[Federal Register Volume 77, Number 79 (Tuesday, April 24, 2012)]
[Rules and Regulations]
[Pages 24380-24381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-9760]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9585]
RIN 1545-BI41
Treatment of Gain Recognized With Respect to Stock in Certain
Foreign Corporations Upon Distributions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
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SUMMARY: This document contains final regulations relating to the
characterization of gain recognized with respect to stock in certain
foreign corporations upon distributions. The regulations finalize
proposed regulations and remove temporary regulations that characterize
gain recognized with respect to stock in foreign corporations upon
distributions as a deemed dividend in certain situations. The
regulations affect certain persons that recognize gain with respect to
stock in connection with the receipt of a distribution of property from
a foreign corporation.
DATES: Effective Date: These regulations are effective on April 24,
2012.
Applicability Date: These regulations apply to distributions
occurring on or after February 10, 2009.
FOR FURTHER INFORMATION CONTACT: Ryan A. Bowen, (202) 622-3860 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background
On February 11, 2009, the IRS and the Department of the Treasury
(the Treasury Department) published temporary and proposed regulations
in the Federal Register (REG-147636-08, 74 FR 6824; TD 9444, 2009-1 CB
603) (the temporary or proposed regulations, as applicable, and
collectively, the 2009 regulations). The 2009 regulations, in part,
provide that for purposes of section 1248(a), gain recognized under
section 301(c)(3) in connection with the receipt of a distribution of
property from a foreign corporation with respect to its stock shall be
treated as gain from the sale or exchange of the stock of such foreign
corporation (2009 section 1248 regulations).
The 2009 regulations also addressed the application of section 367
to certain related party stock transactions that are recharacterized
under section 304. As described in Notice 2012-15 (2012-9 IRB 495
(February 27, 2012)) (see Sec. 601.601(d)(2)(ii)(b) of this chapter),
the IRS and the Treasury Department intend to amend the regulations
under section 367 to provide that the section 351 exchange that is
deemed to occur in a section 304 transaction is subject to section
367(a) and (b), as applicable. Accordingly, this Treasury decision does
not finalize the portions of the 2009 regulations that address the
interaction of sections 304 and 367. Those portions of the 2009
regulations will be withdrawn in separate published guidance (REG-
104400-12).
[[Page 24381]]
No public hearing on the 2009 section 1248 regulations was
requested or held and no written comments were received. This Treasury
decision adopts the 2009 section 1248 regulations, with one
modification to remove a deadwood provision, as final regulations under
section 1248(a). This Treasury decision also removes the temporary
regulations under section 1248(a).
Explanation of Provisions
The final regulations provide that gain recognized under section
301(c)(3) on the receipt of a distribution of property from a foreign
corporation with respect to its stock shall be treated for purposes of
section 1248(a) as gain from the sale or exchange of the stock of such
corporation. For purposes of section 1248(a), a sale or exchange also
includes a distribution that gives rise to gain with respect to stock
under section 302(a) or 331(a). The final regulations ensure that the
earnings and profits of lower-tier foreign subsidiaries described in
section 1248(c)(2) are taken into account when gain is recognized with
respect to stock of a controlled foreign corporation.
The 2009 section 1248 regulations incorporated a provision from the
prior final regulations under section 1248 providing that section
1248(a) applies to gain recognized with respect to stock under section
331(a)(2) by reason of a partial liquidation of a corporation. The
final regulations remove the reference to partial liquidations under
section 331(a)(2) in order to reflect amendments made in 1982 by the
Tax Equity and Fiscal Responsibility Act of 1982 (Public Law 97-248, 96
Stat. 324 (1982)), which repealed section 331(a)(2) and provided new
rules regarding redemptions in partial liquidation under section 302.
See section 302(b)(4) and (e).
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that 5 U.S.C. 553(b) and (d) do not apply to these
regulations. Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601
et seq.), it is hereby certified that this rule will not have a
significant economic impact on a substantial number of small entities.
These regulations primarily will affect large domestic corporations.
Thus, the number of affected small entities will not be substantial.
Pursuant to section 7805(f) of the Internal Revenue Code, the notice of
proposed rulemaking preceding this regulation was submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comments on its impact on small business.
Drafting Information
The principal author of these regulations is Ryan A. Bowen of the
Office of Associate Chief Counsel (International). However, other
personnel from the IRS and the Treasury Department participated in
their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read as
follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.1248-1 is amended by:
0
1. Revising paragraphs (b) and (g)(2).
0
2. Removing paragraph (h).
The revisions read as follows.
Sec. 1.1248-1 Treatment of gain from certain sales or exchanges of
stock in certain foreign corporations.
* * * * *
(b) Sale or exchange. For purposes of section 1248(a), the term
sale or exchange includes the receipt of a distribution which is
treated as in exchange for stock under section 302(a) (relating to
distributions in redemption of stock) or section 331(a) (relating to
distributions in complete liquidation of a corporation). For purposes
of section 1248(a), gain recognized by a shareholder under section
301(c)(3) in connection with a distribution of property by a
corporation with respect to its stock shall be treated as gain from the
sale or exchange of stock of such corporation.
* * * * *
(g) * * *
(2) Paragraph (b) of this section applies to distributions that
occur on or after February 10, 2009.
Sec. 1.1248-1T [Removed]
0
Par. 3. Section 1.1248-1T is removed.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: April 13, 2012.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2012-9760 Filed 4-23-12; 8:45 am]
BILLING CODE 4830-01-P