[Federal Register Volume 62, Number 8 (Monday, January 13, 1997)]
[Proposed Rules]
[Pages 1700-1701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-527]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-208288-90]
RIN 1545-AP36
Filing Requirements for Returns Claiming the Foreign Tax Credit
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains a proposed regulation relating to the
substantiation requirements for taxpayers claiming foreign tax credits.
The proposed regulation is necessary to provide guidance to U.S.
taxpayers who claim foreign tax credits.
DATES: Written comments and requests for a public hearing must be
received by April 14, 1997.
ADDRESSES: Send Submissions to: CC:DOM:CORP:R (REG-208288-90), room
5228, 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-208288-90), 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.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Joan
Thomsen, (202) 622-3840 (not a toll-free call); concerning submissions,
Evangelista Lee, (202) 622-7190 (not a toll-free call).
SUPPLEMENTARY INFORMATION:
Background
On June 3, 1988, the Internal Revenue Service issued a Notice
(Notice 88-65, 1988-1 C.B. 552) which stated that regulations would be
issued suspending portions of Sec. 1.905-2 of the Treasury Regulations.
Section 1.905-2 requires taxpayers who claim foreign tax credits to
attach documents to their returns substantiating the credits. The
Notice was issued in response to problems taxpayers were experiencing
because they could not timely obtain and prepare the necessary
documentation in a form suitable for submission with their tax returns.
The intent of the Notice was to advise taxpayers that Treasury and the
IRS would issue a new regulation that would suspend, beginning on
January 1, 1988, the existing regulation requiring the submission of
this documentation with a tax return. This new regulation has not been
issued. Instead of suspending the relevant portions of the existing
regulation, Treasury and the IRS now have decided to permanently
eliminate the requirement that documentation be submitted with the tax
return, effective January 1, 1988.
Explanation of Provisions
Sec. 1.905-2(a)(1), 1.905-2(b) (1) and (2), and 1.905-2(c)
Sections 1.905-2(a)(1), 1.905-2(b) (1) and (2), and 1.905-2(c) are
unchanged from the final regulations.
Sec. 1.905-2(a)(2)
Under Sec. 1.905-2(a)(2), taxpayers generally are required to
attach to their income tax returns either (1) the receipt for the
foreign tax payment, or (2) a foreign tax return for accrued foreign
taxes. Proposed Sec. 1.905-2(a)(2) removes the requirement that the
documentation must be attached to the income tax return.
The proposed regulation now provides that such evidence of foreign
taxes must be presented to the district director upon request.
Sec. 1.905-2(b)(3)
Section 1.905-2(b)(3) addresses issues for taxes withheld at the
source. The section allows the district director to accept secondary
evidence of such withholding. The proposed regulation clarifies that
evidence of a tax withheld at the source and the amount withheld is
only sufficient for an interim credit.
[[Page 1701]]
Upon request of the district director, taxpayers must provide evidence,
as provided in Sec. 1.905-2(a)(2), that the tax withheld was actually
paid to the foreign country. Although this regulation will be effective
on the date that is 30 days after the date the final regulation is
published in the Federal Register, it reflects an IRS requirement
upheld as a reasonable interpretation of current law by the Tax Court
and the Court of Appeals for the Seventh Circuit in Continental
Illinois Corp. v. Commissioner, T.C. Memo. 1991-66, 61 T.C.M. (CCH)
1916, 1939-42 (1991), aff'd in part and rev'd in part, 998 F.2d 513,
516-17 (7th Cir. 1993).
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 has also been
determined that section 553(b) of the Administrative Procedures Act (5
U.S.C. chapter 5) does not apply to this regulation, 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 Requests for a Public Hearing
Before this proposed regulation is adopted as a final regulation,
consideration will be given to any comments that are submitted timely
to the IRS. All comments will be available for public inspection and
copying. A public hearing may be scheduled if requested in writing by
any person that timely submits comments. If a public hearing is
scheduled, notice of the date, time, and place for the hearing will be
published in the Federal Register.
Drafting Information
The principal author of this regulation is Joan Thomsen of the
Office of the Associate Chief Counsel (International), IRS.
However, other personnel from the IRS and Treasury Department
participated in their development.
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 26 CFR part 1 continues to
read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.905-2 is amended by:
1. Revising the second through fourth sentences in paragraph
(a)(2).
2. Adding two sentences to the end of paragraph (b)(3).
The revision and addition read as follows:
Sec. 1.905-2 Conditions of allowance of credit.
(a) * * *
(2) * * * Except where it is established to the satisfaction of the
district director that it is impossible for the taxpayer to furnish
such evidence, the taxpayer must provide upon request the receipt for
each such tax payment if credit is sought for taxes already paid or
withheld, or the return on which each such accrued tax was based if
credit is sought for taxes accrued. This receipt or return must be
either the original, a duplicate original, or a duly certified or
authenticated copy. The preceding two sentences are effective for
returns whose original due date falls on or after January 1, 1988. * *
*
(b) * * *
(3) * * * Any foreign tax credit claimed for taxes withheld at the
source is an interim credit and the taxpayer must prove that any taxes
withheld at the source were paid to the foreign country, as required in
paragraph (a) of this section. The preceding sentence is effective the
date that is 30 days after the date this regulation is published in the
Federal Register as a final regulation, however, for periods prior to
the date that is 30 days after the date this regulation is published in
the Federal Register as a final regulation, see Continental Illinois
Corp. v. Commissioner, T.C. Memo. 1991-66, 61 T.C.M. (CCH) 1916, 1939-
42 (1991), aff'd in part and rev'd in part, 998 F.2d 513, 516-17 (7th
Cir. 1993), wherein the court upheld this rule as a reasonable
interpretation of section 905(b) of the Internal Revenue Code.
* * * * *
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 97-527 Filed 1-10-97; 8:45 am]
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