Information Returns Required of United States Persons With Respect To Certain Foreign Corporations

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8573]

RIN 1545-AQ06

Information Returns Required of United States Persons With

Respect To Certain Foreign Corporations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final Income Tax Regulations relating

to information returns required of United States persons with respect

to annual accounting periods of certain foreign corporations. These

regulations clarify certain requirements of the Income Tax Regulations

relating to Form 5471 and affect controlled foreign corporations and

their United States shareholders.

EFFECTIVE DATE: January 13, 1995.

FOR FURTHER INFORMATION CONTACT: Carl Cooper, 202-622-3840, not a toll

free number.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations

has been reviewed and approved by the Office of Management and Budget

in accordance with the Paperwork Reduction Act (44 U.S.C. 3504(h))

under control number 1545-1317. Estimates of the reporting burden in

these final regulations will be reflected in the burden of Form 5471.

Comments concerning the accuracy of this burden estimate and

suggestions for reducing this burden should be sent to the Internal

Revenue Service, Attn: IRS Reports Clearance Officer, PC:FP,

Washington, DC 20224, and to the Office of Management and Budget,

Attention: Desk Officer for the Department of the Treasury, Office of

Information and Regulatory Affairs, Washington, DC 20503.

Background

On July 7, 1992, the IRS published a notice of proposed rulemaking

in the Federal Register (57 FR 29851) proposing amendments to the

Income Tax Regulations (26 CFR part 1) under sections 6035, 6038, and

6046 of the Internal Revenue Code of 1986 (Code). These amendments were

proposed to clarify the requirements of Secs. 1.6035-1, 1.6038-2, and

1.6046-1 of the Income Tax Regulations relating to Form 5471. Written

comments responding to the notice were received. No public hearing was

requested and, therefore, no public hearing was held. Some commentators

suggested that the amendment to Sec. 1.6038-2(h) would impose a greater

burden with respect to ongoing compliance and conversion of data

gathering routines than present requirements; however, the majority of

the responses to this amendment have been favorable. After

consideration of these comments, the Service has determined that the

overall burden is alleviated. Thus, having considered all comments

regarding the proposed amendments, those amendments are adopted (with

certain effective date changes) by this Treasury decision.

The changes to paragraph (h) (and corresponding changes in

Sec. 1.6046-1(g)) are effective for taxable years ending after December

31, 1994, but only for returns filed after December 31, 1995.

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 has also 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 the 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 Carl Cooper of the

Office of Associate Chief Counsel (International), IRS. However,

personnel from other offices of the IRS and Treasury Department

participated in their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

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:

PART 1--INCOME TAXES

Paragraph 1. The authority for part 1 continues to read in part as

follows:

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

Sec. 1.6035 [Amended]

Par. 2. Section 1.6035-1, paragraph (a)(1) is amended by adding a

sentence at the end to read as follows:

Sec. 1.6035-1 Returns of U.S. officers, directors and 10-percent

shareholders of foreign personal holding companies for taxable years

beginning after September 3, 1982.

(a) * * *

(1) * * * In the case of a foreign personal holding company which

is a specified foreign corporation (as defined in section 898), the

taxable year of such corporation shall be treated as its annual

accounting period.

* * * * *

Sec. 1.6038 [Amended]

Par. 3. Section 1.6038-2 is amended as follows:

1. Paragraph (d)(5) is added following paragraph (d)(4) and

immediately before the concluding text.

2. Paragraph (e) is amended by removing the third sentence and

adding two new sentences in its place.

3. Paragraph (f)(10)(iii) is amended by removing the word ``and''

immediately following the semicolon and paragraph (f)(10)(iv) is

amended by removing the colon and adding a semicolon in its place.

4. Paragraph (f)(10)(v) is added.

5. Paragraph (g) is amended as follows:

a. The introductory text of paragraph (g) is amended by replacing

the colon with a period and adding a second sentence at the end.

b. The concluding text of paragraph (g) is amended by removing the

words ``form and''.

6. Paragraph (h) is revised.

7. The additions and revisions read as follows:

Sec. 1.6038-2 Information returns required of United States persons

with respect to annual accounting periods of certain foreign

corporations beginning after December 31, 1962.

* * * * *

(d) * * *

(5) For taxable years ending after December 31, 1987, with respect

to a corporation organized under the laws of American Samoa, the term

does not include an individual who is a bona fide resident of American

Samoa, provided--

(i) 80 percent or more of the gross income of the corporation for

the 3-year period ending at the close of the taxable year (or for such

part of such period as such corporation or any predecessor has been in

existence) was derived from sources within American Samoa or was

effectively connected with the conduct of a trade or business in

American Samoa; and

(ii) 50 percent or more of the gross income of such corporation for

such period (or part) was derived from the conduct of an active trade

or business within American Samoa.

* * * * *

(e) * * * In the case of a specified foreign corporation (as

defined in section 898), the taxable year of such corporation shall be

treated as its annual accounting period. The term annual accounting

period may refer to a period of less than one year, where, for example,

the foreign income, war profits, and excess profits taxes are

determined on the basis of an accounting period of less than one year

as described in section 902 (c) (5). * * *

(f) * * *

(10) * * *

(v) For Forms 5471 filed for taxable years ending after December

15, 1990, such earnings and profits information as the form shall

prescribe, including post-1986 undistributed earnings described in

section 902(c)(1), pre-1987 amounts, total earnings and profits, and

previously taxed earnings and profits described in section 959(c); and

* * * * *

(g) Financial statements. * * * Forms 5471 filed after September

30, 1991, shall contain this information in such form or manner as the

form shall prescribe with respect to each foreign corporation:

* * * * *

(h) Method of reporting. Except as provided in this paragraph (h),

all amounts furnished under paragraphs (f) and (g) of this section

shall be expressed in United States dollars with a statement of the

exchange rates used. The following rules shall apply for taxable years

ending after December 31, 1994, with respect to returns filed after

December 31, 1995. All amounts furnished under paragraph (g) of this

section shall be expressed in United States dollars computed and

translated in conformity with United States generally accepted

accounting principles. Amounts furnished under paragraph (g)(1) of this

section shall also be furnished in the foreign corporation's functional

currency as required on the form. Earnings and profits amounts

furnished under paragraphs (f)(10) (i), (iii), (iv), and (v) of this

section shall be expressed in the foreign corporation's functional

currency except to the extent the form requires specific items to be

translated into United States dollars. Tax amounts furnished under

paragraph (f)(10)(ii) of this section shall be furnished in the foreign

currency in which the taxes are payable and in United States dollars

translated in accordance with section 986(a). All amounts furnished

under paragraph (f)(11) of this section shall be expressed in U.S.

dollars translated from functional currency at the weighted average

exchange rate for the year as defined in Sec. 1.989(b)-1. The foreign

corporation's functional currency is determined under section 985. All

statements submitted on or with the return required under this section

shall be rendered in the English language.

* * * * *

Sec. 1.6046-1 [Amended]

Par. 4. Section 1.6046-1 is amended as follows:

1. Paragraph (b)(10) introductory text is amended by removing the

language ``A copy of the following statements'' and adding ``The

following information'' in its place; and by removing the language

``form and''.

2. Paragraph (f)(5) is added.

3. Paragraph (g) is amended by adding three sentences at the end.

4. The additions and revisions read as follows:

Sec. 1.6046-1 Returns as to organization or reorganization of foreign

corporations and as to acquisitions of their stock, on or after January

1, 1963.

* * * * *

(f) * * *

(5) Accounting period and taxable year. In the case of a specified

foreign corporation (as defined in section 898), the taxable year of

such corporation shall be treated as its annual accounting period.

(g) * * * For taxable years ending after December 31, 1994, with

respect to returns filed after December 31, 1995, all amounts furnished

under paragraph (c) of this section shall be expressed in United States

dollars computed and translated in conformity with United States

generally accepted accounting principles. Amounts furnished under

paragraph (c)(3)(i) of this section shall also be furnished in the

foreign corporation's functional currency as required on the form.

Information described in paragraphs (b)(10) and (c)(3) of this section

shall be submitted in such form or manner as the form shall prescribe.

* * * * *

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 6. The authority for part 602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 7. Section 602.101, paragraph (c) is amended by removing the

existing entries for 1.6038-2 and 1.6046-1 from the table and adding

the following entries to the table in numerical order to read as

follows:

Sec. 602.101 OMB Control numbers.

* * * * *

(c) * * *

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Current OMB

CFR part or section where identified and described control No.

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*****

1.6038-2................................................... 1545-0704

1545-0805

1545-1317

*****

1.6046-1................................................... 1545-0704

1545-0794

1545-1317

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Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: November 10, 1994.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 94-30586 Filed 12-13-94; 8:45 am]

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