81 FR 88103 - Covered Asset Acquisitions
DEPARTMENT OF THE TREASURY
Internal Revenue Service Federal Register Volume 81, Issue 235 (December 7, 2016)
Internal Revenue Service
Federal Register Volume 81, Issue 235 (December 7, 2016)
| Page Range | 88103-88110 | |
| FR Document | 2016-28755 |
[Federal Register Volume 81, Number 235 (Wednesday, December 7, 2016)] [Rules and Regulations] [Pages 88103-88110] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-28755] ======================================================================= ----------------------------------------------------------------------- DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9800] RIN 1545-BM75 Covered Asset Acquisitions AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Temporary regulations. ----------------------------------------------------------------------- SUMMARY: This document contains temporary Income Tax Regulations under section 901(m) of the Internal Revenue Code (Code) with respect to transactions that generally are treated as asset acquisitions for U.S. income tax purposes and either are treated as stock acquisitions or are disregarded for foreign income tax purposes. These regulations are necessary to provide guidance on applying section 901(m). The text of the temporary regulations also serves in part as the text of the proposed regulations under section 901(m) (REG-129128-14) published in the Proposed Rules section of this issue of the Federal Register. DATES: Effective date: These regulations are effective on December 7, 2016. Applicability dates: For dates of applicability, see Sec. Sec. 1.901(m)-1T(b), 1.901(m)-2T(f), 1.901(m)-4T(g), 1.901(m)-5T(i), and 1.901(m)-6T(d). FOR FURTHER INFORMATION CONTACT: Jeffrey L. Parry, (202) 317-6936 (not a toll-free number). SUPPLEMENTARY INFORMATION: Background I. Section 901(m) Section 212 of the Education Jobs and Medicaid Assistance Act (EJMAA), enacted on August 10, 2010 (Public Law 111-226), added section 901(m) to the Code. Section 901(m)(1) provides that, in the case of a covered asset acquisition (CAA), the disqualified portion of any foreign income tax determined with respect to the income or gain attributable to relevant foreign assets (RFAs) will not be taken into account in determining the foreign tax credit allowed under section 901(a), and in the case of foreign income tax paid by a section 902 corporation (as defined in section 909(d)(5)), will not be taken into account for purposes of section 902 or 960. Instead, the disqualified portion of any foreign income tax (the disqualified tax amount) is permitted as a deduction. See section 901(m)(6). Under section 901(m)(2), a CAA is (i) a qualified stock purchase (as defined in section 338(d)(3)) to which section 338(a) applies; (ii) any transaction that is treated as an acquisition of assets for U.S. income tax purposes and as the acquisition of stock of a corporation (or is disregarded) for purposes of a foreign income tax; (iii) any acquisition of an interest in a partnership that has an election in effect under section 754; and (iv) to the extent provided by the Secretary, any other similar transaction. Section 901(m)(3)(A) provides that the term ``disqualified portion'' means, with respect to any CAA, for any taxable year, the ratio (expressed as a percentage) of (i) the aggregate basis differences (but not below zero) allocable to such taxable year with respect to all RFAs; divided by (ii) the income on which the foreign income tax referenced in section 901(m)(1) is determined. If the taxpayer fails to substantiate the income on which the foreign income tax is determined to the satisfaction of the Secretary, such income will be determined by dividing the amount of such foreign income tax by the highest marginal tax rate applicable to the taxpayer's income in the relevant jurisdiction. Section 901(m)(3)(B)(i) provides the general rule that the basis difference with respect to any RFA will be allocated to taxable years using the applicable cost recovery method for U.S. income tax purposes. Section 901(m)(3)(B)(ii) provides that, except as otherwise provided by the Secretary, if there is a disposition of an RFA, the basis difference allocated to the taxable year of the disposition will be the excess of the basis difference of such asset over the aggregate basis difference of such asset that has been allocated to all prior taxable years. The statute further provides that no basis difference with respect to such asset will be allocated to any taxable year thereafter. Section 901(m)(3)(C)(i) provides that basis difference means, with respect to any RFA, the excess of (i) the adjusted basis of such asset immediately after the CAA, over (ii) the adjusted basis of such asset immediately before the CAA. If the adjusted basis of an RFA immediately before the CAA exceeds the adjusted basis of the RFA immediately after the CAA (that is, where the adjusted basis [[Page 88104]] of an asset with a built-in loss is reduced in a CAA), such excess is taken into account as a basis difference of a negative amount. See section 901(m)(3)(C)(ii). Section 901(m)(4) provides that an RFA means, with respect to a CAA, an asset (including goodwill, going concern value, or other intangible) with respect to such acquisition if income, deduction, gain, or loss attributable to such asset is taken into account in determining the foreign income tax referenced in section 901(m)(1). Section 901(m)(7) provides that the Secretary may issue regulations or other guidance as is necessary or appropriate to carry out the purposes of section 901(m). II. Notices 2014-44 and 2014-45 The Department of the Treasury (Treasury Department) and the IRS issued Notice 2014-44 (2014-32 I.R.B 270 (July 21, 2014)) and Notice 2014-45 (2014-34 I.R.B. 388 (July 29, 2014)), announcing the intent to issue regulations addressing the application of section 901(m) to dispositions of RFAs following CAAs and to CAAs described in section 901(m)(2)(C) (regarding section 754 elections). The notices were issued in response to certain taxpayers engaging in transactions shortly after a CAA with the intention of invoking the application of the statutory disposition rule under section 901(m)(3)(B)(ii) to avoid the purposes of section 901(m). To address these transactions, Notice 2014-44 described the definition of disposition that would be set forth in future regulations, as well as the rules for determining the portion of basis difference that would be taken into account upon a disposition of an RFA (the disposition amount). In addition, Notice 2014-44 described the computation of basis difference and disposition amount with respect to an RFA that is subject to a section 743(b) CAA. Notice 2014-44 also announced that future regulations would provide successor rules for the continued application of section 901(m) after a subsequent transfer of an RFA with remaining basis difference. Notice 2014-44 further provided that future regulations would provide that, if an asset is an RFA with respect to two section 743(b) CAAs involving the same partnership interest, the RFA will be treated as having no remaining basis difference with respect to the first section 743(b) CAA if the basis difference with respect to the second section 743(b) CAA is determined independently from the first section 743(b) CAA. In this regard, see generally Sec. 1.743-1(f) and proposed Sec. 1.743-1(f)(2). Notice 2014-44 provided that the future regulations described therein would apply (i) concerning dispositions, to dispositions occurring on or after July 21, 2014 (the date Notice 2014-44 was issued), (ii) concerning section 743(b) CAAs, to section 743(b) CAAs occurring on or after July 21, 2014, unless a taxpayer consistently applied those provisions to all section 743(b) CAAs occurring on or after January 1, 2011, and (iii) concerning successor rules, to remaining basis difference with respect to an RFA as of July 21, 2014, and any basis difference with respect to an RFA that arises in a CAA occurring on or after July 21, 2014. Notice 2014-45 provided that the future regulations described in Notice 2014-44 also would apply to determine the tax consequences under section 901(m) of an entity classification election made under Sec. 301.7701-3 that is filed on or after July 29, 2014 (the date Notice 2014-45 was issued), including whether a disposition results from the election for purposes of section 901(m) and the treatment of any remaining basis difference that results from such an election. III. Proposed Regulations Under Section 901(m) Proposed regulations under section 901(m) are being issued at the same time as these temporary regulations. In addition to cross- referencing these temporary regulations, the proposed regulations provide guidance under section 901(m) concerning issues not addressed in the temporary regulations. Consulting the preamble to the proposed regulations is recommended for a better understanding of how these temporary regulations are intended to work. Explanation of Provisions I. Overview Section 1.901(m)-1T provides definitions that apply for purposes of the temporary regulations. Section 1.901(m)-2T identifies the transactions that are CAAs and the assets that are RFAs with respect to a CAA. Section 1.901(m)-4T provides the general rule for determining basis difference with respect to an RFA under section 901(m)(3)(C), as well as a special rule for determining basis difference with respect to an RFA that arises as a result of an acquisition of an interest in a partnership that has made a section 754 election (section 743(b) CAA). Section 1.901(m)-5T provides rules for taking into account basis difference under the applicable cost recovery method or as a result of a disposition of an RFA. Section 1.901(m)-6T provides successor rules for applying section 901(m) to subsequent transfers of RFAs that have basis difference that has not yet been fully taken into account. II. Effective/Applicability Dates The applicability dates of the temporary regulations relate back to the issuance of Notices 2014-44 and 2014-45. Accordingly, the temporary regulations apply to CAAs occurring on or after July 21, 2014, and to CAAs occurring before that date resulting from an entity classification election made under Sec. 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014 (referred to as the general applicability date). The temporary regulations also apply to CAAs occurring on or after January 1, 2011, and before the general applicability date (the transition period), but only if the basis difference within the meaning of section 901(m)(3)(C)(i) (statutory basis difference) in one or more RFAs with respect to such a CAA had not been fully taken into account under section 901(m)(3)(B) either as of July 21, 2014, or, in the case of an entity classification election made under Sec. 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014, prior to the transactions that are deemed to occur under Sec. 301.7701-3(g) as a result of the change in classification. Taxpayers also may choose to consistently apply Sec. 1.901(m)- 4T(d)(1) (regarding the determination of basis difference in an RFA with respect to a section 743(b) CAA) to all section 743(b) CAAs occurring on or after January 1, 2011. III. CAAs and RFAs Section 1.901(m)-2T(b) identifies the transactions that are CAAs under section 901(m)(2)(A) through (C). Section 1.901(m)-2T(c) provides that, with respect to a foreign income tax and a CAA, an RFA is any asset (including goodwill, going concern value, or other intangible) subject to the CAA that is relevant in determining foreign income for purposes of the foreign income tax. An asset is subject to a CAA, if, for example (i) in the case of a qualified stock purchase of a target corporation (as defined in section 338(d)(3)) to which section 338(a) applies, ``new'' target is treated as purchasing the asset from ``old'' target; (ii) in the case of a taxable acquisition of a disregarded entity that is treated as an acquisition of stock for foreign income tax purposes, [[Page 88105]] the asset is owned by the disregard entity at that time of the purchase and therefore the buyer is treated as purchasing the asset from the seller; and (iii) in the case of a section 743(b) CAA, the asset is attributable to the partnership interest transferred in the section 743(b) CAA. Section 1.901(m)-2T(d) provides that the statutory definitions under section 901(m)(2) and 901(m)(4) apply to determine whether a transaction that occurred during the transition period is a CAA and which assets are RFAs with respect to those CAAs, respectively. IV. Determining Basis Difference With Respect to an RFA A basis difference is computed separately with respect to each foreign income tax for which an asset is an RFA. Consistent with section 901(m)(3)(C), Sec. 1.901(m)-4T(b) provides the general rule that basis difference with respect to an RFA is the U.S. basis in the RFA immediately after the CAA, less the U.S. basis in the RFA immediately before the CAA. If, however, an asset is an RFA with respect to a section 743(b) CAA, Sec. 1.901(m)-4T(d) provides that basis difference with respect to the RFA is the resulting basis adjustment under section 743(b) that is allocated to the RFA under section 755. Section 1.901(m)-2T(e) ``resets'' the basis difference in an RFA with respect to a CAA that occurred during the transition period by defining basis difference in the RFA as the portion of statutory basis difference that had not been taken into account under section 901(m)(3)(B) either as of July 21, 2014, or, in the case of an entity classification election made under Sec. 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014, prior to the transactions that are deemed to occur under Sec. 301.7701-3(g) as a result of the change in classification. This is the basis difference in the RFA for the period to which the temporary regulations apply. V. Basis Difference Taken Into Account Section 1.901(m)-5T provides rules for determining the amount of basis difference with respect to an RFA that is taken into account in a given U.S. taxable year (allocated basis difference). The amount of basis difference taken into account in a U.S. taxable year is used to compute a disqualified tax amount for the U.S. taxable year. Basis difference is taken into account in two ways: Under an applicable cost recovery method or as a result of a disposition of the RFA. If an asset is an RFA with respect to more than one foreign income tax, basis difference with respect to each foreign income tax is separately taken into account under Sec. 1.901(m)-5T. A. Determining Cost Recovery Amounts Consistent with section 901(m)(3)(B)(i), Sec. 1.901(m)-5T(b)(2) provides that a cost recovery amount for an RFA is determined by applying an applicable cost recovery method to the basis difference rather than to the U.S. basis of the RFA. B. Determining Disposition Amounts 1. Overview Section 901(m)(3)(B)(ii) provides that, except as otherwise provided by the Secretary, if there is a disposition of an RFA, the basis difference allocated to the U.S. taxable year of the disposition shall be the excess of the basis difference of such RFA over the total amount of such basis difference that has been allocated to all prior U.S. taxable years (unallocated basis difference). This result is appropriate when all the gain or loss from the disposition is recognized for both U.S. and foreign income tax purposes. In other cases, however, a disposition may not be the appropriate time for all of the unallocated basis difference to be taken into account. For example, it may not be appropriate for all of the unallocated basis difference to be taken into account upon a disposition that is fully taxable for U.S. income tax purposes but not for foreign income tax purposes. Accordingly, under the specific authority granted to the Secretary with respect to dispositions, these temporary regulations provide rules to determine when less than all of the unallocated basis difference is taken into account as a result of a disposition. 2. Definition of Disposition Section 1.901(m)-1T(a)(10) defines a disposition for purposes of section 901(m) as an event that results in gain or loss being recognized with respect to an RFA for purposes of U.S. income tax or foreign income tax, or both. Thus, the definition excludes certain transfers that might otherwise be considered dispositions under the ordinary meaning of that term. For example, an entity classification election by an RFA owner that results in a tax-free deemed liquidation for U.S. income tax purposes but that is disregarded for foreign income tax purposes does not result in a disposition of the RFAs under section 901(m), because no gain or loss is recognized for U.S. or foreign income tax purposes with respect to the distribution of the RFAs in the deemed liquidation. This is the case even though the deemed liquidation might otherwise be considered a ``disposition'' of assets under other provisions of the Code. 3. Determining a Disposition Amount Section 1.901(m)-5T(c)(2) provides rules for determining a disposition amount. If a disposition of an RFA is fully taxable for U.S. and foreign income tax purposes, the disposition amount will be any remaining unallocated basis difference with respect to that RFA. This is because there generally will no longer be a disparity in the U.S. basis and the foreign basis of the RFA. If a disposition is not fully taxable for both U.S. and foreign income tax purposes, generally there will continue to be a disparity in the U.S. basis and the foreign basis following the disposition, and it will be appropriate for the RFA to continue to have unallocated basis difference. To the extent that the disparity in the U.S. basis and the foreign basis is reduced as a result of the disposition, however, a portion of the unallocated basis difference (or, in certain cases, all of the unallocated basis difference) should be taken into account. Whether the disposition reduces the basis disparity will depend on whether the basis difference is positive or negative and the jurisdiction in which gain or loss is recognized. If an RFA has a positive basis difference, a reduction in basis disparity generally will occur upon a disposition of the RFA if (i) a foreign disposition gain is recognized, which generally results in an increase in the foreign basis of the RFA, or (ii) a U.S. disposition loss is recognized, which generally results in a decrease in the U.S. basis of the RFA. Accordingly, if an RFA has a positive basis difference, the disposition amount equals the lesser of (i) any foreign disposition gain plus any U.S. disposition loss (for this purpose, expressed as a positive amount), or (ii) unallocated basis difference. See Sec. 1.901(m)-5T(c)(2)(ii)(A). If an RFA has a negative basis difference, a reduction in basis disparity generally will occur upon a disposition of the RFA if (i) a foreign disposition loss is recognized, which generally results in a decrease in the foreign basis of the RFA, or (ii) a U.S. disposition gain is recognized, which generally results in an increase in the U.S. basis of the RFA. Accordingly, if an RFA has a negative basis difference, the disposition amount equals the greater of (i) any U.S. disposition gain (for this purpose, expressed as a negative amount) plus any foreign disposition loss, or (ii) unallocated basis difference. See Sec. 1.901(m)-5T(c)(2)(ii)(B). [[Page 88106]] For the avoidance of doubt, the determination of whether there is a disposition for U.S. income tax purposes, and the amount of U.S. disposition gain or U.S. disposition loss, is made without regard to whether gain or loss is deferred or disallowed or otherwise not taken into account currently (for example, see section 267, which defers or disallows certain recognized losses, and Sec. 1.1502-13, which provides rules for taking into account items of income, gain, deduction, and loss of members of a U.S. consolidated group from intercompany transactions). This principle also applies if foreign law has an equivalent concept whereby gain or loss that is realized and recognized is deferred or disallowed. If an asset is an RFA by reason of a section 743(b) CAA and subsequently there is a disposition of the RFA, then for purposes of determining the disposition amount, foreign disposition gain or foreign disposition loss means the amount of gain or loss recognized for purposes of a foreign income tax on the disposition of the RFA that is allocable to the partnership interest that was transferred in the section 743(b) CAA. See Sec. 1.901(m)-5T(c)(2)(iii). In addition, U.S. disposition gain or U.S. disposition loss means the amount of gain or loss recognized for U.S. income tax purposes on the disposition of the RFA that is allocable to the partnership interest that was transferred in the section 743(b) CAA, taking into account the basis adjustment under section 743(b) that was allocated to the RFA under section 755 in the section 743(b) CAA. See id. VI. Successor Rules for Unallocated Basis Difference A. General Rules Section 1.901(m)-6T(b) provides that section 901(m) continues to apply to any unallocated basis difference with respect to an RFA after there is a transfer of the RFA for U.S. income tax purposes (successor transaction), regardless of whether the transfer is a disposition, a CAA, or a non-taxable transaction. A successor transaction does not occur if, as a result of the transfer of an RFA, the entire unallocated basis difference is taken into account because, for example, the transfer results in all realized gain or loss in the RFA being recognized for U.S. and foreign income tax purposes. Notice 2014-44 stated that the Treasury Department and the IRS are continuing to study whether and to what extent section 901(m) should apply to an asset received in exchange for an RFA in a transaction in which the U.S. basis of the asset is determined by reference to the U.S. basis of the transferred RFA. The Treasury Department and the IRS have determined that an asset should not become an RFA solely because the U.S. basis of that asset is determined by reference to the U.S. basis of an RFA for which the asset is exchanged in a successor transaction. Accordingly, for example, if, in a successor transaction, an RFA owner transfers an RFA to a corporation in a transfer to which section 351 applies, the stock of the transferee corporation received is not an RFA even though the U.S. basis of the stock is determined under section 358 by reference to the U.S. basis of the RFA transferred. B. Successor Transactions That Are CAAs An asset may be an RFA with respect to multiple CAAs if a successor transaction is also a CAA (subsequent CAA). In this case, the subsequent CAA may give rise to additional basis difference. Section 1.901(m)-6T(b)(4)(i) provides generally that the unallocated basis difference with respect to a CAA that occurred prior to the subsequent CAA (referred to in the regulations as a ``prior CAA'') will continue to be taken into account under section 901(m) after the subsequent CAA. Section 1.901(m)-6T(b)(4)(iii) provides an exception to the general rule if an RFA is subject to two section 743(b) CAAs (referred to in the regulations as a ``prior section 743(b) CAA'' and a ``subsequent section 743(b) CAA''). In this case, to the extent the same partnership interest is transferred in the section 743(b) CAAs, the RFA will be treated as having no unallocated basis difference with respect to the prior section 743(b) CAA if basis difference for the subsequent section 743(b) CAA is determined independently from the prior section 743(b) CAA. In this regard, see generally Sec. 1.743-1(f) and proposed Sec. 1.743-1(f)(2). If the subsequent section 743(b) CAA results from the acquisition of only a portion of the partnership interest acquired in the prior section 743(b) CAA, the transferor must equitably apportion the unallocated basis difference attributable to the prior section 743(b) CAA between the portion of the interest retained and the portion of the interest transferred. With respect to the portion transferred, the RFA will be treated as having no unallocated basis difference attributable to the prior section 743(b) CAA. VII. Definition of Foreign Income Tax For purposes of section 901(m), the temporary regulations define ``foreign income tax'' as any income, war profits, or excess profits tax for which a credit is allowable under section 901 or 903, other than any withholding tax determined on a gross basis as described in section 901(k)(1)(B). The Treasury Department and the IRS have determined that a withholding tax should not be subject to disallowance under section 901(m) because a withholding tax is a gross basis tax that is generally unaffected by changes in asset basis. Effect on Other Documents The following publications are obsolete as of December 7, 2016: Notice 2014-44 (2014-32 I.R.B. 270) and Notice 2014-45 (2014-34 I.R.B. 388). Special Analyses Certain IRS regulations, including these, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory impact assessment is not required. For the applicability of the Regulatory Flexibility Act (5 U.S.C. chapter 6), refer to the Special Analyses section of the preamble of the cross-referenced notice of proposed rulemaking published in this issue of the Federal Register. Pursuant to section 7805(f) of the Internal Revenue Code, these regulations has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses. Drafting Information The principal author of these regulations is Jeffrey L. Parry of the Office of Associate Chief Counsel (International). However, other personnel from the Treasury Department and the IRS participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. 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 is amended by adding entries in numerical order to read as follows: Authority: 26 U.S.C. 7805 * * * [[Page 88107]] Sections 1.901(m)-1T through -8T also issued under 26 U.S.C. 901(m)(7). Section 1.901(m)-5T also issued under 26 U.S.C. 901(m)(3)(B)(ii). * * * 0 Par. 2. Section 1.901(m)-1T is added to read as follows: Sec. 1.901(m)-1T Definitions (temporary). (a) Definitions. For purposes of section 901(m), this section, and Sec. Sec. 1.901(m)-2T through 1.901(m)-8T, the following definitions apply: (1)-(5) [Reserved] (6) The term basis difference has the meaning provided in Sec. 1.901(m)-4T. (7) The term cost recovery amount has the meaning provided in Sec. 1.901(m)-5T(b)(2). (8) The term covered asset acquisition (or CAA) has the meaning provided in Sec. 1.901(m)-2T. (9) [Reserved] (10) The term disposition means an event (for example, a sale, abandonment, or mark-to-market event) that results in gain or loss being recognized with respect to an RFA for purposes of U.S. income tax or a foreign income tax, or both. (11) The term disposition amount has the meaning provided in Sec. 1.901(m)-5T(c)(2). (12) [Reserved] (13) The term disregarded entity means an entity that is disregarded as an entity separate from its owner, as described in Sec. 301.7701-2(c)(2)(i) of this chapter. (14) The term fiscally transparent entity means an entity, including a Disregarded Entity, that is fiscally transparent under the principles of Sec. 1.894-1(d)(3) for purposes of U.S. income tax or a foreign income tax (or both). (15)-(17) [Reserved]. (18) The term foreign disposition gain means, with respect to a foreign income tax, the amount of gain recognized on a disposition of an RFA in determining Foreign Income, regardless of whether the gain is deferred or otherwise not taken into account currently. Notwithstanding the foregoing, if after a section 743(b) CAA there is a disposition of an asset that is an RFA with respect to that section 743(b) CAA, foreign disposition gain has the meaning provided in Sec. 1.901(m)- 5T(c)(2)(iii). (19) The term foreign disposition loss means, with respect to a foreign income tax, the amount of loss recognized on a disposition of an RFA in determining Foreign Income, regardless of whether the loss is deferred or disallowed or otherwise not taken into account currently. Notwithstanding the foregoing, if after a section 743(b) CAA there is a disposition of an asset that is an RFA with respect to that section 743(b) CAA, foreign disposition loss has the meaning provided in Sec. 1.901(m)-5T(c)(2)(iii). (20) The term foreign income means, with respect to a foreign income tax, the taxable income (or loss) reflected on a foreign tax return (as properly amended or adjusted), even if the taxable income (or loss) is reported by an entity that is a fiscally transparent entity for purposes of the foreign income tax. If, however, foreign law imposes tax on the combined income (within the meaning of Sec. 1.901- 2(f)(3)(ii)) of two or more Foreign Payors, foreign income means the combined taxable income (or loss) of such Foreign Payors, regardless of whether such income (or loss) is reflected on a single foreign tax return. (21) The term foreign income tax means an income, war profits, or excess profits tax for which a credit is allowable under section 901 or 903, except that it does not include any withholding tax determined on a gross basis as described in section 901(k)(1)(B). (22)-(25) [Reserved] (26) The term prior CAA has the meaning provided in Sec. 1.901(m)- 6T(b)(2). (27) The term prior section 743(b) CAA has the meaning provided in Sec. 1.901(m)-6T(b)(4)(iii). (28) The term relevant foreign asset (or RFA) has the meaning provided in Sec. 1.901(m)-2T. (29)-(32) [Reserved] (33) The term section 338 CAA has the meaning provided in Sec. 1.901(m)-2T(b)(1). (34) The term section 743(b) CAA has the meaning provided in Sec. 1.901(m)-2T(b)(3). (35) [Reserved] (36) The term subsequent CAA has the meaning provided in Sec. 1.901(m)-6T(b)(4)(i). (37) The term subsequent section 743(b) CAA has the meaning provided in Sec. 1.901(m)-6T(b)(4)(iii). (38) The term successor transaction has the meaning provided in Sec. 1.901(m)-6T(b)(2). (39) [Reserved] (40) The term unallocated basis difference means, with respect to an RFA and a foreign income tax, the basis difference reduced by the sum of the cost recovery amounts and the disposition amounts that have been computed under Sec. 1.901(m)-5T. (41) The term U.S. basis means the adjusted basis of an asset determined for U.S. income tax purposes. (42) [Reserved]. (43) The term U.S. disposition gain means the amount of gain recognized for U.S. income tax purposes on a disposition of an RFA, regardless of whether the gain is deferred or otherwise not taken into account currently. Notwithstanding the foregoing, if after a section 743(b) CAA there is a disposition of an asset that is an RFA with respect to that section 743(b) CAA, U.S. disposition gain has the meaning provided in Sec. 1.901(m)-5T(c)(2)(iii). (44) The term U.S. disposition loss means the amount of loss recognized for U.S. income tax purposes on a disposition of an RFA, regardless of whether the loss is deferred or disallowed or otherwise not taken into account currently. Notwithstanding the foregoing, if after a section 743(b) CAA there is a disposition of an asset that is an RFA with respect to that section 743(b) CAA, U.S. disposition loss has the meaning provided in Sec. 1.901(m)-5T(c)(2)(iii). (45) The term U.S. taxable year means a taxable year as defined in section 7701(a)(23). (b) Effective/applicability date. (1) [Reserved]. (2) Paragraphs (a)(6), (7), (8), (10), (11), (13), (14), (18), (19), (20), (21), (26), (27), (28), (33), (34), (36), (37), (38), (40), (41), (43), (44), and (45) of this section apply to CAAs occurring on or after July 21, 2014, and to CAAs occurring before that date resulting from an entity classification election made under Sec. 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014. Paragraphs (a)(6), (7), (8), (10), (11), (13), (14), (18), (19), (20), (21), (26), (27), (28), (33), (34), (36), (37), (38), (40), (41), (43), (44), and (45) of this section also apply to CAAs occurring on or after January 1, 2011, and before July 21, 2014, other than CAAs occurring before July 21, 2014, resulting from an entity classification election made under Sec. 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014, but only if the basis difference (within the meaning of section 901(m)(3)(C)(i)) in one or more RFAs with respect to the CAA had not been fully taken into account under section 901(m)(3)(B) either as of July 21, 2014, or, in the case of an entity classification election made under Sec. 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014, prior to the transactions that are deemed to occur under Sec. 301.7701-3(g) as a result of the change in classification. (3) [Reserved]. (c) Expiration date. The applicability of this section expires on December 6, 2019. [[Page 88108]] 0 Par. 3. Section 1.901(m)-2T is added to read as follows: Sec. 1.901(m)-2T Covered asset acquisitions and relevant foreign assets (temporary). (a) In general. Paragraph (b) of this section sets forth the transactions that are covered asset acquisitions (or CAAs). Paragraph (c) of this section provides rules for identifying assets that are relevant foreign assets (or RFAs) with respect to a CAA. Paragraph (d) of this section provides special rules for identifying CAAs and RFAs with respect to transactions to which paragraphs (b) and (c) of this section do not apply. Paragraph (e) of this section provides examples illustrating the rules of this section. Paragraph (f) of this section provides the effective/applicability date, and paragraph (g) of this section provides the expiration date. (b) Covered asset acquisitions. Except as provided in paragraph (d) of this section, the transactions set forth in this paragraph (b) are CAAs. (1) A qualified stock purchase (as defined in section 338(d)(3)) to which section 338(a) applies (section 338 CAA); (2) Any transaction that is treated as an acquisition of assets for U.S. income tax purposes and as an acquisition of stock of a corporation (or the transaction is disregarded) for foreign income tax purposes; (3) Any acquisition of an interest in a partnership that has an election in effect under section 754 (section 743(b) CAA); (4)-(6) [Reserved]. (c) Relevant foreign asset--(1) In general. Except as provided in paragraph (d) of this section, an RFA means, with respect to a foreign income tax and a CAA, any asset (including goodwill, going concern value, or other intangible) subject to the CAA that is relevant in determining foreign income for purposes of the foreign income tax. (2) RFA status with respect to a foreign income tax [Reserved]. (3) Subsequent RFA status with respect to another foreign income tax [Reserved]. (d) Identifying covered asset acquisitions and relevant foreign assets to which paragraphs (b) and (c) of this section do not apply. For transactions occurring on or after January 1, 2011, and before July 21, 2014, other than transactions occurring before July 21, 2014, resulting from an entity classification election made under Sec. 301.7701-3 of this chapter that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014, the transactions set forth under section 901(m)(2) are CAAs and the assets that are relevant foreign assets with respect to the CAA under section 901(m)(4) are RFAs. (e) Examples. [Reserved]. (f) Effective/applicability date--(1) Paragraphs (a), (b)(1) through (3), and (c)(1) of this section apply to transactions occurring on or after July 21, 2014, and to transactions occurring before that date resulting from an entity classification election made under Sec. 301.7701-3 of this chapter that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014. Paragraph (d) of this section applies to transactions occurring on or after January 1, 2011, and before July 21, 2014, other than transactions occurring before July 21, 2014, resulting from an entity classification election made under Sec. 301.7701-3 of this chapter that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014. (2)-(3) [Reserved] (g) Expiration date. The applicability of this section expires on December 6, 2019. 0 Par. 4. Section 1.901(m)-3T is added and reserved to read as follows: Sec. 1.901(m)-3T Disqualified tax amount and aggregate basis difference carryover (temporary). [Reserved]. 0 Par. 5. Section 1.901(m)-4T is added to read as follows: Sec. 1.901(m)-4T Determination of basis difference (temporary). (a) In general. This section provides rules for determining for each RFA the basis difference that arises as a result of a CAA. A basis difference is computed separately with respect to each foreign income tax for which an asset subject to a CAA is an RFA. Paragraph (b) of this section provides the general rule for determining basis difference that references only U.S. basis in the RFA. Paragraph (c) of this section provides for an election to determine basis difference by reference to foreign basis and sets forth the procedures for making the election. Paragraph (d) of this section provides special rules for determining basis difference in the case of a section 743(b) CAA. Paragraph (e) of this section provides a special rule for determining basis difference in an RFA with respect to a CAA to which paragraphs (b) through (d) of this section do not apply. Paragraph (f) of this section provides examples illustrating the rules of this section. Paragraph (g) of this section provides the effective/applicability date, and paragraph (h) of this section provides the expiration date. (b) General rule. Except as otherwise provided in paragraphs (c), (d), and (e) of this section, basis difference is the U.S. basis in the RFA immediately after the CAA, less the U.S. basis in the RFA immediately before the CAA. Basis difference is an attribute that attaches to an RFA. (c) Foreign basis election. [Reserved]. (d) Determination of basis difference in a section 743(b) CAA--(1) In general. Except as provided in paragraphs (d)(2) and (e) of this section, if there is a section 743(b) CAA, basis difference is the resulting basis adjustment under section 743(b) that is allocated to the RFA under section 755. (2) Foreign basis election. [Reserved]. (e) Determination of basis difference in an RFA with respect to a CAA with respect to which paragraphs (b), (c), and (d) of this section do not apply. For CAAs occurring on or after January 1, 2011, and before July 21, 2014, other than CAAs occurring before July 21, 2014, resulting from an entity classification election made under Sec. 301.7701-3 of this chapter that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014, basis difference in an RFA with respect to the CAA is the amount of any basis difference (within the meaning of section 901(m)(3)(C)(i)) that had not been taken into account under section 901(m)(3)(B) either as of July 21, 2014, or, in the case of an entity classification election made under Sec. 301.7701-3 of this chapter that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014, prior to the transactions that are deemed to occur under Sec. 301.7701-3(g) as a result of the change in classification. (f) Examples. [Reserved]. (g) Effective/applicability date. (1) Paragraphs (a), (b), and (d)(1) of this section apply to CAAs occurring on or after July 21, 2014, and to CAAs occurring before that date resulting from an entity classification election made under Sec. 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014. Paragraph (e) of this section applies to CAAs occurring on or after January 1, 2011, and before July 21, 2014, other than CAAs occurring before July 21, 2014, resulting from an entity classification election made under Sec. 301.7701-3 of this chapter that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014. Taxpayers may, however, consistently apply paragraph (d)(1) of this section to all section 743(b) CAAs occurring on or after January 1, 2011. For this purpose, persons that are related (within the meaning of section [[Page 88109]] 267(b) or 707(b)) will be treated as a single taxpayer. (2)-(3) [Reserved] (h) Expiration date. The applicability of this section expires on December 6, 2019. 0 Par. 6. Section 1.901(m)-5T is added to read as follows: Sec. 1.901(m)-5T Basis difference taken into account (temporary). (a) In general. [Reserved]. (b) Basis difference taken into account under applicable cost recovery method--(1) In general. [Reserved]. (2) Determining a cost recovery amount--(i) General rule. A cost recovery amount for an RFA is determined by applying the applicable cost recovery method to the basis difference rather than to the U.S. basis. (ii) U.S. basis subject to multiple cost recovery methods. [Reserved]. (3) Applicable cost recovery method. [Reserved]. (c) Basis difference taken into account as a result of a disposition--(1) In general. [Reserved]. (2) Determining a disposition amount--(i) Disposition is fully taxable for purposes of both U.S. income tax and the foreign income tax. If a disposition of an RFA is fully taxable (that is, results in all gain or loss, if any, being recognized with respect to the RFA) for purposes of both U.S. income tax and the foreign income tax, the disposition amount is equal to the unallocated basis difference with respect to the RFA. (ii) Disposition is not fully taxable for purposes of U.S. income tax or the foreign income tax (or both). If the disposition of an RFA is not fully taxable for purposes of both U.S. income tax and the foreign income tax, the disposition amount is determined under this paragraph (c)(2)(ii). See Sec. 1.901(m)-6T for rules regarding the continued application of section 901(m) if the RFA has any unallocated basis difference after determining the disposition amount under paragraph (c)(2)(ii)(A) or (B) of this section, as applicable. (A) Positive basis difference. If the disposition of an RFA is not fully taxable for purposes of both U.S. income tax and the foreign income tax, and the RFA has a positive basis difference, the disposition amount equals the lesser of: (1) Any foreign disposition gain plus any U.S. disposition loss (for this purpose, expressed as a positive amount), or (2) Unallocated basis difference with respect to the RFA. (B) Negative basis difference. If the disposition of an RFA is not fully taxable for purposes of both U.S. income tax and the foreign income tax, and the RFA has a negative basis difference, the disposition amount equals the greater of: (1) Any U.S. disposition gain (for this purpose, expressed as a negative amount) plus any foreign disposition loss, or (2) Unallocated basis difference with respect to the RFA. (iii) Disposition of an RFA after a section 743(b) CAA. If an RFA was subject to a section 743(b) CAA and subsequently there is a disposition of the RFA, then, for purposes of determining the disposition amount, foreign disposition gain or foreign disposition loss are specially defined to mean the amount of gain or loss recognized for purposes of the foreign income tax on the disposition of the RFA that is allocable to the partnership interest that was transferred in the section 743(b) CAA. In addition, U.S. disposition gain or U.S. disposition loss are specially defined to mean the amount of gain or loss recognized for U.S. income tax purposes on the disposition of the RFA that is allocable to the partnership interest that was transferred in the section 743(b) CAA, taking into account the basis adjustment under section 743(b) that was allocated to the RFA under section 755. (d) General rules for allocating and assigning a cost recovery amount or a disposition amount when the RFA owner (U.S.) is a fiscally transparent entity. [Reserved]. (e) Special rules for certain section 743(b) CAAs. [Reserved] (f) Mid-year transactions. [Reserved] (g) Reverse hybrids. [Reserved] (h) Examples. [Reserved] (i) Effective/applicability date. (1) [Reserved] (2) Paragraphs (b)(2)(i) and (c)(2) of this section apply to CAAs occurring on or after July 21, 2014, and to CAAs occurring before that date resulting from an entity classification election made under Sec. 301.7701-3 of this chapter that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014. Paragraphs (b)(2)(i) and (c)(2) of this section also apply to CAAs occurring on or after January 1, 2011, and before July 21, 2014, other than CAAs occurring before July 21, 2014, resulting from an entity classification election made under Sec. 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014, but only with respect to basis difference determined under Sec. 1.901(m)-4T(e) with respect to the CAA. (3) [Reserved] (j) Expiration date. The applicability of this section expires on December 6, 2019. 0 Par. 7. Section 1.901(m)-6T is added to read as follows: Sec. 1.901(m)-6T Successor rules (temporary). (a) In general. This section provides successor rules applicable to section 901(m). Paragraph (b) of this section provides rules for the continued application of section 901(m) after an RFA that has unallocated basis difference has been transferred, including special rules applicable to successor transactions that are also CAAs or that involve partnerships. Paragraph (c) of this section provides rules for determining when an aggregate basis difference carryover of a section 901(m) payor either becomes an aggregate basis difference carryover of the section 901(m) payor with respect to another foreign payor or is transferred to another section 901(m) payor. Paragraph (d) of this section provides the effective/applicability date, and paragraph (e) of this section provides the expiration date. (b) Successor rules for unallocated basis difference--(1) In general. Except as provided in paragraph (b)(4) of this section, section 901(m) continues to apply after a successor transaction to any unallocated basis difference attached to a transferred RFA until the entire basis difference has been taken into account as a cost recovery amount or a disposition amount (or both) under Sec. 1.901(m)-5T. (2) Definition of a successor transaction. A successor transaction occurs with respect to an RFA if, after a CAA (prior CAA), there is a transfer of the RFA for U.S. income tax purposes and the RFA has unallocated basis difference with respect to the prior CAA, determined immediately after the transfer. A successor transaction may occur regardless of whether the transfer of the RFA is a disposition, a CAA, or a non-taxable transaction for purposes of U.S. income tax. If the RFA was subject to multiple prior CAAs, a separate determination must be made with respect to each prior CAA as to whether the transfer is a successor transaction. (3) Special considerations. [Reserved]. (4) Successor transaction is a CAA--(i) In general. An asset may be an RFA with respect to multiple CAAs if a successor transaction is also a CAA (subsequent CAA). Except as otherwise provided in this paragraph (b)(4), if there is a subsequent CAA, unallocated basis difference with respect to any prior CAAs will continue to be taken [[Page 88110]] into account under section 901(m) after the subsequent CAA. Furthermore, the subsequent CAA may give rise to additional basis difference subject to section 901(m). (ii) Foreign basis election. [Reserved]. (iii) Multiple section 743(b) CAAs. If an RFA is subject to two section 743(b) CAAs (prior section 743(b) CAA and subsequent section 743(b) CAA) and the same partnership interest is acquired in both the CAAs, the RFA will be treated as having no unallocated basis difference with respect to the prior section 743(b) CAA if the basis difference for the section 743(b) CAA is determined independently from the prior section 743(b) CAA. In this regard, see generally Sec. 1.743-1(f). If the subsequent section 743(b) CAA results from the acquisition of only a portion of the partnership interest acquired in the prior section 743(b) CAA, then the transferor will be required to equitably apportion the unallocated basis difference attributable to the prior section 743(b) CAA between the portion retained by the transferor and the portion transferred. In this case, with respect to the portion transferred, the RFAs will be treated as having no unallocated basis difference with respect to the prior section 743(b) CAA if basis difference for the subsequent section 743(b) CAA is determined independently from the prior section 743(b) CAA. (5) Example. The following example illustrates the rules of paragraph (b) of this section. Example. (i) Facts. USP, a domestic corporation, wholly owns CFC, a foreign corporation organized in Country A and treated as a corporation for both U.S. and Country A tax purposes. FT is an unrelated foreign corporation organized in Country A and treated as a corporation for both U.S. and Country A tax purposes. FT owns one asset, a parcel of land (Asset). Country A imposes a single tax that is a foreign income tax. On January 1, Year 1, CFC acquires all of the stock of FT in exchange for 300u in a qualified stock purchase (as defined in section 338(d)(3)) to which section 338(a) applies (Acquisition). Immediately before the Acquisition, Asset had a U.S. basis of 100u, and immediately after the Acquisition, Asset had a U.S. basis of 300u. Effective on February 1, Year 1, FT elects to be a disregarded entity pursuant to Sec. 301.7701-3. As a result of the election, FT is deemed, for U.S. income tax purposes, to distribute Asset to CFC in liquidation (Deemed Liquidation) immediately before the closing of the day before the election is effective pursuant to Sec. 301.7701-3(g)(1)(iii) and (3)(ii). The Deemed Liquidation is disregarded for Country A tax purposes. No gain or loss is recognized on the Deemed Liquidation for either U.S. or Country A tax purposes. (ii) Result. Under Sec. 1.901(m)-2T(b)(1), the Acquisition by CFC of the stock of FT is a section 338 CAA. Under Sec. 1.901(m)- 2T(c)(1), Asset is an RFA with respect to Country A tax and the Acquisition, because immediately after the Acquisition, Asset is relevant in determining foreign income of FT for Country A tax purposes, and FT owned Asset when the Acquisition occurred. Under Sec. 1.901(m)-4T(b), the basis difference with respect to Asset is 200u (300u-100u). Under Sec. 1.901(m)-2T(b)(2), the Deemed Liquidation is a CAA (subsequent CAA) because the Deemed Liquidation is treated as an acquisition of assets for U.S. income tax purposes and is disregarded for Country A tax purposes. Because the U.S. basis in Asset is 300u immediately before and after the Deemed Liquidation, the subsequent CAA does not give rise to any additional basis difference. The Deemed Liquidation is not a disposition under Sec. 1.901(m)-1T(a)(10) because it did not result in gain or loss being recognized with respect to Asset for U.S. or Country A tax purposes. Accordingly, no basis difference with respect to Asset is taken into account under Sec. 1.901(m)-5T as a result of the Deemed Liquidation, and the unallocated basis difference with respect to Asset immediately after the Deemed Liquidation is 200u (200u-0u). Under paragraph (b)(2) of this section, the Deemed Liquidation is a successor transaction because there is a transfer of Asset for U.S. income tax purposes from FT to CFC and Asset has unallocated basis difference with respect to the Acquisition immediately after the Deemed Liquidation. Accordingly, under paragraph (b)(1) of this section, section 901(m) will continue to apply to the unallocated basis difference with respect to Asset until the entire 200u basis difference has been taken into account under Sec. 1.901(m)-5T. (c) Successor rules for aggregate basis difference carryover [Reserved]. (d) Effective/applicability date. (1) Paragraphs (a), (b)(1), (b)(2), (b)(4)(i), (b)(4)(iii), and (b)(5) of this section apply to CAAs occurring on or after July 21, 2014, and to CAAs occurring before that date resulting from an entity classification election made under Sec. 301.7701-3 of this chapter that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014. Paragraphs (a), (b)(1), (b)(2), (b)(4)(i), (b)(4)(iii), and (b)(5) of this section also apply to CAAs occurring on or after January 1, 2011, and before July 21, 2014, other than CAAs occurring before July 21, 2014, resulting from an entity classification election made under Sec. 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014, but only with respect to basis difference determined under Sec. 1.901(m)-4T(e) with respect to the CAA. (2)-(3) [Reserved] (e) Expiration date. The applicability of this section expires on December 6, 2019. 0 Par. 8. Sections 1.901(m)-7T and 1.901(m)-8T are added and reserved to read as follows: Sec. 1.901(m)-7T De minimis rules. [Reserved]. Sec. 1.901(m)-8T Miscellaneous. [Reserved]. John Dalrymple, Deputy Commissioner for Services and Enforcement. Approved: November 4, 2016. Mark J. Mazur, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2016-28755 Filed 12-6-16; 8:45 am] BILLING CODE 4830-01-P
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(iii) Other individuals who: G, even if also eligible for another allowed under section 901(a), and in the
(A) Reside regularly in the household nonimmigrant classification. case of foreign income tax paid by a
of the principal alien; * * * * * section 902 corporation (as defined in
section 909(d)(5)), will not be taken into
(B) Are not members of some other Michele Thoren Bond, account for purposes of section 902 or
household; Assistant Secretary for Consular Affairs, 960. Instead, the disqualified portion of
(C) Are recognized as dependents of Department of State. any foreign income tax (the disqualified
the principal alien by the sending [FR Doc. 2016–28518 Filed 12–6–16; 8:45 am] tax amount) is permitted as a deduction.
government or international BILLING CODE P See section 901(m)(6).
organization, as demonstrated by Under section 901(m)(2), a CAA is (i)
eligibility for rights and benefits, such a qualified stock purchase (as defined in
as the issuance of a diplomatic or DEPARTMENT OF THE TREASURY section 338(d)(3)) to which section
338(a) applies; (ii) any transaction that
official passport, or travel or other
Internal Revenue Service is treated as an acquisition of assets for
allowances; and
U.S. income tax purposes and as the
(D) Are individually authorized by the 26 CFR Part 1 acquisition of stock of a corporation (or
Department. is disregarded) for purposes of a foreign
[TD 9800] income tax; (iii) any acquisition of an
* * * * *
RIN 1545–BM75 interest in a partnership that has an
■ 3. Section 41.22 is amended by election in effect under section 754; and
revising paragraph (b) to read as follows: Covered Asset Acquisitions (iv) to the extent provided by the
Secretary, any other similar transaction.
§ 41.22 Officials of foreign governments. AGENCY: Internal Revenue Service (IRS), Section 901(m)(3)(A) provides that the
* * * * * Treasury. term ‘‘disqualified portion’’ means, with
(b) Classification under INA section ACTION: Temporary regulations. respect to any CAA, for any taxable
101(a)(15)(A). An alien entitled to year, the ratio (expressed as a
SUMMARY: This document contains percentage) of (i) the aggregate basis
classification under INA section temporary Income Tax Regulations
101(a)(15)(A) shall be classified under differences (but not below zero)
under section 901(m) of the Internal allocable to such taxable year with
this section even if eligible for another Revenue Code (Code) with respect to
nonimmigrant classification. An respect to all RFAs; divided by (ii) the
transactions that generally are treated as income on which the foreign income tax
exception may be made where an asset acquisitions for U.S. income tax referenced in section 901(m)(1) is
immediate family member is classifiable purposes and either are treated as stock determined. If the taxpayer fails to
as A–1 or A–2 under paragraph (a)(2) of acquisitions or are disregarded for substantiate the income on which the
this section is also independently foreign income tax purposes. These foreign income tax is determined to the
classifiable as a principal under INA regulations are necessary to provide satisfaction of the Secretary, such
section 101(a)(15)(G)(i), (ii), (iii), (iv) or guidance on applying section 901(m). income will be determined by dividing
in NATO–1 through NATO–6 The text of the temporary regulations the amount of such foreign income tax
classification. also serves in part as the text of the by the highest marginal tax rate
* * * * * proposed regulations under section applicable to the taxpayer’s income in
901(m) (REG–129128–14) published in the relevant jurisdiction.
■ 4. Section 41.24 is amended by the Proposed Rules section of this issue Section 901(m)(3)(B)(i) provides the
revising paragraph (b)(4) to read as of the Federal Register. general rule that the basis difference
follows: DATES: Effective date: These regulations with respect to any RFA will be
are effective on December 7, 2016. allocated to taxable years using the
§ 41.24 International organization aliens.
Applicability dates: For dates of applicable cost recovery method for U.S.
* * * * * applicability, see §§ 1.901(m)–1T(b), income tax purposes. Section
(b) * * * 1.901(m)–2T(f), 1.901(m)–4T(g), 901(m)(3)(B)(ii) provides that, except as
1.901(m)–5T(i), and 1.901(m)–6T(d). otherwise provided by the Secretary, if
(4) An alien not classifiable under
FOR FURTHER INFORMATION CONTACT:
there is a disposition of an RFA, the
INA section 101(a)(15)(A) or in NATO– basis difference allocated to the taxable
1 through NATO–6 classification but Jeffrey L. Parry, (202) 317–6936 (not a
toll-free number). year of the disposition will be the excess
entitled to classification under INA of the basis difference of such asset over
section 101(a)(15)(G) shall be classified SUPPLEMENTARY INFORMATION:
the aggregate basis difference of such
under section 101(a)(15)(G), even if also Background asset that has been allocated to all prior
eligible for another nonimmigrant taxable years. The statute further
classification. An alien classified under I. Section 901(m)
provides that no basis difference with
INA section 101(a)(15)(G) as an Section 212 of the Education Jobs and respect to such asset will be allocated to
immediate family member of a principal Medicaid Assistance Act (EJMAA), any taxable year thereafter.
alien classifiable G–1, G–2, G–3 or G–4, enacted on August 10, 2010 (Public Law Section 901(m)(3)(C)(i) provides that
may continue to be so classified even if 111–226), added section 901(m) to the basis difference means, with respect to
asabaliauskas on DSK3SPTVN1PROD with RULES
he or she obtains employment Code. Section 901(m)(1) provides that, any RFA, the excess of (i) the adjusted
subsequent to his or her initial entry in the case of a covered asset acquisition basis of such asset immediately after the
into the United States that would allow (CAA), the disqualified portion of any CAA, over (ii) the adjusted basis of such
classification under INA section foreign income tax determined with asset immediately before the CAA. If the
101(a)(15)(A). Such alien shall not be respect to the income or gain adjusted basis of an RFA immediately
classified in a category other than A or attributable to relevant foreign assets before the CAA exceeds the adjusted
(RFAs) will not be taken into account in basis of the RFA immediately after the
determining the foreign tax credit CAA (that is, where the adjusted basis
VerDate Sep<11>2014 16:02 Dec 06, 2016 Jkt 241001 PO 00000 Frm 00007 Fmt 4700 Sfmt 4700 E:\FR\FM\07DER1.SGM 07DER1](https://thefederalregister.org/doc/81_FR_88338/page/1.svg)
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Sections 1.901(m)–1T through –8T also an RFA with respect to that section U.S. income tax purposes on a
issued under 26 U.S.C. 901(m)(7). 743(b) CAA, foreign disposition loss has disposition of an RFA, regardless of
Section 1.901(m)–5T also issued under 26 the meaning provided in § 1.901(m)– whether the gain is deferred or
U.S.C. 901(m)(3)(B)(ii). * * * 5T(c)(2)(iii). otherwise not taken into account
■ Par. 2. Section 1.901(m)–1T is added (20) The term foreign income means, currently. Notwithstanding the
to read as follows: with respect to a foreign income tax, the foregoing, if after a section 743(b) CAA
§ 1.901(m)–1T Definitions (temporary).
taxable income (or loss) reflected on a there is a disposition of an asset that is
foreign tax return (as properly amended an RFA with respect to that section
(a) Definitions. For purposes of or adjusted), even if the taxable income 743(b) CAA, U.S. disposition gain has
section 901(m), this section, and (or loss) is reported by an entity that is the meaning provided in § 1.901(m)–
§§ 1.901(m)–2T through 1.901(m)–8T, a fiscally transparent entity for purposes 5T(c)(2)(iii).
the following definitions apply: of the foreign income tax. If, however, (44) The term U.S. disposition loss
(1)–(5) [Reserved] foreign law imposes tax on the means the amount of loss recognized for
(6) The term basis difference has the U.S. income tax purposes on a
combined income (within the meaning
meaning provided in § 1.901(m)–4T. disposition of an RFA, regardless of
of § 1.901–2(f)(3)(ii)) of two or more
(7) The term cost recovery amount has whether the loss is deferred or
Foreign Payors, foreign income means
the meaning provided in § 1.901(m)– disallowed or otherwise not taken into
the combined taxable income (or loss) of
5T(b)(2). account currently. Notwithstanding the
such Foreign Payors, regardless of
(8) The term covered asset acquisition foregoing, if after a section 743(b) CAA
whether such income (or loss) is
(or CAA) has the meaning provided in there is a disposition of an asset that is
reflected on a single foreign tax return.
§ 1.901(m)–2T. an RFA with respect to that section
(21) The term foreign income tax
(9) [Reserved] 743(b) CAA, U.S. disposition loss has
means an income, war profits, or excess
(10) The term disposition means an the meaning provided in § 1.901(m)–
profits tax for which a credit is
event (for example, a sale, 5T(c)(2)(iii).
allowable under section 901 or 903,
abandonment, or mark-to-market event) (45) The term U.S. taxable year means
except that it does not include any
that results in gain or loss being a taxable year as defined in section
withholding tax determined on a gross
recognized with respect to an RFA for 7701(a)(23).
basis as described in section
purposes of U.S. income tax or a foreign (b) Effective/applicability date. (1)
901(k)(1)(B).
income tax, or both. [Reserved].
(22)–(25) [Reserved]
(11) The term disposition amount has (2) Paragraphs (a)(6), (7), (8), (10),
(26) The term prior CAA has the
the meaning provided in § 1.901(m)- (11), (13), (14), (18), (19), (20), (21), (26),
meaning provided in § 1.901(m)–
5T(c)(2). (27), (28), (33), (34), (36), (37), (38), (40),
6T(b)(2).
(12) [Reserved] (27) The term prior section 743(b) (41), (43), (44), and (45) of this section
(13) The term disregarded entity apply to CAAs occurring on or after July
CAA has the meaning provided in
means an entity that is disregarded as an 21, 2014, and to CAAs occurring before
§ 1.901(m)–6T(b)(4)(iii).
entity separate from its owner, as (28) The term relevant foreign asset that date resulting from an entity
described in § 301.7701–2(c)(2)(i) of this (or RFA) has the meaning provided in classification election made under
chapter. § 1.901(m)–2T. § 301.7701–3 that is filed on or after July
(14) The term fiscally transparent (29)–(32) [Reserved] 29, 2014, and that is effective on or
entity means an entity, including a (33) The term section 338 CAA has before July 21, 2014. Paragraphs (a)(6),
Disregarded Entity, that is fiscally the meaning provided in § 1.901(m)– (7), (8), (10), (11), (13), (14), (18), (19),
transparent under the principles of 2T(b)(1). (20), (21), (26), (27), (28), (33), (34), (36),
§ 1.894–1(d)(3) for purposes of U.S. (34) The term section 743(b) CAA has (37), (38), (40), (41), (43), (44), and (45)
income tax or a foreign income tax (or the meaning provided in § 1.901(m)– of this section also apply to CAAs
both). 2T(b)(3). occurring on or after January 1, 2011,
(15)–(17) [Reserved]. (35) [Reserved] and before July 21, 2014, other than
(18) The term foreign disposition gain (36) The term subsequent CAA has the CAAs occurring before July 21, 2014,
means, with respect to a foreign income meaning provided in § 1.901(m)– resulting from an entity classification
tax, the amount of gain recognized on a 6T(b)(4)(i). election made under § 301.7701–3 that
disposition of an RFA in determining (37) The term subsequent section is filed on or after July 29, 2014, and
Foreign Income, regardless of whether 743(b) CAA has the meaning provided that is effective on or before July 21,
the gain is deferred or otherwise not in § 1.901(m)–6T(b)(4)(iii). 2014, but only if the basis difference
taken into account currently. (38) The term successor transaction (within the meaning of section
Notwithstanding the foregoing, if after a has the meaning provided in 901(m)(3)(C)(i)) in one or more RFAs
section 743(b) CAA there is a § 1.901(m)–6T(b)(2). with respect to the CAA had not been
disposition of an asset that is an RFA (39) [Reserved] fully taken into account under section
with respect to that section 743(b) CAA, (40) The term unallocated basis 901(m)(3)(B) either as of July 21, 2014,
foreign disposition gain has the meaning difference means, with respect to an or, in the case of an entity classification
provided in § 1.901(m)–5T(c)(2)(iii). RFA and a foreign income tax, the basis election made under § 301.7701–3 that
(19) The term foreign disposition loss difference reduced by the sum of the is filed on or after July 29, 2014, and
means, with respect to a foreign income cost recovery amounts and the that is effective on or before July 21,
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tax, the amount of loss recognized on a disposition amounts that have been 2014, prior to the transactions that are
disposition of an RFA in determining computed under § 1.901(m)–5T. deemed to occur under § 301.7701–3(g)
Foreign Income, regardless of whether (41) The term U.S. basis means the as a result of the change in
the loss is deferred or disallowed or adjusted basis of an asset determined for classification.
otherwise not taken into account U.S. income tax purposes. (3) [Reserved].
currently. Notwithstanding the (42) [Reserved]. (c) Expiration date. The applicability
foregoing, if after a section 743(b) CAA (43) The term U.S. disposition gain of this section expires on December 6,
there is a disposition of an asset that is means the amount of gain recognized for 2019.
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■ Par. 3. Section 1.901(m)–2T is added are relevant foreign assets with respect (b) General rule. Except as otherwise
to read as follows: to the CAA under section 901(m)(4) are provided in paragraphs (c), (d), and (e)
RFAs. of this section, basis difference is the
§ 1.901(m)–2T Covered asset acquisitions U.S. basis in the RFA immediately after
and relevant foreign assets (temporary).
(e) Examples. [Reserved].
(f) Effective/applicability date—(1) the CAA, less the U.S. basis in the RFA
(a) In general. Paragraph (b) of this immediately before the CAA. Basis
Paragraphs (a), (b)(1) through (3), and
section sets forth the transactions that difference is an attribute that attaches to
(c)(1) of this section apply to
are covered asset acquisitions (or an RFA.
transactions occurring on or after July
CAAs). Paragraph (c) of this section (c) Foreign basis election. [Reserved].
21, 2014, and to transactions occurring
provides rules for identifying assets that (d) Determination of basis difference
before that date resulting from an entity
are relevant foreign assets (or RFAs) in a section 743(b) CAA—(1) In general.
classification election made under
with respect to a CAA. Paragraph (d) of Except as provided in paragraphs (d)(2)
§ 301.7701–3 of this chapter that is filed
this section provides special rules for and (e) of this section, if there is a
on or after July 29, 2014, and that is
identifying CAAs and RFAs with section 743(b) CAA, basis difference is
effective on or before July 21, 2014.
respect to transactions to which the resulting basis adjustment under
Paragraph (d) of this section applies to
paragraphs (b) and (c) of this section do section 743(b) that is allocated to the
transactions occurring on or after
not apply. Paragraph (e) of this section RFA under section 755.
January 1, 2011, and before July 21,
provides examples illustrating the rules
2014, other than transactions occurring (2) Foreign basis election. [Reserved].
of this section. Paragraph (f) of this
before July 21, 2014, resulting from an (e) Determination of basis difference
section provides the effective/
entity classification election made in an RFA with respect to a CAA with
applicability date, and paragraph (g) of
under § 301.7701–3 of this chapter that respect to which paragraphs (b), (c), and
this section provides the expiration
is filed on or after July 29, 2014, and (d) of this section do not apply. For
date.
that is effective on or before July 21, CAAs occurring on or after January 1,
(b) Covered asset acquisitions. Except
2014. 2011, and before July 21, 2014, other
as provided in paragraph (d) of this
(2)–(3) [Reserved] than CAAs occurring before July 21,
section, the transactions set forth in this
(g) Expiration date. The applicability 2014, resulting from an entity
paragraph (b) are CAAs.
(1) A qualified stock purchase (as of this section expires on December 6, classification election made under
defined in section 338(d)(3)) to which 2019. § 301.7701–3 of this chapter that is filed
section 338(a) applies (section 338 ■ Par. 4. Section 1.901(m)–3T is added
on or after July 29, 2014, and that is
CAA); and reserved to read as follows: effective on or before July 21, 2014,
(2) Any transaction that is treated as basis difference in an RFA with respect
an acquisition of assets for U.S. income § 1.901(m)–3T Disqualified tax amount and to the CAA is the amount of any basis
tax purposes and as an acquisition of aggregate basis difference carryover difference (within the meaning of
(temporary). [Reserved]. section 901(m)(3)(C)(i)) that had not
stock of a corporation (or the transaction
is disregarded) for foreign income tax ■ Par. 5. Section 1.901(m)–4T is added been taken into account under section
purposes; to read as follows: 901(m)(3)(B) either as of July 21, 2014,
(3) Any acquisition of an interest in a or, in the case of an entity classification
§ 1.901(m)–4T Determination of basis election made under § 301.7701–3 of
partnership that has an election in effect
difference (temporary). this chapter that is filed on or after July
under section 754 (section 743(b) CAA);
(4)–(6) [Reserved]. (a) In general. This section provides 29, 2014, and that is effective on or
(c) Relevant foreign asset—(1) In rules for determining for each RFA the before July 21, 2014, prior to the
general. Except as provided in basis difference that arises as a result of transactions that are deemed to occur
paragraph (d) of this section, an RFA a CAA. A basis difference is computed under § 301.7701–3(g) as a result of the
means, with respect to a foreign income separately with respect to each foreign change in classification.
tax and a CAA, any asset (including income tax for which an asset subject to (f) Examples. [Reserved].
goodwill, going concern value, or other a CAA is an RFA. Paragraph (b) of this (g) Effective/applicability date. (1)
intangible) subject to the CAA that is section provides the general rule for Paragraphs (a), (b), and (d)(1) of this
relevant in determining foreign income determining basis difference that section apply to CAAs occurring on or
for purposes of the foreign income tax. references only U.S. basis in the RFA. after July 21, 2014, and to CAAs
(2) RFA status with respect to a Paragraph (c) of this section provides for occurring before that date resulting from
foreign income tax [Reserved]. an election to determine basis difference an entity classification election made
(3) Subsequent RFA status with by reference to foreign basis and sets under § 301.7701–3 that is filed on or
respect to another foreign income tax forth the procedures for making the after July 29, 2014, and that is effective
[Reserved]. election. Paragraph (d) of this section on or before July 21, 2014. Paragraph (e)
(d) Identifying covered asset provides special rules for determining of this section applies to CAAs
acquisitions and relevant foreign assets basis difference in the case of a section occurring on or after January 1, 2011,
to which paragraphs (b) and (c) of this 743(b) CAA. Paragraph (e) of this and before July 21, 2014, other than
section do not apply. For transactions section provides a special rule for CAAs occurring before July 21, 2014,
occurring on or after January 1, 2011, determining basis difference in an RFA resulting from an entity classification
and before July 21, 2014, other than with respect to a CAA to which election made under § 301.7701–3 of
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transactions occurring before July 21, paragraphs (b) through (d) of this this chapter that is filed on or after July
2014, resulting from an entity section do not apply. Paragraph (f) of 29, 2014, and that is effective on or
classification election made under this section provides examples before July 21, 2014. Taxpayers may,
§ 301.7701–3 of this chapter that is filed illustrating the rules of this section. however, consistently apply paragraph
on or after July 29, 2014, and that is Paragraph (g) of this section provides (d)(1) of this section to all section 743(b)
effective on or before July 21, 2014, the the effective/applicability date, and CAAs occurring on or after January 1,
transactions set forth under section paragraph (h) of this section provides 2011. For this purpose, persons that are
901(m)(2) are CAAs and the assets that the expiration date. related (within the meaning of section
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![Federal Register / Vol. 81, No. 235 / Wednesday, December 7, 2016 / Rules and Regulations 88109
267(b) or 707(b)) will be treated as a tax and the foreign income tax, and the (j) Expiration date. The applicability
single taxpayer. RFA has a negative basis difference, the of this section expires on December 6,
(2)–(3) [Reserved] disposition amount equals the greater 2019.
(h) Expiration date. The applicability of: ■ Par. 7. Section 1.901(m)–6T is added
of this section expires on December 6, (1) Any U.S. disposition gain (for this to read as follows:
2019. purpose, expressed as a negative
■ Par. 6. Section 1.901(m)–5T is added amount) plus any foreign disposition § 1.901(m)–6T Successor rules
(temporary).
to read as follows: loss, or
(2) Unallocated basis difference with (a) In general. This section provides
§ 1.901(m)–5T Basis difference taken into respect to the RFA. successor rules applicable to section
account (temporary). 901(m). Paragraph (b) of this section
(iii) Disposition of an RFA after a
(a) In general. [Reserved]. section 743(b) CAA. If an RFA was provides rules for the continued
(b) Basis difference taken into account subject to a section 743(b) CAA and application of section 901(m) after an
under applicable cost recovery subsequently there is a disposition of RFA that has unallocated basis
method—(1) In general. [Reserved]. the RFA, then, for purposes of difference has been transferred,
(2) Determining a cost recovery including special rules applicable to
determining the disposition amount,
amount—(i) General rule. A cost successor transactions that are also
foreign disposition gain or foreign
recovery amount for an RFA is CAAs or that involve partnerships.
disposition loss are specially defined to
determined by applying the applicable Paragraph (c) of this section provides
mean the amount of gain or loss
cost recovery method to the basis rules for determining when an aggregate
recognized for purposes of the foreign
difference rather than to the U.S. basis. basis difference carryover of a section
income tax on the disposition of the
(ii) U.S. basis subject to multiple cost 901(m) payor either becomes an
RFA that is allocable to the partnership
recovery methods. [Reserved]. aggregate basis difference carryover of
(3) Applicable cost recovery method. interest that was transferred in the
the section 901(m) payor with respect to
[Reserved]. section 743(b) CAA. In addition, U.S.
another foreign payor or is transferred to
(c) Basis difference taken into account disposition gain or U.S. disposition loss
another section 901(m) payor. Paragraph
as a result of a disposition—(1) In are specially defined to mean the
(d) of this section provides the effective/
general. [Reserved]. amount of gain or loss recognized for
applicability date, and paragraph (e) of
(2) Determining a disposition U.S. income tax purposes on the
this section provides the expiration
amount—(i) Disposition is fully taxable disposition of the RFA that is allocable
date.
for purposes of both U.S. income tax to the partnership interest that was (b) Successor rules for unallocated
and the foreign income tax. If a transferred in the section 743(b) CAA, basis difference—(1) In general. Except
disposition of an RFA is fully taxable taking into account the basis adjustment as provided in paragraph (b)(4) of this
(that is, results in all gain or loss, if any, under section 743(b) that was allocated section, section 901(m) continues to
being recognized with respect to the to the RFA under section 755. apply after a successor transaction to
RFA) for purposes of both U.S. income (d) General rules for allocating and any unallocated basis difference
tax and the foreign income tax, the assigning a cost recovery amount or a attached to a transferred RFA until the
disposition amount is equal to the disposition amount when the RFA entire basis difference has been taken
unallocated basis difference with owner (U.S.) is a fiscally transparent into account as a cost recovery amount
respect to the RFA. entity. [Reserved]. or a disposition amount (or both) under
(ii) Disposition is not fully taxable for (e) Special rules for certain section § 1.901(m)–5T.
purposes of U.S. income tax or the 743(b) CAAs. [Reserved] (2) Definition of a successor
foreign income tax (or both). If the (f) Mid-year transactions. [Reserved] transaction. A successor transaction
disposition of an RFA is not fully (g) Reverse hybrids. [Reserved] occurs with respect to an RFA if, after
taxable for purposes of both U.S. income (h) Examples. [Reserved] a CAA (prior CAA), there is a transfer
tax and the foreign income tax, the (i) Effective/applicability date. (1) of the RFA for U.S. income tax purposes
disposition amount is determined under [Reserved] and the RFA has unallocated basis
this paragraph (c)(2)(ii). See § 1.901(m)– (2) Paragraphs (b)(2)(i) and (c)(2) of difference with respect to the prior
6T for rules regarding the continued this section apply to CAAs occurring on CAA, determined immediately after the
application of section 901(m) if the RFA or after July 21, 2014, and to CAAs transfer. A successor transaction may
has any unallocated basis difference occurring before that date resulting from occur regardless of whether the transfer
after determining the disposition an entity classification election made of the RFA is a disposition, a CAA, or
amount under paragraph (c)(2)(ii)(A) or under § 301.7701–3 of this chapter that a non-taxable transaction for purposes
(B) of this section, as applicable. is filed on or after July 29, 2014, and of U.S. income tax. If the RFA was
(A) Positive basis difference. If the that is effective on or before July 21, subject to multiple prior CAAs, a
disposition of an RFA is not fully 2014. Paragraphs (b)(2)(i) and (c)(2) of separate determination must be made
taxable for purposes of both U.S. income this section also apply to CAAs with respect to each prior CAA as to
tax and the foreign income tax, and the occurring on or after January 1, 2011, whether the transfer is a successor
RFA has a positive basis difference, the and before July 21, 2014, other than transaction.
disposition amount equals the lesser of: CAAs occurring before July 21, 2014, (3) Special considerations. [Reserved].
(1) Any foreign disposition gain plus resulting from an entity classification (4) Successor transaction is a CAA—
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any U.S. disposition loss (for this election made under § 301.7701–3 that (i) In general. An asset may be an RFA
purpose, expressed as a positive is filed on or after July 29, 2014, and with respect to multiple CAAs if a
amount), or that is effective on or before July 21, successor transaction is also a CAA
(2) Unallocated basis difference with 2014, but only with respect to basis (subsequent CAA). Except as otherwise
respect to the RFA. difference determined under provided in this paragraph (b)(4), if
(B) Negative basis difference. If the § 1.901(m)–4T(e) with respect to the there is a subsequent CAA, unallocated
disposition of an RFA is not fully CAA. basis difference with respect to any
taxable for purposes of both U.S. income (3) [Reserved] prior CAAs will continue to be taken
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![88110 Federal Register / Vol. 81, No. 235 / Wednesday, December 7, 2016 / Rules and Regulations
into account under section 901(m) after section 338 CAA. Under § 1.901(m)–2T(c)(1), ■ Par. 8. Sections 1.901(m)–7T and
the subsequent CAA. Furthermore, the Asset is an RFA with respect to Country A 1.901(m)–8T are added and reserved to
subsequent CAA may give rise to tax and the Acquisition, because immediately read as follows:
additional basis difference subject to after the Acquisition, Asset is relevant in
determining foreign income of FT for § 1.901(m)–7T De minimis rules.
section 901(m). Country A tax purposes, and FT owned Asset
(ii) Foreign basis election. [Reserved]. [Reserved].
when the Acquisition occurred. Under
(iii) Multiple section 743(b) CAAs. If § 1.901(m)–4T(b), the basis difference with § 1.901(m)–8T Miscellaneous. [Reserved].
an RFA is subject to two section 743(b) respect to Asset is 200u (300u¥100u). Under
CAAs (prior section 743(b) CAA and § 1.901(m)–2T(b)(2), the Deemed Liquidation John Dalrymple,
subsequent section 743(b) CAA) and the is a CAA (subsequent CAA) because the Deputy Commissioner for Services and
same partnership interest is acquired in Deemed Liquidation is treated as an Enforcement.
both the CAAs, the RFA will be treated acquisition of assets for U.S. income tax Approved: November 4, 2016.
as having no unallocated basis purposes and is disregarded for Country A Mark J. Mazur,
difference with respect to the prior tax purposes. Because the U.S. basis in Asset
is 300u immediately before and after the Assistant Secretary of the Treasury (Tax
section 743(b) CAA if the basis Policy).
Deemed Liquidation, the subsequent CAA
difference for the section 743(b) CAA is [FR Doc. 2016–28755 Filed 12–6–16; 8:45 am]
does not give rise to any additional basis
determined independently from the difference. The Deemed Liquidation is not a BILLING CODE 4830–01–P
prior section 743(b) CAA. In this regard, disposition under § 1.901(m)–1T(a)(10)
see generally § 1.743–1(f). If the because it did not result in gain or loss being
subsequent section 743(b) CAA results recognized with respect to Asset for U.S. or
from the acquisition of only a portion of Country A tax purposes. Accordingly, no
DEPARTMENT OF LABOR
the partnership interest acquired in the basis difference with respect to Asset is taken
into account under § 1.901(m)–5T as a result
Office of the Secretary
prior section 743(b) CAA, then the
transferor will be required to equitably of the Deemed Liquidation, and the
unallocated basis difference with respect to 29 CFR Part 38
apportion the unallocated basis
Asset immediately after the Deemed
difference attributable to the prior Liquidation is 200u (200u¥0u). Under
RIN 1291–AA36
section 743(b) CAA between the portion paragraph (b)(2) of this section, the Deemed
retained by the transferor and the Implementation of the
Liquidation is a successor transaction
portion transferred. In this case, with because there is a transfer of Asset for U.S. Nondiscrimination and Equal
respect to the portion transferred, the income tax purposes from FT to CFC and Opportunity Provisions of the
RFAs will be treated as having no Asset has unallocated basis difference with Workforce Innovation and Opportunity
unallocated basis difference with respect to the Acquisition immediately after Act
respect to the prior section 743(b) CAA the Deemed Liquidation. Accordingly, under
paragraph (b)(1) of this section, section Correction
if basis difference for the subsequent
901(m) will continue to apply to the In rule document 2016–27737
section 743(b) CAA is determined unallocated basis difference with respect to
independently from the prior section beginning on page 87130 in the issue of
Asset until the entire 200u basis difference
743(b) CAA. Friday, December 2, 2016, make the
has been taken into account under
(5) Example. The following example § 1.901(m)–5T. following correction:
illustrates the rules of paragraph (b) of 1. On page 87130, in the first column,
this section. (c) Successor rules for aggregate basis after the DATES heading, the second line,
difference carryover [Reserved]. ‘‘December 2, 2016.’’ should read
Example. (i) Facts. USP, a domestic
corporation, wholly owns CFC, a foreign (d) Effective/applicability date. (1) ‘‘January 3, 2017.’’
corporation organized in Country A and Paragraphs (a), (b)(1), (b)(2), (b)(4)(i), [FR Doc. C1–2016–27737 Filed 12–6–16; 8:45 am]
treated as a corporation for both U.S. and (b)(4)(iii), and (b)(5) of this section BILLING CODE 1301–00–D
Country A tax purposes. FT is an unrelated apply to CAAs occurring on or after July
foreign corporation organized in Country A 21, 2014, and to CAAs occurring before
and treated as a corporation for both U.S. and
Country A tax purposes. FT owns one asset, that date resulting from an entity DEPARTMENT OF HOMELAND
a parcel of land (Asset). Country A imposes classification election made under SECURITY
a single tax that is a foreign income tax. On § 301.7701–3 of this chapter that is filed
January 1, Year 1, CFC acquires all of the on or after July 29, 2014, and that is Coast Guard
stock of FT in exchange for 300u in a effective on or before July 21, 2014.
qualified stock purchase (as defined in Paragraphs (a), (b)(1), (b)(2), (b)(4)(i), 33 CFR Part 165
section 338(d)(3)) to which section 338(a) (b)(4)(iii), and (b)(5) of this section also
applies (Acquisition). Immediately before the [Docket Number USCG–2016–1020]
Acquisition, Asset had a U.S. basis of 100u,
apply to CAAs occurring on or after
and immediately after the Acquisition, Asset January 1, 2011, and before July 21, RIN 1625–AA00
had a U.S. basis of 300u. Effective on 2014, other than CAAs occurring before
February 1, Year 1, FT elects to be a July 21, 2014, resulting from an entity Safety Zone; Upper Mississippi River,
disregarded entity pursuant to § 301.7701–3. classification election made under St. Louis, MO
As a result of the election, FT is deemed, for § 301.7701–3 that is filed on or after July
U.S. income tax purposes, to distribute Asset 29, 2014, and that is effective on or AGENCY: Coast Guard, DHS.
to CFC in liquidation (Deemed Liquidation) ACTION: Temporary final rule.
before July 21, 2014, but only with
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immediately before the closing of the day
before the election is effective pursuant to respect to basis difference determined
SUMMARY: The Coast Guard is
§ 301.7701–3(g)(1)(iii) and (3)(ii). The under § 1.901(m)–4T(e) with respect to
establishing a temporary safety zone for
Deemed Liquidation is disregarded for the CAA.
navigable waters on the Upper
Country A tax purposes. No gain or loss is (2)–(3) [Reserved]
recognized on the Deemed Liquidation for Mississippi River from mile 179.2 to
either U.S. or Country A tax purposes. (e) Expiration date. The applicability mile 180. The safety zone is needed to
(ii) Result. Under § 1.901(m)–2T(b)(1), the of this section expires on December 6, protect personnel, vessels, and the
Acquisition by CFC of the stock of FT is a 2019. marine environment from potential
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Document Created: 2016-12-07 05:31:50
Document Modified: 2016-12-07 05:31:50
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Rules and Regulations | |
| Action | Temporary regulations. | |
| Contact | Jeffrey L. Parry, (202) 317-6936 (not a toll-free number). | |
| FR Citation | 81 FR 88103 | |
| RIN Number | 1545-BM75 | |
| CFR Associated | Income Taxes and Reporting and Recordkeeping Requirements |
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