Source and Grouping Rules for Foreign Sales Corporation Transfer Pricing

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-102144-98]

RIN 1545-AV90

Source and Grouping Rules for Foreign Sales Corporation Transfer

Pricing

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary

regulations and notice of public hearing.

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SUMMARY: In the Rules and Regulations section of this issue of the

Federal Register, the IRS is issuing temporary regulations that provide

guidance to taxpayers who have made an election to be treated as a

foreign sales corporation (FSC). The regulations provide rules

clarifying the special sourcing rules under section 927(e)(1) and

provide a deadline for the election to group transactions. This

document also provides notice of a public hearing on these proposed

regulations. The text of the temporary regulations also serves as the

text of the proposed regulations.

DATES: Written comments must be received by June 1, 1998. Requests to

speak (with outlines of oral comments) to be discussed at the public

hearing scheduled for June 24, 1998, at 10 a.m., must be received by

June 3, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-102144-98), room

5226, Internal Revenue Service, POB 7604, Ben Franklin Station,

Washington, DC 20044. Submissions may be hand delivered between the

hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-102144-98), Courier's

Desk, Internal Revenue Service, 1111 Constitution Avenue, NW.,

Washington, DC. 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. The public hearing will be held in Room 2615, Internal

Revenue Service, 1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Elizabeth

Beck (202) 622-3880; concerning submissions and the hearing, Michael

Slaughter, (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Temporary regulations in the Rules and Regulations portion of this

issue of the Federal Register amend the Income Tax Regulations (26 CFR

part 1) relating to sections 925 and 927. The temporary regulations

contain rules relating to the grouping of transactions under the FSC

transfer pricing rules and the special source rules under section

927(e)(1). The preamble to the temporary regulations explains the

temporary regulations.

Special Analyses

It has been determined that this notice of proposed rulemaking is

not a significant regulatory action as defined in Executive Order

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) does not apply to these regulations, and because

the regulation does not impose a collection of information on small

entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not

apply. Pursuant to section 7805(f) of the Internal Revenue Code, this

notice of proposed rulemaking will be submitted to the Chief Counsel

for Advocacy of the Small Business Administration for comment on its

impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,

consideration will be given to any written comments (preferably a

signed original and eight (8) copies) that are submitted timely to the

IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled for June 24, 1998, at 10 a.m.,

in room 2615, Internal Revenue Building, 1111 Constitution Avenue, NW.,

Washington, DC. Because of access restrictions, visitors will not be

admitted beyond the Internal Revenue lobby more than 15 minutes before

the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons that wish to present oral comments at the hearing must

submit written comments by June 1, 1998 and submit an outline of the

topics to be discussed and the time to be devoted to each topic

(preferably a signed original and eight (8) copies) by June 3, 1998.

A period of 10 minutes will be allotted to each person for making

comments.

An agenda showing the schedule of speakers will be prepared after

the deadline for receiving outlines has passed. Copies of the agenda

will be available free of charge at the hearing.

Drafting Information: The principal author of the proposed

regulations is Elizabeth Beck, of the Office of the Associate Chief

Counsel (International). Other personnel from the IRS and Treasury

Department also participated in the development of these regulations.

List of Subjects in 26 CFR Part 1

Income taxes, reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

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

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding

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

follows:

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

Section 1.925(a)-1 is also issued under 26 U.S.C. 925(b)(1) and

(2) and 927(d)(2)(B).

Section 1.925(b)-1 is also issued under 26 U.S.C. 925(b)(1) and

(2) and 927(d)(2)(B). * * *

Sec. 1.925(a)-1 [Added]

Par. 2. Section 1.925(a)-1 is added as follows:

[The text of proposed Sec. 1.925(a)-1 consisting of paragraphs

(c)(8)(i) and (e)(4) is the same as the text of Sec. 1.925(a)-

1T(c)(8)(i) and (e)(4) as amended elsewhere in this issue of the

Federal Register].

Sec. 1.925(b)-1 [Added]

Par. 3. Section 1.925(b)-1 is added as follows:

[[Page 10352]]

[The text of proposed Sec. 1.925(b)-1 consisting of paragraph (b)(3)(i)

is the same as the text of Sec. 1.925(b)-1T(b)(3)(i) as amended

elsewhere in this issue of the Federal Register].

Sec. 1.927(c)-1 [Added]

Par. 4. Section 1.927(e)-1 is amended as follows:

[The text of proposed Sec. 1.927(e)-1 is the same as the text of

Sec. 1.927(e)-1T published elsewhere in this issue of the Federal

Register].

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

[FR Doc. 98-5127 Filed 3-2-98; 8:45 am]

BILLING CODE 4830-01-U