[Federal Register Volume 77, Number 113 (Tuesday, June 12, 2012)]
[Proposed Rules]
[Pages 34887-34888]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-14238]



Internal Revenue Service

26 CFR Part 1

[REG 107889-12]
RIN 1545-BK85

Substantial Business Activities

AGENCY: Internal Revenue Service (IRS), Treasury.

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


SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS and the Treasury Department are issuing 
temporary regulations regarding whether a foreign corporation has 
substantial business activities in a foreign country. These regulations 
affect certain domestic corporations and partnerships (and certain 
parties related thereto), and foreign corporations that acquire 
substantially all of the properties of such domestic corporations or 
partnerships. The text of the temporary regulations also serves as the 
text of these proposed regulations. The preamble to the temporary 
regulations explains the temporary regulations and these proposed 

DATES: Written or electronic comments and requests for a public hearing 
must be received by September 10, 2012.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-107889-12), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
107889-12), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at www.regulations.gov (IRS and REG-107889-12).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Mary W. Lyons, (202) 622-3860 and David A. Levine, (202) 622-3860; 
concerning submissions of comments or requests for a public hearing, 
Oluwafunmilayo (Funmi) Taylor, (202) 622-7180 (not toll-free numbers).


Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating to section 7874 of the Code. The temporary regulations 
provide guidance regarding whether a foreign corporation has 
substantial business activities in a foreign country for purposes of 
whether a foreign corporation is treated as a surrogate foreign 
corporation under section 7874(a)(2)(B). The text of those regulations 
also serves as the text of these proposed regulations. The preamble to 
the temporary regulations explains these amendments.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a

[[Page 34888]]

significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that 5 U.S.C. 553(b) does not apply to these regulations. 
These regulations do not impose a collection of information. Pursuant 
to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby 
certified that this regulation will not have a significant economic 
impact on a substantial number of small entities. The complexity and 
cost of a transaction to which section 7874 may apply make it unlikely 
that a substantial number of small entities will engage in such a 
transaction. In addition, any economic impact to entities affected by 
section 7874, large or small, is derived from the operation of the 
statute or its intended application, and not from the temporary 
regulations. Pursuant to section 7805(f) of the Code, these regulations 
have been 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 these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are submitted timely 
to the IRS. The IRS and the Treasury Department specifically request 
comments on the clarity of the proposed rules and how they can be made 
easier to understand. All comments will be available for public 
inspection and copying. A public hearing will be scheduled if requested 
in writing by any person who timely submits written comments. If a 
public hearing is scheduled, notice of the date, time, and place for 
the public hearing will be published in the Federal Register.

Drafting Information

    The principal authors of these proposed regulations are Mary W. 
Lyons and David A. Levine 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.

Proposed Amendments to the Regulations

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


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

    Authority:  26 U.S.C. 7805 * * *
    Section 1.7874-3 is also issued under 26 U.S.C. 7874(c)(6) and 
(g). * * *

    Par. 2. Section 1.7874-3 is added to read as follows:

Sec.  1.7874-3  Substantial business activities.

    [The text of proposed Sec.  1.7874-3 is the same as the text of 
Sec.  1.7874-3T published elsewhere in this issue of the Federal 

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2012-14238 Filed 6-7-12; 4:15 pm]