to Newco).
(iii) Pursuant to paragraph (b)(6) of this section,
the District Director may determine that FB
formed Newco for a principal purpose of avoiding
section 367(e)(1). In such case, for Federal income
tax purposes, FB will be treated as having received the stock of DC2 in a section 355 distribution, and then as having transferred the stock to
Newco in a section 351 transaction.
(iv) If B was not a shareholder of DC1 so that
A and FB were equal (50 percent) shareholders,
FB would be treated as a foreign distributee within
the meaning of paragraph (c)(3)(i)(B) of this
section without the application of paragraph (b)(6)
of this section. In such case, DC1 would recognize
50 percent of the gain realized on the distribution
of the DC2 stock, unless FB was a qualified
foreign distributee within the meaning of paragraph (c)(3)(i) of this section and the conditions
under paragraph (c)(3)(ii) of this section were
satisfied.
Example 10. (i) DC1, a domestic corporation,
owns all of the stock of DC2, also a domestic
corporation. The stock of DC1 is owned by FP, a
company resident in Country X. Country X maintains in income tax treaty with the United States
that includes an information exchange provision.
The DC2 stock has a fair market value of 500x at
the time of the distribution, and DC1 has a basis
of 100x in the DC2 stock. The stock of DC1 has a
value of 500x (excluding DC1’s investment in
DC2). Neither DC1 nor DC2 is a U.S. real
property holding corporation.

(ii) FP forms a holding company resident in
Country X, Newco, and transfers 50 percent of its
DC1 stock to Newco in an exchange described in
section 351. Immediately after those transactions,
DC1 distributes all of its DC2 stock to FP in
exchange for FP’s stock of DC1 in a transaction
described in section 355. Thus, after the non pro
rata distribution, FP owns all of the stock of DC2,
and FP also owns all of the stock of Newco,
which, in turn, owns all of the stock of DC1.
(iii) Newco and FP are foreign distributees
(under paragraph (c)(3)(i)(B)(1) of this section)
because they owned stock of DC1 immediately
prior to the distribution. Assuming that all of the
requirements of the gain recognition agreement
exception under paragraph (c)(3) of this section
are satisfied (so that both FP and Newco are
qualified foreign distributees under paragraph
(c)(3)(i)(C) of this section), DC1 will not be
immediately taxable on the 400x gain realized on
the distribution of the stock of DC2. Gain will be
triggered under the gain recognition agreement
under paragraph (c)(3)(vii) of this section if FP
sells stock of Newco (because such sale would be
an indirect disposition by FP of the stock of DC1),
if Newco sells stock of DC1, or if FP sells stock
of DC2.
Example 11. (i) Assume the same facts as in
Example 10, except that Newco is a company
resident of Country Z, and Country Z does not
maintain an income tax treaty with the United
States that includes an information exchange provision.
(ii) DC1 may still enter into a gain recognition
agreement under paragraph (c)(3) of this section.
Both FP and Newco are foreign distributees, but
Newco is not a qualified foreign distributee. Thus,
DC1 must recognize 50 percent, or 200x, of the
400x deferred gain on the distribution of DC2
stock. Such (50 percent) portion equals the percentage of the DC1 stock owned by foreign
distributees that are not qualified foreign
distributees (the 50 percent of the stock owned by
Newco). DC1 may defer 50 percent of the gain,
with respect to the portion of its stock owned by
FP, a qualified foreign distributee, provided that it
meets the requirements of paragraph (c)(3) of this
section.
Example 12. (i) FC, a company resident in
Country X, owns all of the stock of DC1, a
domestic corporation (and has owned DC1 for
many years). Country X maintains an income tax
treaty with the United States that includes an
information exchange provision. DC1, in turn,
owns all of the stock of DC2, a domestic corporation. DC1 has a basis of 200x in the DC2 stock,
and the DC2 stock has a value of 500x. Immediately after the distribution of DC2 described
below, DC1 has a value of more than 300x.
(ii) DC1 distributes all of the stock of DC2 to
FC (a qualified foreign distributee) in a transaction
described under section 355, and satisfies all of
the requirements of paragraph (c)(3) of this section
to qualify for an exception to the general rule of
taxation under section 367(e)(1). Two years after
the initial distribution, FC distributes all of the
stock of DC2 to its sole shareholder, FP, a resident
of Country X, in a transaction described under
section 355.
(iii) Under paragraph (c)(3)(vi)(D) of this section, FP is a substitute distributee with respect to
the DC2 stock. Provided that the requirements of
paragraph (c)(3)(vi)(G) of this section are satisfied, FP replaces FC as a qualified foreign
distributee with respect to the DC2 stock (although
FC is still a qualified foreign distributee with
respect to the DC1 stock). FC is no longer
required to maintain an interest in DC2 for

purposes of determining whether a substantial
transformation occurs. Thus, a sale by FP of the
stock of FC would not trigger gain under paragraph (c)(3)(vii) of this section.
Example 13. (i) DC1, a domestic corporation,
owns all of the stock of DC2, also a domestic
corporation. The stock of DC1 is owned by two
shareholders: FP and FX. FP, a company resident
in Country Z, owns 25 percent of the stock of
DC1. FX, a company resident in Country X, owns
75 percent of the stock of DC1. Country X
maintains an income tax treaty with the United
States that includes an information exchange provision; Country Z does not. The fair market value
of DC2 is 500x and DC1 has a basis of 100x in
the DC2 stock. Immediately after the distribution
described below, DC1 has a value in excess of
400x.
(ii) FP formed FS, a company resident in
Country X, and transferred its 25 percent interest
in DC1 to FS in exchange for all of the stock of
FS in an exchange described in section 351.
Within two years of the exchange, DC1 distributed
all of the stock of DC2 to its shareholders.
(iii) Under paragraph (c)(3) of this section,
DC1 may defer a portion of its gain realized on
the distribution of DC2. DC1 must immediately
recognize 25 percent of the realized gain, or 100x,
because FP, a 25 percent (indirect) shareholder is a
foreign distributee (within the meaning of paragraph (c)(3)(i)(B) of this section), but may not be
treated as a qualified foreign distributee (within
the meaning of paragraph (c)(3)(i)(C) of this
section). DC1 may defer 75 percent of its realized
gain if FX is a qualified foreign distributee and
DC1 enters into a gain recognition agreement (in
which DC2 agrees to be secondarily liable), and
the provisions of paragraph (c)(3) of this section
are otherwise met. DC1 need not include FS as a
qualified foreign distributee because FP and FS
had identical 25 percent ownership interests in
DC1, and DC1 is taxable with respect to such 25
percent interest. Thus, under paragraph
(c)(3)(vii)(G) of this section, a sale by FS of its
DC1 or DC2 stock will not result in an additional
trigger of the gain recognition agreement under
paragraph (c)(3)(vii) of this section.
(iv) If FP was instead a resident of Country X,
DC1 could defer its entire realized gain if both FP
and FS were qualified foreign distributees. In such
case, DC1 would have three qualified foreign
distributees. (DC1 is limited to ten qualified
foreign distributees, including transferee and substitute distributees during the term of the gain
recognition agreement.) If FS sold its entire interest in either DC1 or DC2, DC1 would be required
to amend its Federal income tax return for the
year of the transfer and include 100x in income.
In such case, neither FP nor FS would be
considered a qualified foreign distributee immediately after the sale (and, as a result, FP’s sale of
its FS stock would not trigger additional gain
under paragraph (c)(3)(vii)(G) of this section). The
result would be the same if FP sold all of the
stock of FS (as such sale is an indirect disposition
by FP of all its stock of DC1 and DC2). (In such
case, the sale by FS of its stock of DC1 or DC2
would not trigger additional gain under paragraph
(c)(3)(vii)(G) of this section.)

(f) Effective date. This section shall
be effective with respect to distributions
occurring on or after September 13,
1996. However, taxpayers may elect to
apply the rules of this section with
respect to distributions occurring on or
after December 31, 1995.

16

Par. 4. Section 1.6038B–1T is
amended by revising the second sentence of paragraph (b)(2)(i) and adding
the text of paragraph (e) to read as
follows:
§ 1.6038B–1T Reporting of transfers
described in section 367 (temporary).
*

*

*

*

*

(b) * * *
(2) * * * (i) * * * For special reporting rules applicable to transfers described under section 367(e)(1), see
paragraph (e) of this section; no reporting is required for transfers described in
section 367(e)(2). * * *
*

*

*

*

*

(e) * * * (1) In general. If a domestic
corporation (distributing corporation)
makes a distribution described in section
367(e)(1), the distributing corporation
must comply with the reporting requirements under this paragraph (e)(1). Form
926 and other requirements described in
this section need not be met by the
distributing corporation in the case of a
distribution described in section
367(e)(1).
(2) Reporting requirements if transaction is taxable under section 367(e)(1).
If the distribution is taxable to the
distributing corporation under section
367(e)(1) and the regulations thereunder,
the distributing corporation must attach
to its Federal income tax return for the
taxable year that includes the date of the
transfer a statement titled ‘‘Section
367(e)(1) Reporting—Compliance With
Section 6038B’’, signed under penalties
of perjury by an officer of the corporation, disclosing the following information:
(i) A description of the transaction in
which the U.S. distributing corporation
distributed stock or securities of a controlled corporation (whether domestic or
foreign) to one or more foreign
distributees.
(ii) The basis and fair market value
of the stock and securities that were
distributed by the distributing corporation in the transaction.
(3) Reporting requirements if transaction qualifies for an exception to section
367(e)(1). If the distributing corporation
qualifies for an exception under
§ 1.367(e)– 1T(c)(1), the requirements
of section 6038B are satisfied if the
distributing corporation complies with
the reporting requirements contained in
§ 1.367(e)–1T(c)(1)(ii). If the distributing corporation qualifies for an exception under § 1.367(e)–1T(c)(2), the requirements of section 6038B are

satisfied if the distributing corporation
complies with the reporting requirements contained in § 1.367(e)–
1T(c)(2)(iii). If the distributing corporation qualifies for an exception under
§ 1.367(e)–1T(c)(3), the requirements of
section 6038B are satisfied if the distributing corporation complies with the reporting requirements contained in
§ 1.367(e)–1T(c)(3).
*

*

*

*

*

PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK
REDUCTION ACT
Par. 5. The authority for citation for
part 602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 6. In § 602.101, paragraph (c) is
amended by removing the entry for
‘‘1.367(e)–1’’ and adding an entry in
numerical order to read as follows:
§ 602.101 OMB Control numbers.
*

*

*

*

*

(c) * * *
CFR part or section
where identified and
described

Current OMB
control No.

*
*
1.367(e)–1T
*
*

*
*
1545–1487
*
*

*
*

Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved August 7, 1996.
Donald C. Lubick,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on
August 9, 1996, 12:19 p.m., and published in the
issue of the Federal Register for August 14, 1996,
61 F.R. 42165).

Section 7503.—Time for
Performance of Acts Where Last
Day Falls on Saturday, Sunday, or
Legal Holiday
26 CFR 301.7503–1: Time for performance of acts
whee last day falls on Satufday, Sunday, or legal
holiday.

T.D. 8681
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
Time for Performance of Acts
Where Last Day Falls on Saturday,
Sunday, or Legal Holiday
AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Final regulations.
SUMMARY: This document contains
final regulations relating to the time for
performance of acts by taxpayers and by
the Commissioner, a district director, or
the director of a regional service center,
when the last day for performance falls
on a Saturday, Sunday, or legal holiday.
In particular, these regulations replace
the list of legal holidays with a citation
to the District of Columbia law that is
the source of the list.
EFFECTIVE DATE: These regulations
are effective Wednesday, August 14,
1996.
FOR FURTHER INFORMATION CONTACT: Judith A. Lintz (202) 622–6232
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On September 25, 1995, the IRS
published in the Federal Register (60
FR 49356) a notice of proposed
rulemaking (IA–36–91 [1995–2 C.B.
470]) relating to the time for performance of acts when the last day for
performance falls on a Saturday, Sunday, or legal holiday. When the last day
for performance of an act by a taxpayer
or an employee or administrator of the
IRS falls on a Saturday, Sunday, or legal
holiday, section 7503 of the Internal
Revenue Code (Code) extends the time
for performing the act. Under the extension, the act must be performed by the
next day that is not a Saturday, Sunday,
or legal holiday. The current regulations
explain and supplement section 7503.
This document contains final regulations
that simplify and update the current
regulations. In particular, the final regulations replace the list of holidays,
which are determined by reference to
the law in the District of Columbia, with
a citation to that law.
The IRS received oral and written
comments on the notice of proposed
rulemaking. No public hearing was held
or requested. After consideration of the
comments, which are addressed below,
the proposed regulations under section
7503 are adopted as published in the
notice.
Explanation of Provisions and Summary
of Comments
In response to the notice of proposed
rulemaking for the regulations under
section 7503, three categories of com-

17

ments were received. First, there was
some concern that replacing the list of
legal holidays with a citation to the law
in the District of Columbia would mean
the list of holidays would no longer be
accessible. It was suggested that the IRS
annually publish the holidays by announcement or some other method. The
final regulations do not retain the list of
holidays because such a list requires
regulatory revision whenever a change
in the law occurs with respect to the
holidays. However, a tax calendar that
lists the legal holidays is annually made
available through IRS Publication 509.
This free publication can be obtained by
calling the toll free telephone number
1–800–TAX–FORM
(1–800–829–
3676), or by contacting an IRS Forms
Distribution Center.
Second, it was requested that the IRS
address the impact of a federal government shutdown on the time for performance of acts when the last day for
performance is a day when the government is closed. Section 7503 of the
Code is limited to extending the time
for performance of acts when the last
day for performance falls on a Saturday,
Sunday, or legal holiday. Therefore, the
regulations for section 7503 are not
appropriate for clarifying the effect of a
federal government shutdown on the
time allowed for performance of an act.
Third and last, it was requested that
the regulations outline the kinds of acts
to which the extension of time provided
under section 7503 applies. The final
regulations do not include this information. The purpose of the current regulatory project is to replace the list of
holidays and revise other outdated material in the regulations. Outlining the
kinds of acts to which section 7503
applies is not within the scope of the
current project.
Special Analyses
It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not
required. It also has been determined
that section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) and
the Regulatory Flexibility Act (5 U.S.C.
chapter 6) do not apply to these regulations, and, therefore, a Regulatory Flexibility Analysis is not required. Pursuant
to section 7805(f) of the Internal Revenue Code, the notice of proposed
rulemaking preceding these regulations
was submitted to the Chief Counsel for

Advocacy of the Small Business Administration for comment on its impact on
small business.
Drafting Information
The principal author of these regulations is Judith A. Lintz, Office of Assistant Chief Counsel (Income Tax & Accounting), Internal Revenue Service.
However, other personnel from the IRS
and Treasury Department participated in
their development.
*

*

*

*

*

Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 301 is
amended as follows:
PART 301—PROCEDURE AND ADMINISTRATION
Paragraph 1. The authority citation for
part 301 continues to read in part as
follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 301.7503–1 is
amended as follows:
1. In the fourth sentence of paragraph
(a), the language ‘‘Thursday, November

22, 1956 (Thanksgiving Day), the suit
will be timely if filed on Friday, November 23, 1956, in the Court of
Claims’’ is removed and the language
‘‘Thursday, November 23, 1995
(Thanksgiving Day), the suit will be
timely if filed on Friday, November 24,
1995, in the Court of Federal Claims’’ is
added in its place.
2. Paragraph (b) is revised as set
forth below.
3. Paragraph (c) is removed.
The revision reads as follows:
§ 301.7503–1 Time for performance of
acts where last day falls on Saturday,
Sunday, or legal holiday.
*

*

*

*

*

(b) Legal holidays. For the purpose of
section 7503, the term legal holiday
includes the legal holidays in the District of Columbia as found in D.C. Code
Ann. 28–2701. In the case of any return,
statement, or other document required to
be filed, or any other act required under
the authority of the internal revenue
laws to be performed, at an office of the
Internal Revenue Service, or any other
office or agency of the United States,
located outside the District of Columbia

18

but within an internal revenue district,
the term legal holiday includes, in addition to the legal holidays in the District
of Columbia, any statewide legal holiday of the state where the act is required to be performed. If the act is
performed in accordance with law at an
office of the Internal Revenue Service
or any other office or agency of the
United States located in a territory or
possession of the United States, the term
legal holiday includes, in addition to the
legal holidays in the District of Columbia, any legal holiday that is recognized
throughout the territory or possession in
which the office is located.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved June 20, 1996.
Donald C. Lubick,
Acting Assistant Secretary
of the Treasury.
(Filed by the Office of the Federal Register on
August 13, 1996, 8:45 a.m., and published in the
issue of the Federal Register for August 14, 1996,
61 F.R. 42178)

Part IV. Items of General Interest
Notice of Proposed Rulemaking
and Notice of Public Hearing

SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act

Treatment of Section 355
Distributions by U.S. Corporations
to Foreign Persons
REG–209827–96
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Notice of proposed rulemaking by cross-reference to temporary
regulations and notice of public hearing.
SUMMARY: In * * * TD 8682, page 4,
this Bulletin, the IRS is issuing temporary regulations revising the final regulations under section 367(e)(1) with respect to section 355 distributions of
stock or securities by domestic corporations to foreign persons. The IRS is also
modifying the temporary regulations under section 6038B to provide that distributions described under section
367(e)(1) are subject to rules under
section 6038B. The text of those temporary regulations also serves as the text
of these proposed regulations. This
document also provides notice of a
public hearing on these proposed regulations.
DATES: Written comments must be received by November 7, 1996. Outlines
of topics to be discussed at the public
hearing scheduled for November 20,
1996, at 10 a.m. must be received by
October 31, 1996.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (INTL 0020–96),
room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station, Washington, DC 20044. In the alternative,
submissions may be hand delivered between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (INTL–0020–96),
Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave. NW., Washington, DC. The public hearing will be
held in the IRS Auditorium, Internal
Revenue Building, 1111 Constitution
Avenue NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations,
Philip L. Tretiak at (202) 622–3860;
concerning submissions and the hearing,
Evangelista Lee at (202) 622–7180 (not
toll-free numbers).

The collection of information contained in this notice of proposed
rulemaking has been submitted to the
Office of Management and Budget for
review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3507).
Comments on the collection of information should be sent to the Office of
Management and Budget, Attn: Desk
Officer for the Department of Treasury,
Office of Information and Regulatory
Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service,
Attn: IRS Reports Clearance Officer,
T:FP, Washington, DC 20224. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting the ‘‘Tax Regs’’ option on the IRS
Home Page, or by submitting comments
directly to the IRS Internet site at
http://www.irs.ustreas.gov/prod/tax regs/
comments.html. Comments on the collection of information should be received by October 15, 1996.
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid control number.
The collection of information under
section 367(e)(1) is in § 1.367(e)–
1T(c)(1)(ii), (2)(i)(C) and (3). The temporary regulations provide that in order
for taxpayers to qualify for either the
‘‘U.S. real property holding corporation
exception’’ or the ‘‘publicly traded corporation’’ exception, taxpayers must
comply with the reporting requirements
contained in § 1.367(e)–1T(c)(1)(ii) and
§ 1.367(e)–1T(c)(2)(i)(C), respectively.
The temporary regulations also modify
the reporting requirements under the
‘‘gain recognition agreement’’ exception
(§ 1.367(e)–1T(c)(3)). Under the temporary regulations, the controlled corporation, in addition to the distributing corporation, must sign the gain recognition
agreement (§ 1.367(e)–1T(c)(3)(ii)(F)
and (iii)), extend the statute of limitations accordingly (§ 1.367(e)–1T(c)(3)(ii)(F) and (iv)), and annually report its
distributees to the distributing corporation but not the Service (§ 1.367(e)–
1T(c)(3)(v)(B)). This information is required by the IRS as a condition for a
taxpayer to qualify for an exception to
the general rule of taxation under sec-

19

tion 367(e)(1), and to avoid the penalties
contained under section 6038B. This
information will be used to determine
whether a taxpayer properly qualifies for
a claimed exception. The respondents
generally will be U.S. corporations,
probably subsidiaries of foreign multinationals, that are either distributing another corporation or being distributed
under section 355, pursuant to a corporate restructuring.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by 26 U.S.C. 6103.
Estimated total annual reporting burden: 2,124 hours. (This equals the sum
of (i) the prior burden of 1,604 hours,
and (ii) the additional burden of 520
hours contained in the new regulations.)
The estimated annual burden per respondent varies from 1 hour to 8 hours,
depending on individual circumstances,
with an estimated average of 2 hours.
Estimated number of respondents:
462.
Estimated annual frequency of responses: Once (in the case of taxpayers
that qualify for the U.S. real property
holding company exception and the publicly traded company exception). Annually (in the case of taxpayers that
qualify for the gain recognition agreement exception).
Background
The *** T.D. 8682, page 4 in this
Bulletin, amends the Income Tax Regulations (26 CFR part 1) under section
367(e)(1). The temporary regulations under section 367(e)(1) contain rules relating to the distribution of stock or securities under section 355 by a domestic
corporation to a person that is not a
U.S. person.
The text of T.D. 8682 also serves as
the text of these proposed regulations.
The preamble to T.D. 8682 explains the
reasons for the modifications to the final
regulations contained in the temporary
regulations.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a significant regulatory action as defined in EO

1996–37

I.R.B.

12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations do not have a
significant impact on a substantial number of small entities. This certification is
based on the fact that these regulations
will primarily affect large multinational
corporations with foreign shareholders.
The regulations do not significa

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3Ae11b347951ac84b7. Public record. Not legal advice.