81_FR_76757 81 FR 76544 - Treatment of Related Person Factoring Income; Certain Investments in United States Property; and Stock Redemptions Through Related Corporations

81 FR 76544 - Treatment of Related Person Factoring Income; Certain Investments in United States Property; and Stock Redemptions Through Related Corporations

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 81, Issue 213 (November 3, 2016)

Page Range76544-76545
FR Document2016-26423

This document withdraws portions of a notice of proposed rulemaking (INTL-49-86, subsequently converted to REG-209001-86) published in the Federal Register (53 FR 22186) on June 14, 1988, (the 1988 NPRM). The withdrawn portions relate to stock redemptions through related corporations, the application of section 956 to United States property indirectly held by a controlled foreign corporation (CFC), and certain related party factoring transactions, as well as the definition of the term ``obligation'' for purposes of section 956.

Federal Register, Volume 81 Issue 213 (Thursday, November 3, 2016) 
[Federal Register Volume 81, Number 213 (Thursday, November 3, 2016)]
[Proposed Rules]
[Pages 76544-76545]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-26423]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-122387-16]
RIN 1545-BL86


Treatment of Related Person Factoring Income; Certain Investments 
in United States Property; and Stock Redemptions Through Related 
Corporations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Partial withdrawal of notice of proposed rulemaking.

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SUMMARY: This document withdraws portions of a notice of proposed 
rulemaking (INTL-49-86, subsequently converted to REG-209001-86) 
published in the Federal Register (53 FR 22186) on June 14, 1988, (the 
1988 NPRM). The withdrawn portions relate to stock redemptions through 
related corporations, the application of section 956 to United States 
property indirectly held by a controlled foreign corporation (CFC), and 
certain related party factoring transactions, as well as the definition 
of the term ``obligation'' for purposes of section 956.

DATES: Sections 1.304-4, 1.956-1(b)(4), 1.956-2(d)(2), and 1.956-
3(b)(2)(ii) of proposed rules published in the Federal Register on June 
14, 1988, are withdrawn as of November 3, 2016.

FOR FURTHER INFORMATION CONTACT: Rose E. Jenkins, (202) 317-6934 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    On June 14, 1988, the Department of Treasury (Treasury Department) 
and the IRS published in the Federal Register proposed regulations 
(INTL-49-86, subsequently converted to REG-209001-86, 53 FR 22186), 
including: (i) Proposed 1.304-4, which provides a special rule 
regarding the use of a related corporation to acquire for property the 
stock of another commonly owned corporation; (ii) proposed Sec.  1.956-
1(b)(4), which describes United States property indirectly held by a 
CFC

[[Page 76545]]

for purposes of section 956; (iii) proposed Sec.  1.956-2(d)(2), which 
sets forth the definition of ``obligation'' for purposes of section 
956; and (iv) proposed Sec.  1.956-3, which provides guidance on the 
treatment of certain trade or service receivables received in factoring 
transactions as United States property for purposes of section 956, 
including rules in proposed Sec.  1.956-3(b)(2)(ii) that address the 
acquisition of a trade or service receivable by a nominee or pass-
through entity. The regulations were proposed by cross-reference to 
temporary regulations in Sec. Sec.  1.304-4T, 1.956-1T(b)(4), 1.956-
2T(d), and 1.956-3T that were published in the same issue of the 
Federal Register (TD 8209, 53 FR 22163). This document withdraws 
certain of these proposed regulations because the rules in the proposed 
regulations are supplanted by final regulations or other proposed 
regulations.
    Specifically, in the Rules and Regulations section of this issue of 
the Federal Register, the Treasury Department and the IRS are issuing 
final regulations that contain rules in Sec.  1.956-1(b) concerning 
United States property indirectly held by a CFC for purposes of section 
956, and rules in Sec.  1.956-3(b)(2)(ii) concerning the acquisition by 
a nominee, pass-through entity, or related foreign corporation for 
purposes of the section 956 rules governing factoring transactions. The 
final regulations in Sec. Sec.  1.956-1(b) and 1.956-3(b)(2)(ii) were 
included in a notice of proposed rulemaking (REG-155164-09) published 
in the Federal Register on September 2, 2015 (80 FR 53058, as corrected 
at 80 FR 66485). Thus, the rules in proposed Sec. Sec.  1.956-1(b)(4) 
and 1.956-3(b)(2)(ii) provided in the 1988 NPRM are withdrawn. As 
described in the preamble to the final regulations published in the 
Rules and Regulations section of this issue of the Federal Register, 
the remainder of the rules in Sec.  1.956-3 proposed in the 1988 NPRM 
also are included in the final regulations, with minor modifications.
    Additionally, on December 30, 2009, the Treasury Department and the 
IRS published in the Federal Register proposed regulations (74 FR 
69043), which contain in proposed Sec.  1.304-4 special rules regarding 
the use of related corporations to avoid the application of section 304 
that supplant the rules set forth in the 1988 NPRM. On December 26, 
2012, final regulations including Sec.  1.304-4 as proposed in 2009 
were published in the Federal Register (TD 9606, 77 FR 75844). 
Accordingly, the rule in the 1988 NPRM that addresses section 304 is 
withdrawn.
    Furthermore, on April 8, 2016, the Treasury Department and the IRS 
published in the Federal Register proposed regulations (81 FR 20588), 
which contain in proposed Sec.  1.956-2(d) a definition of obligation 
for purposes of section 956, as well as several exceptions from the 
definition, including those set forth in the 1988 NPRM. Accordingly, 
the rule in the 1988 NPRM that addresses the definition of obligation 
is withdrawn.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Partial Withdrawal of a Notice of Proposed Rulemaking

    Accordingly, under the authority of 26 U.S.C. 7805, Sec. Sec.  
1.304-4, 1.956-1(b)(4), 1.956-2(d)(2), and 1.956-3(b)(2)(ii) of the 
notice of proposed rulemaking (INTL-49-86) published in the Federal 
Register on June 14, 1988, (53 FR 22186) are withdrawn.

John M. Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-26423 Filed 11-2-16; 8:45 am]
 BILLING CODE 4830-01-P

76544 Federal Register / Vol. 81, No. 213 / Thursday, November 3, 2016 / Proposed Rules FPRS is determined in accordance with FS’s (ii) Result. Because FPRS is controlled by controlled foreign corporation beginning liquidation value percentage. However, FS within the meaning of paragraph (b)(2)(iii) on or after July 23, 2002. because FS does not control FPRS within the of this section, under paragraph (b)(2)(iii) of meaning of paragraph (b)(2)(iii) of this this section, FS’s attributable share of the John Dalrymple, section and because the special allocation FPRS property is not determined by reference Deputy Commissioner for Services and does not have a principal purpose of Enforcement. to the special allocation of gain with respect avoiding the purposes of section 956, under [FR Doc. 2016–26424 Filed 11–2–16; 8:45 am] paragraph (b)(2)(ii) of this section, FS’s to the FPRS property. Accordingly, for attributable share of the FPRS property is purposes of determining the amount of BILLING CODE 4830–01–P determined by reference to its special United States property held by FS in each allocation. FS’s special allocation percentage year that FPRS holds the FPRS property, FS’s for the FPRS property is 80%, and thus FS’s attributable share of the FPRS property is DEPARTMENT OF THE TREASURY attributable share of the FPRS property is determined under paragraph (b)(2)(i) in 80% and its attributable share of FPRS’s basis accordance with FS’s liquidation value Internal Revenue Service in the FPRS property is $80x. Accordingly, percentage, which is 25%, and its for purposes of determining the amount of attributable share of FPRS’s basis in the FPRS 26 CFR Part 1 United States property held by FS as of the property is $25x. Thus, FS is treated as [REG–122387–16] close of quarter 1 of year 1, FS is treated as holding United States property with an holding United States property with an adjusted basis of $25x. RIN 1545–BL86 adjusted basis of $80x. Example 3. (i) Facts. USP, a domestic * * * * * corporation, wholly owns FS, a controlled Treatment of Related Person Factoring foreign corporation, which, in turn, owns a (f) * * * Income; Certain Investments in United 25% capital and profits interest in FPRS, a (1) Except as otherwise provided in States Property; and Stock foreign partnership. The remaining 75% this paragraph (f)(1), paragraph (b) of Redemptions Through Related capital and profits interest in FPRS is owned this section applies to taxable years of Corporations by an unrelated foreign person. Thus, FS does not control FPRS within the meaning of controlled foreign corporations ending AGENCY: Internal Revenue Service (IRS), paragraph (b)(2)(iii) of this section. FPRS on or after November 3, 2016, and Treasury. holds property (the ‘‘FPRS property’’) that taxable years of United States ACTION: Partial withdrawal of notice of would be United States property if held by shareholders in which or with which proposed rulemaking. FS directly. The FPRS property has an such taxable years end, with respect to adjusted basis of $100x and is anticipated to property acquired on or after November SUMMARY: This document withdraws appreciate in value but generate relatively portions of a notice of proposed little income. The FPRS partnership 3, 2016. Paragraphs (b)(2)(ii) and (iii) of this section, as well as Example 2, rulemaking (INTL–49–86, subsequently agreement, which satisfies the requirements of section 704(b), specially allocates 80% of Example 3, and Example 4 of paragraph converted to REG–209001–86) the income with respect to the FPRS property (b)(3) of this section, apply to taxable published in the Federal Register (53 to the unrelated foreign person and 80% of years of controlled foreign corporations FR 22186) on June 14, 1988, (the 1988 the gain with respect to the disposition of ending on or after the date of NPRM). The withdrawn portions relate FPRS property to FS. The special allocation publication in the Federal Register of to stock redemptions through related does not have a principal purpose of corporations, the application of section avoiding the purposes of section 956. the Treasury decision adopting this rule 956 to United States property indirectly (ii) Result. Because FPRS is not controlled as a final regulation, and taxable years held by a controlled foreign corporation by FS within the meaning of paragraph of United States shareholders in which (CFC), and certain related party (b)(2)(iii) of this section, and the special or with which such taxable years end, allocation does not have a principal purpose factoring transactions, as well as the with respect to property acquired on or definition of the term ‘‘obligation’’ for of avoiding the purposes of section 956, after the date of publication in the under paragraph (b)(2)(ii) of this section, FS’s purposes of section 956. attributable share of the FPRS property is Federal Register of the Treasury DATES: Sections 1.304–4, 1.956–1(b)(4), determined by reference to a special decision adopting this rule as a final 1.956–2(d)(2), and 1.956–3(b)(2)(ii) of allocation with respect to the FPRS property. regulation. For purposes of this proposed rules published in the Federal Given the income and gain anticipated with paragraph (f)(1), a deemed exchange of Register on June 14, 1988, are respect to the FPRS property, it is property pursuant to section 1001 on or appropriate to determine FS’s attributable withdrawn as of November 3, 2016. after November 3, 2016 constitutes an share of the property in accordance with the FOR FURTHER INFORMATION CONTACT: Rose acquisition of the property on or after special allocation of gain. Accordingly, for E. Jenkins, (202) 317–6934 (not a toll- purposes of determining the amount of that date, and a deemed exchange of free number). United States property held by FS in each property pursuant to section 1001 on or SUPPLEMENTARY INFORMATION: year that FPRS holds the FPRS property, FS’s after the date of publication in the attributable share of the FPRS property is Federal Register of the Treasury Background 80% and its attributable share of FPRS’s basis decision adopting this rule as a final in the FPRS property is $80x. Thus, FS is On June 14, 1988, the Department of regulation constitutes an acquisition of Treasury (Treasury Department) and the treated as holding United States property with an adjusted basis of $80x. the property on or after that date. IRS published in the Federal Register Example 4. (i) Facts. The facts are the See § 1.956–2(a)(3), as contained in 26 proposed regulations (INTL–49–86, same as in Example 3 of this paragraph (b)(3), CFR part 1 revised as of April 1, 2016, subsequently converted to REG– mstockstill on DSK3G9T082PROD with PROPOSALS except that USP owns the 75% capital and for the rules applicable to taxable years 209001–86, 53 FR 22186), including: (i) profits interest in FPRS rather than an Proposed 1.304–4, which provides a of a controlled foreign corporation unrelated foreign person. Thus, FS controls beginning on or after July 23, 2002, and special rule regarding the use of a FPRS within the meaning of paragraph (b)(2)(iii) of this section. At the close of ending before November 3, 2016, and related corporation to acquire for quarter 1 of year 1, the liquidation value with respect to property acquired before property the stock of another commonly percentage, as determined under paragraph November 3, 2016, to taxable years of a owned corporation; (ii) proposed (b)(2) of this section, for FS with respect to § 1.956–1(b)(4), which describes United FPRS is 25%. States property indirectly held by a CFC VerDate Sep<11>2014 16:37 Nov 02, 2016 Jkt 241001 PO 00000 Frm 00013 Fmt 4702 Sfmt 4702 E:\FR\FM\03NOP1.SGM 03NOP1

Federal Register / Vol. 81, No. 213 / Thursday, November 3, 2016 / Proposed Rules 76545 for purposes of section 956; (iii) Furthermore, on April 8, 2016, the DATES: Comments and related material proposed § 1.956–2(d)(2), which sets Treasury Department and the IRS must be received by the Coast Guard on forth the definition of ‘‘obligation’’ for published in the Federal Register or before January 3, 2017. purposes of section 956; and (iv) proposed regulations (81 FR 20588), ADDRESSES: You may submit comments proposed § 1.956–3, which provides which contain in proposed § 1.956–2(d) identified by docket number USCG– guidance on the treatment of certain a definition of obligation for purposes of 2016–0799 using the Federal trade or service receivables received in section 956, as well as several eRulemaking Portal at http:// factoring transactions as United States exceptions from the definition, www.regulations.gov. See the ‘‘Public property for purposes of section 956, including those set forth in the 1988 Participation and Request for including rules in proposed § 1.956– NPRM. Accordingly, the rule in the Comments’’ portion of the 3(b)(2)(ii) that address the acquisition of 1988 NPRM that addresses the SUPPLEMENTARY INFORMATION section for a trade or service receivable by a definition of obligation is withdrawn. further instructions on submitting nominee or pass-through entity. The comments. regulations were proposed by cross- List of Subjects in 26 CFR Part 1 FOR FURTHER INFORMATION CONTACT: If reference to temporary regulations in Income taxes, Reporting and §§ 1.304–4T, 1.956–1T(b)(4), 1.956– recordkeeping requirements. you have questions on this rule, call or 2T(d), and 1.956–3T that were email MST1 Kristina Pundt, Waterways Partial Withdrawal of a Notice of Management, U.S. Coast Guard; published in the same issue of the Proposed Rulemaking telephone (718) 354–4352, email Federal Register (TD 8209, 53 FR 22163). This document withdraws Accordingly, under the authority of Kristina.H.Pundt@uscg.mil. certain of these proposed regulations 26 U.S.C. 7805, §§ 1.304–4, 1.956– SUPPLEMENTARY INFORMATION: because the rules in the proposed 1(b)(4), 1.956–2(d)(2), and 1.956– Table of Acronyms regulations are supplanted by final 3(b)(2)(ii) of the notice of proposed regulations or other proposed rulemaking (INTL–49–86) published in ANPRM Advance notice of proposed the Federal Register on June 14, 1988, rulemaking regulations. NPRM Notice of proposed rulemaking Specifically, in the Rules and (53 FR 22186) are withdrawn. DHS Department of Homeland Security Regulations section of this issue of the FR Federal Register John M. Dalrymple, Federal Register, the Treasury MARSEC Maritime Security Deputy Commissioner for Services and Department and the IRS are issuing final NYCWTA New York City Water Trail Enforcement. regulations that contain rules in Association [FR Doc. 2016–26423 Filed 11–2–16; 8:45 am] § 1.956–1(b) concerning United States BILLING CODE 4830–01–P A. Public Participation and Request for property indirectly held by a CFC for Comments purposes of section 956, and rules in § 1.956–3(b)(2)(ii) concerning the We view public participation as acquisition by a nominee, pass-through DEPARTMENT OF HOMELAND essential to effective rulemaking, and entity, or related foreign corporation for SECURITY will consider all comments and material purposes of the section 956 rules received during the comment period. governing factoring transactions. The Coast Guard Your comment can help shape the final regulations in §§ 1.956–1(b) and outcome of this possible rulemaking. If 1.956–3(b)(2)(ii) were included in a 33 CFR Part 165 you submit a comment, please include notice of proposed rulemaking (REG– [Docket Number USCG–2016–0799] the docket number for this rulemaking, 155164–09) published in the Federal indicate the specific section of this Register on September 2, 2015 (80 FR RIN 1625–AA87 document to which each comment 53058, as corrected at 80 FR 66485). applies, indicate the specific question Safety and Security Zones; New York Thus, the rules in proposed §§ 1.956– number to which each comment Marine Inspection and Captain of the 1(b)(4) and 1.956–3(b)(2)(ii) provided in applies, and provide a reason for each Port Zone the 1988 NPRM are withdrawn. As suggestion or recommendation. described in the preamble to the final AGENCY: Coast Guard, DHS. We encourage you to submit regulations published in the Rules and ACTION:Advance notice of proposed comments through the Federal Regulations section of this issue of the rulemaking. eRulemaking Portal at http:// Federal Register, the remainder of the www.regulations.gov. If your material rules in § 1.956–3 proposed in the 1988 SUMMARY: The Coast Guard is requesting cannot be submitted using http:// NPRM also are included in the final public comments from any and all www.regulations.gov, contact the person regulations, with minor modifications. waterway users regarding the permanent in the FOR FURTHER INFORMATION Additionally, on December 30, 2009, security zone that encompasses all CONTACT section of this document for the Treasury Department and the IRS waters within 150 yards of the bridge alternate instructions. published in the Federal Register connecting Liberty State Park and Ellis We accept anonymous comments. All proposed regulations (74 FR 69043), Island. The Coast Guard is considering comments received will be posted which contain in proposed § 1.304–4 restoring navigational access to the without change to http:// special rules regarding the use of related waterway between Ellis Island and www.regulations.gov and will include corporations to avoid the application of Liberty State Park by modifying the any personal information you have mstockstill on DSK3G9T082PROD with PROPOSALS section 304 that supplant the rules set security zone around the Ellis Island provided. For more about privacy and forth in the 1988 NPRM. On December Bridge. The purpose removal of the the docket, you may review a Privacy 26, 2012, final regulations including security zone would be to increase Act notice regarding the Federal Docket § 1.304–4 as proposed in 2009 were navigational safety in New York Harbor Management System in the March 24, published in the Federal Register (TD by allowing vessels to transit under the 2005, issue of the Federal Register (70 9606, 77 FR 75844). Accordingly, the Ellis Island Bridge, rather than being FR 15086). rule in the 1988 NPRM that addresses required to transit the Anchorage Documents mentioned in this ANPRM section 304 is withdrawn. Channel. as being available in the docket, and all VerDate Sep<11>2014 16:37 Nov 02, 2016 Jkt 241001 PO 00000 Frm 00014 Fmt 4702 Sfmt 4702 E:\FR\FM\03NOP1.SGM 03NOP1


Document Created: 2016-11-03 03:24:11
Document Modified: 2016-11-03 03:24:11
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionProposed Rules
ActionPartial withdrawal of notice of proposed rulemaking.
DatesSections 1.304-4, 1.956-1(b)(4), 1.956-2(d)(2), and 1.956- 3(b)(2)(ii) of proposed rules published in the Federal Register on June 14, 1988, are withdrawn as of November 3, 2016.
ContactRose E. Jenkins, (202) 317-6934 (not a toll-free number).
FR Citation81 FR 76544 
RIN Number1545-BL86
CFR AssociatedIncome Taxes and Reporting and Recordkeeping Requirements
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