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Federal Register / Vol. 72, No.

134 / Friday, July 13, 2007 / Rules and Regulations 38475

section 954(i)(2), if D Corp had received the Paperwork Reduction Act The Treasury Department, however, is
income directly, because the $110x invested considering additional information
by D Corp in DJ Partnership is equal to D The collection of information
contained in these final regulations has reporting pursuant to section 6038A of
Corp’s reserves allocable to exempt contracts the Code regarding section 163(j) to
under section 954(i)(2)(A) and allowable been reviewed and approved by the
surplus under section 954(i)(2)(B)(ii). Thus, D Office of Management and Budget in further the administration of the earning
Corp’s distributive share of DJ Partnership’s accordance with the Paperwork stripping rules.
income will be excluded from foreign Reduction Act of 1995 (44 U.S.C. Special Analyses
personal holding company income under 3507(d)) under control number 1545–
section 954(i). It has been determined that this
2020. Responses to this collection of
* * * * * information are mandatory. Treasury decision is not a significant
The collection of information is in regulatory action as defined in
§ 1.954–2T [Removed] § 1.6038–2(f)(11). This information is Executive Order 12866. Therefore, a
■ Par. 3. Section 1.954–2T is removed. required by the IRS pursuant to section regulatory assessment is not required. It
6038 of the Code. The likely has also been determined that section
Dated: July 2, 2007. 553(b) of the Administrative Procedure
recordkeepers are business or other for-
Kevin M. Brown, Act (5 U.S.C. chapter 5) does not apply
profit institutions. The estimated
Deputy Commissioner for Services and burden is as follows: to these regulations. It is hereby
Enforcement. Estimated total annual reporting and/ certified that the collection of
Eric Solomon, or recordkeeping burden: 1250 hours. information in these regulations will not
Assistant Secretary of the Treasury (Tax Estimated average annual burden per have a significant economic impact on
Policy). respondent: 15 minutes. a substantial number of small entities.
[FR Doc. E7–13496 Filed 7–12–07; 8:45 am] Estimated number of respondents: This certification is based upon the fact
BILLING CODE 4830–01–P 5,000. that these regulations only affect entities
Estimated annual frequency of with significant foreign operations and
responses: once. any burden on small entities is minimal.
DEPARTMENT OF THE TREASURY An agency may not conduct or Therefore, a Regulatory Flexibility
sponsor, and a person is not required to Analysis under the Regulatory
Internal Revenue Service respond to, a collection of information Flexibility Act (5 U.S.C. chapter 6) is
unless the collection of information not required. Pursuant to section 7805(f)
26 CFR Part 1 displays a valid control number of the Code, the notice of proposed
assigned by the Office of Management rulemaking preceding these final
[TD 9338] and Budget. regulations was submitted to the Chief
Books or records relating to a Counsel for Advocacy of the Small
collection of information must be Business Administration for comment
RIN 1545–BG11
retained as long as their contents may on its impact on small business.
Information Returns Required with become material in the administration
of any internal revenue law. Generally, Drafting Information
Respect to Certain Foreign
Corporations and Certain Foreign- tax returns and tax return information The principal author of these
Owned Domestic Corporations are confidential, as required by 26 regulations is Kate Y. Hwa, Office of the
U.S.C. 6103. Associate Chief Counsel (International).
AGENCY: Internal Revenue Service (IRS), However, other personnel from the IRS
Background
Treasury. and Treasury Department participated
ACTION: Final regulations and removal of
This document contains final in their development.
temporary regulations. amendments to the Income Tax
Regulations (26 CFR part 1) under List of Subjects in 26 CFR Part 1
SUMMARY: This document contains final sections 6038 and 6038A of the Code. Income taxes, Reporting and
regulations that provide guidance under On June 21, 2006, final and temporary recordkeeping requirements.
sections 6038 and 6038A of the Internal regulations (TD 9268, 2006–30 IRB 94)
under sections 6038 and 6038A were Adoption of Amendments to the
Revenue Code (Code). The final Regulations
regulations clarify the information published in the Federal Register (71
required to be furnished regarding FR 35524). On the same day, a notice of ■Accordingly, 26 CFR part 1 is
certain related party transactions of proposed rulemaking (REG–109512–05, amended as follows:
certain foreign corporations and certain 2006–30 IRB 100) was published by
foreign-owned domestic corporations. cross-reference to the temporary PART 1—INCOME TAXES
The final regulations also increase the regulations in the Federal Register (71 ■ Paragraph 1. The authority citation
amount of certain penalties, and make FR 35592). The preamble of TD 9268 for part 1 continues to read, in part, as
certain other changes, to reflect the includes background information and follows:
statutory changes made by the Taxpayer an explanation of provisions regarding
these regulations. Authority: 26 U.S.C. 7805 * * *
Relief Act of 1997.
The IRS received no comments in ■ Par. 2. Section 1.6038–2 is amended
DATES: Effective Date: These regulations
response to the notice of proposed as follows:
are effective July 13, 2007.
rulemaking. No requests to speak at a ■ 1. Paragraphs (a)(1) and (a)(2) are
Applicability Date: For dates of
public hearing were received and no revised.
applicability, see §§ 1.6038–2(m) and
hearing was held. Accordingly, the ■ 2. Paragraphs (f)(11), (f)(12), (k)(1) and
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1.6038A–2(h).
proposed regulations are adopted (m) are revised.
FOR FURTHER INFORMATION CONTACT: Kate without change by this Treasury ■ 3. Paragraph (k)(5) is amended by
Y. Hwa (202) 622–3840 (not a toll-free decision and the corresponding adding Examples 3 and 4.
number). temporary regulations are removed or The revisions and additions read as
SUPPLEMENTARY INFORMATION: removed and reserved. follows:

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38476 Federal Register / Vol. 72, No. 134 / Friday, July 13, 2007 / Rules and Regulations

§ 1.6038–2 Information returns required of transactions entered into on behalf of reasonable for A to file FC’s 2007 Form 5471
United States persons with respect to customers; in any event, however, by September 15, 2008. The time prescribed
annual accounting periods of certain deposits in accounts between a foreign for furnishing information under paragraph
foreign corporations beginning after corporation, controlled (within the (i) of this section is September 15, 2008, and
December 31, 1962. the 90-day period described under
meaning of paragraph (b) of this section) paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this
(a) * * * by a United States person, and a person
(1) Form 2952, ‘‘Information Return section begins on that same date. Thus, if A
described in this paragraph (f)(11) and files a completed Form 5471 by September
with Respect to Controlled Foreign withdrawals from such accounts shall 15, 2008, A is not subject to the penalties
Corporations,’’ if such taxable year ends be summarized by reporting end-of- under paragraphs (k)(1) and (k)(2) of this
before December 31, 1982; month balances. section. If A does not file a completed Form
(2) Form 5471, ‘‘Information Return of (12) Accrued payments and receipts. 5471 by December 14, 2008, in addition to
U.S. Persons with Respect to Certain For purposes of the required summary the penalties under paragraphs (k)(1) and
Foreign Corporations,’’ if such taxable under paragraph (f)(11) of this section, (k)(2) of this section, A will also be subject
year ends on or after December 31, 1983; a corporation that uses an accrual
to the penalties for continued failure under
or paragraphs (k)(1)(ii) and (k)(2)(iv)(A) of this
method of accounting shall use accrued section.
* * * * * payments and accrued receipts for Example 4. The facts are the same as in
(f) * * * purposes of computing the total amount Example 3 except A submits the written
(11) Transactions with certain related of each of the types of transactions statement to the Director before a notice of
parties. (i) A summary showing the total listed. failure to furnish information is mailed to A.
amount of each of the following types of The notice is mailed to A on September 7,
* * * * *
transactions of the corporation, which 2008. Under these facts, the time prescribed
(k) Failure to furnish information—(1)
took place during the annual accounting for furnishing information under paragraph
Dollar amount penalty—(i) In general. If (i) of this section is September 15, 2008, and
period, with the person required to file
any person required to file Form 5471 the 90-day period after mailing of notice of
this return, any other corporation or
under section 6038 and this section fails failure under paragraphs (k)(1)(ii) and
partnership controlled by that person, or
to furnish any information described in (k)(2)(iv)(A) of this section begins on that
any United States person owning at the
paragraphs (f) and (g) of this section same date.
time of the transaction 10 percent or
within the time prescribed by paragraph * * * * *
more in value of any class of stock
(i) of this section, such person shall pay (m) Effective/applicability dates.
outstanding of the foreign corporation,
a penalty of $10,000 for each annual Except as otherwise provided, this
or of any corporation controlling that
accounting period of each foreign section applies with respect to
foreign corporation—
corporation with respect to which such information for annual accounting
(A) Sales and purchases of stock in
failure occurs. periods beginning on or after June 21,
trade;
(B) Sales and purchases of tangible (ii) Increase in penalty for continued 2006. Paragraphs (k)(1) and (k)(5)
property other than stock in trade; failure after notification. If a failure Examples 3 and 4 of this section apply
(C) Sales and purchases of patents, described in paragraph (k)(1)(i) of this June 21, 2006.
inventions, models, or designs (whether section continues for more than 90 days
after the date on which the Director of § 1.6038–2T [Amended]
or not patented), copyrights, trademarks,
secret formulas or processes, or any Field Operations, Area Director, or ■ Par. 3. In § 1.6038–2T, paragraphs (e)
other similar property rights; Director of Compliance Campus through (m) are revised to read as
(D) Compensation paid and Operations mails notice of such failure follows:
compensation received for the rendition to the person required to file Form 5471,
such person shall pay a penalty of § 1.6038–2T Information returns required
of technical, managerial, engineering, of United States persons with respect to
construction, scientific, or like services; $10,000, in addition to the penalty
imposed by section 6038(b)(1) and annual accounting periods of certain
(E) Commissions paid and foreign corporations (temporary).
commissions received; paragraph (k)(1)(i) of this section, for
each 30-day period (or a fraction of) * * * * *
(F) Rents and royalties paid and rents
during which such failure continues (e) through (l) [Reserved]. For further
and royalties received;
after such 90-day period has expired. guidance, see § 1.6038–2(e) through (l).
(G) Amounts loaned and amounts
borrowed (except open accounts The additional penalty imposed by (m) Effective/applicability date.
resulting from sales and purchases section 6038(b)(2) and this paragraph Paragraph (d) of this section shall apply
reported under other items listed in this (k)(1)(ii) shall be limited to a maximum for taxable years ending after October
paragraph (f)(11) that arise and are of $50,000 for each failure. 22, 2004.
collected in full in the ordinary course * * * * * ■ Par. 4. Section 1.6038A–2 is amended
of business); (5) * * * by revising paragraphs (b)(8) and (h) to
(H) Dividends paid and dividends Example 3. A, a U.S. person, owns 100
read as follows:
received; percent of the stock of FC. On April 15, 2008, § 1.6038A–2 Requirement of return.
(I) Interest paid and interest received; A timely filed its 2007 income tax return but
and did not file Form 5471 with respect to FC’s * * * * *
(J) Premiums paid and premiums 2007 annual accounting period. On June 1, (b) * * *
received for insurance or reinsurance. 2008, the Director of Field Operations mailed (8) Accrued payments and receipts.
(ii) Special rule for banks. For a notice to A of A’s failure to file Form 5471 For purposes of this section, a reporting
purposes of this paragraph (f)(11), if the for 2007 with respect to FC. On August 1, corporation that uses an accrual method
United States person is a bank, as 2008, A submits a written statement asserting of accounting shall use accrued
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facts for reasonable cause for failure to file payments and accrued receipts for
defined in section 581, or is controlled the 2007 Form 5471 for FC. Based on A’s
within the meaning of section 368(c) by purposes of computing the total amount
statement and discussions with A, the
a bank, the term transactions shall not, Director of Field Operations agrees that A
of each of the types of transactions
as to a corporation with respect to had reasonable cause for failure to file FC’s listed in this section.
which a return is filed, include banking 2007 Form 5471 and determined that it is * * * * *

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Federal Register / Vol. 72, No. 134 / Friday, July 13, 2007 / Rules and Regulations 38477

(h) Effective/applicability date. Except 2. On page 19243, column 1, in the available by obtaining a loan under a
as otherwise provided, for applicability preamble, paragraph E., the last qualified plan), or under any other
dates for this section for certain sentence in the first paragraph, the nonqualified deferred compensation
reporting corporations, see § 1.6038A– language ‘‘The final regulations adopt plan due to the unforeseeable
1(n). Paragraph (b)(8) of this section this suggestion, so long as the risk of emergency, including plans that would
applies with respect to information for forfeiture to which the stock is subject be nonqualified deferred compensation
annual accounting periods beginning on constitutes a substantial risk of plans for purposes of section 409A
or after June 21, 2006. forfeiture for purposes of section 409A.’’ except due to the effective date of the
is corrected to read ‘‘The final statute, need not be considered in
Kevin M. Brown,
regulations adopt this suggestion.’’. determining whether an emergency is or
Deputy Commissioner for Services and 3. On page 19243, column 2, may be relieved through other means.’’.
Enforcement. paragraph G., line 2 from the bottom of 9. On page 19265, column 1, in the
Approved: July 2, 2007. the paragraph, the language ‘‘Q&A–7 preamble under paragraph G., lines 1
Eric Solomon, and section II.E. of the preamble’’ is through 5 from the bottom of the first
Assistant Secretary of the Treasury (Tax corrected to read ‘‘Q&A–7 and sections paragraph, the language ‘‘qualified plan,
Policy). II.E. and VI.E. of the preamble.’’. from a grandfathered nonqualified
[FR Doc. E7–13587 Filed 7–12–07; 8:45 am] 4. On page 19247, column 2, in the deferred compensation plan, or from
BILLING CODE 4830–01–P preamble, lines 3 and 4 from the bottom another nonqualified deferred
of the last paragraph, the language compensation plan that is subject to
‘‘limited period of time not to exceed section 409A.’’ is corrected to read
DEPARTMENT OF THE TREASURY one year following the initial existence ‘‘qualified plan, or from another
of’’ is corrected to read ‘‘limited period nonqualified deferred compensation
Internal Revenue Service of time not to exceed two years plan (including a grandfathered plan)
following the initial existence of’’. due to the unforeseeable emergency.’’.
26 CFR Part 1 5. On page 19258, column 2, in the
10. On page 19267, column 2, in the
preamble the tenth line from the bottom
[TD 9321] preamble under paragraph B., lines 4
of the column, the language ‘‘average
and 5 from the bottom of the column,
RIN 1545–BE79 level of bona fide service’’ is corrected
the language ‘‘Where the change in
to read ‘‘average level of bona fide
Application of Section 409A to services’’. control event consists of an asset
Nonqualified Deferred Compensation 6. On page 19264, column 1, in the purchase, the’’ is corrected to read
Plans; Correction preamble, paragraph D. line 9 from the ‘‘Solely for purposes of this rule, the’’.
bottom of the first paragraph, the 11. On page 19270, column 2, in the
AGENCY: Internal Revenue Service (IRS), preamble under paragraph A., lines 2, 3,
language ‘‘with section 409A if the
Treasury. and 4 from the top of the paragraph, the
service’’ is corrected to read ‘‘with
SUMMARY: This document contains language ‘‘contributions, each up to the
section 409A only if the service’’.
corrections to final regulations that were 7. On page 19264, column 2, in the section 402(g) dollar limit on elective
published in the Federal Register on preamble, paragraph D., the last deferrals, are separate, additive limits
Tuesday, April 17, 2007 (73 FR 19234), sentence of the top paragraph, the and are not’’ is corrected to read
relating to section 409A. language ‘‘For a discussion of the ability ‘‘contributions is subject to two
DATES: This correction is effective April to provide for different times and forms separate, additive limits and not’’.
17, 2007. of payment due to different types of 12. On page 19272, column 1, in the
FOR FURTHER INFORMATION CONTACT: separations from service, including preamble, the paragraph heading of
Stephen Tackney, (202) 622–9639 (not a separations from service due to certain paragraph XII., the language ‘‘Effective
toll-free number). disabilities, see section VII.C.4 of this Date of Final Regulations’’ is corrected
SUPPLEMENTARY INFORMATION: preamble.’’ is removed. to read ‘‘Applicability Date of Final
8. On page 19265, column 1, in the Regulations’’.
Background preamble under paragraph G., the third 13. On page 19272, column 2, in the
The final regulations that are subject sentence of the paragraph, the language preamble under paragraph B., line 2, the
to these corrections are under section ‘‘The final regulations clarify that for language ‘‘effective January 1, 2008. For
409A of the Internal Revenue Code. these purposes, the availability of periods’’ is corrected to read ‘‘applicable
payments due to the unforeseeable January 1, 2008. For periods’’.
Need for Correction emergency under any other 14. On page 19272, column 2, in the
As published, final regulations (TD nonqualified deferred compensation preamble, paragraph B., line 7 from the
9321) contain errors that may prove plan as defined for purposes of section top of the first paragraph, the language
misleading and are in need of 409A, including plans that would be ‘‘relief for periods before the effective’’
correction. nonqualified deferred compensation is corrected to read ‘‘relief for periods
plans for purposes of section 409A before the applicability’’.
Correction of Publication except due to the effective date of the 15. On page 19272, column 2, in the
Accordingly, the publication of the statute, or under any qualified plan preamble, paragraph B., line 3 from the
final regulations (TD 9321), which were (including any assets available by top of the second paragraph, the
the subject of FR Doc. 07–1820, is obtaining a loan under a qualified plan), language ‘‘becoming effective January 1,
corrected as follows: need not be considered in determining 2008, on’’ is corrected to read
1. On page 19235, column 3, in the whether an emergency is or may be ‘‘becoming applicable January 1, 2008,
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preamble the paragraph heading III. the relieved through other means.’’ is on’’.
language ‘‘Definition of Nonqualified corrected to read ‘‘The final regulations 16. On page 19272, column 2, in the
Deferred Compensation Plan’’, is clarify that for these purposes, the preamble, paragraph C., line 5 from the
corrected to read ‘‘Definition of Deferral availability of payments under any top of the paragraph, the language
of Compensation’’. qualified plan (including any amount ‘‘rights issued before the effective date

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