Internal Revenue Bulletin:  2009-5 

February 2, 2009 

REG-150066-08

Notice of Proposed Rulemaking by Cross-Reference to Temporary Regulations and Notice of Public Hearing Guidance Regarding Foreign Base Company Sales Income


AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Notice of proposed rulemaking by cross-reference to temporary regulations and notice of public hearing.

SUMMARY:

In this issue of the Bulletin, the IRS and Treasury Department are issuing temporary regulations (T.D. 9438) relating to foreign base company sales income, in cases in which personal property sold by a controlled foreign corporation (CFC) is manufactured, produced, or constructed pursuant to a contract manufacturing arrangement or by one or more branches of the CFC. The temporary regulations modify the foreign base company sales income regulations to adequately address current business structures and practices, particularly the growing importance of contract manufacturing and other manufacturing arrangements. The temporary regulations, in general, will affect CFCs and their United States shareholders. The text of the temporary regulations also serves as the text of the proposed regulations. This document also provides notice of a public hearing.

DATES:

Written or electronic comments must be received by March 30, 2009. Outlines of the topics to be discussed at the public hearing scheduled for April 20, 2009, at 10 a.m. must be received by April 2, 2009.

ADDRESSES:

Send submissions to: CC:PA:LPD:PR (REG-150066-08), room 5203 Internal Revenue Service, PO Box 7604 Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-150066-08), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20224. Alternatively, taxpayers may submit electronic comments via the Federal eRulemaking Portal at www.regulations.gov (IRS-REG-150066-08).

FOR FURTHER INFORMATION CONTACT:

Concerning the proposed regulations, Ethan Atticks, (202) 622-3840; concerning submissions of comments, hearing, and/or to be placed on the building access list to attend the hearing, Richard A. Hurst at Richard.A.Hurst@irscounsel.treas.gov or (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provision

The temporary regulations in this issue of the Bulletin amend the Income Tax Regulations (26 CFR part 1) relating to foreign base company sales income, in cases in which personal property sold by a controlled foreign corporation (CFC) is manufactured, produced, or constructed pursuant to a contract manufacturing arrangement or by one or more branches of the CFC. These regulations, in general, will affect CFCs and their United States shareholders. The text of those temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains these proposed regulations.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Comments and Public Hearing

Before the proposed regulations are adopted as final regulations, consideration will be give to any written comments (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department specifically request comments on the clarity of the proposed rules and how they may be made easier to understand. All comments will be available for public inspection and copying.

A public hearing has been scheduled for April 20, 2009, beginning at 10 a.m. in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the Constitution Avenue entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the “FOR FURTHER INFORMATION CONTACT” section of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments at the hearing must submit written comments or electronic comments by March 30, 2009, and an outline of the topics to be discussed and the time to be devoted to each topic (signed original and eight (8) copies) by April 2, 2009. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving outlines has passed. Copies of the agenda will be available free of charge at the hearing.

Proposed Amendments to the Regulations

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

PART 1—INCOME TAXES

Paragraph 1. The authority citation for 26 CFR part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.954-3 is amended by revising paragraphs (b)(1)(i)(c), (b)(1)(ii)(a), (b)(1)(ii)(c), (b)(2)(i)(b), (b)(2)(i)(d), (b)(2)(ii)(a), (b)(2)(ii)(b), (b)(2)(ii)(e), (b)(4) Example 3, (c) and (d), and adding Examples 8 and 9 to paragraph (b)(4), and adding paragraphs (e), (f) and (g) to read as follows:

§1.954-3 Foreign base company sales income.

* * * * *

(b) * * * (1) * * * (i) * * *

(c) [The text of the proposed amendments to §1.954-3(b)(1)(i)(c) is the same as the text of §1.954-3T(b)(1)(i)(c) published elsewhere in this issue of the Bulletin].

(ii)* * * (a) [The text of the proposed amendments to §1.954-3(b)(1)(ii)(a) is the same as the text of §1.954-3T(b)(1)(ii)(a) published elsewhere in this issue of the Bulletin].

* * * * *

(c) [The text of the proposed amendments to §1.954-3(b)(1)(ii)(c) is the same as the text of §1.954-3T(b)(1)(ii)(c) published elsewhere in this issue of the Bulletin].

(2) * * * (i) * * *

(b) [The text of the proposed amendments to §1.954-3(b)(2)(i)(b) is the same as the text of §1.954-3T(b)(2)(i)(b) published elsewhere in this issue of the Bulletin].

* * * * *

(d) [The text of the proposed amendments to §1.954-3(b)(2)(i)(d) is the same as the text of §1.954-3T(b)(2)(i)(d) published elsewhere in this issue of the Bulletin].

* * * * *

(ii) * * *

(a) [The text of the proposed amendments to §1.954-3(b)(2)(ii)(a) is the same as the text of §1.954-3T(b)(2)(ii)(a) published elsewhere in this issue of the Bulletin].

(b) [The text of the proposed amendments to §1.954-3(b)(2)(ii)(b) is the same as the text of §1.954-3T(b)(2)(ii)(b) published elsewhere in this issue of the Bulletin].

* * * * *

(e) [The text of the proposed amendments to §1.954-3(b)(2)(ii)(e) is the same as the text of §1.954-3T(b)(2)(ii)(e) published elsewhere in this issue of the Bulletin].

* * * * *

(4) * * *

Example 3. [The text of the proposed amendments to §1.954-3(b)(4) Example 3 is the same as the text of §1.954-3T(b)(4) Example 3 published elsewhere in this issue of the Bulletin].

* * * * *

Example 8. [The text of the proposed amendments to §1.954-3(b)(4) Example 8 is the same as the text of §1.954-3T Example 8 published elsewhere in this issue of the Bulletin].

Example 9. [The text of the proposed amendments to §1.954-3(b)(4) Example 9 is the same as the text of §1.954-3T Example 9 published elsewhere in this issue of the Bulletin].

(e) [The text of the proposed amendments to §1.954-3(e) is the same as the text of §1.954-3T(e) published elsewhere in this issue of the Bulletin].

(f) [The text of the proposed amendments to §1.954-3(f) is the same as the text of §1.954-3T(f) published elsewhere in this issue of the Bulletin].

(g) [The text of the proposed amendments to §1.954-3(g) is the same as the text of §1.954-3T(g) published elsewhere in this issue of the Bulletin].

Linda E. Stiff,
Deputy Commissioner for
Services and Enforcement.

Note

(Filed by the Office of the Federal Register on December 24, 2008, 8:45 a.m., and published in the issue of the Federal Register for December 29, 2008, 73 F.R. 79421)

Drafting Information

The principal author of these regulations is Ethan Atticks of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in their development.

* * * * *


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