internal revenue bulletin no. 1999–30 bulletin · 2012. 7. 17. · robert e. wenzel, deputy...

INCOME TAX

T.D. 8827, page 120.This document removes regulations under section 954 ofthe Code relating to the treatment under subpart F of certainpayments involving branches of a controlled foreign corpora-tion (CFC) that are treated as separate entities for foreigntax purposes or partnerships in which CFCs are partners.

T.D. 8828, page 120.Final regulations under section 6302 of the Code relate tothe deposit of Federal taxes by electronic funds transfer(EFT).

REG–113909–98, page 125.New proposed regulations under section 954 of the Code re-late to the treatment under subpart F of certain transactionsinvolving hybrid branches. The notice of proposed rulemak-ing (REG–104537–97, 1998–16 I.R.B. 21) and the notice ofproposed rulemaking by cross-reference to temporary regu-lations (T.D. 8767, 1998–16 I.R.B. 4) are withdrawn. A publichearing is scheduled for December 1, 1999.

EXEMPT ORGANIZATIONSAnnouncement 99–72, page 132.Horizon Alliance, Inc., of San Diego, CA, no longer qualifiesas an organization to which contributions are deductibleunder section 170 of the Code.

EMPLOYMENT TAXT.D. 8828, page 120.Final regulations under section 6302 of the Code relate tothe deposit of Federal taxes by electronic funds transfer(EFT).

EXCISE TAXT.D. 8828, page 120.Final regulations under section 6302 of the Code relate tothe deposit of Federal taxes by electronic funds transfer(EFT).

ADMINISTRATIVENotice 99–37, page 124.Information reporting; Hope Credit; Lifetime LearningCredit; qualified student loan interest. Eligible educa-tional institutions and certain persons who receive paymentsof student loan interest are informed that they will be re-quired to report the same information under section 6050Sof the Code for the year 2000 as required for the years1998 and 1999. Notices 97–73, 98–7, 98–46, 98–54, and98–59 modified.

Announcement 99–73, page 133.This document contains corrections to T.D. 8742, 1998–5I.R.B. 4, final regulations relating to procedures for request-ing an extension of time to make certain elections under theInternal Revenue Code.

Announcement 99–74, page 133.This document contains corrections to T.D. 8476, 1993–2C.B. 13, final regulations relating to the arbitrage and re-lated restrictions applicable to tax-exempt bonds issued byStates and local governments.

Announcement 99–75, page 134.This document contains corrections to T.D. 8793, 1999–7I.R.B. 15, temporary regulations relating to the payment oftaxes by credit card and debit card.

Internal Revenue

bbuulllleettiinnBulletin No. 1999–30

July 26, 1999

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

Department of the TreasuryInternal Revenue Service

Finding Lists begin on page ii.

The Internal Revenue Bulletin is the authoritative instrumentof the Commissioner of Internal Revenue for announcing offi-cial rulings and procedures of the Internal Revenue Serviceand for publishing Treasury Decisions, Executive Orders, TaxConventions, legislation, court decisions, and other items ofgeneral interest. It is published weekly and may be obtainedfrom the Superintendent of Documents on a subscriptionbasis. Bulletin contents are consolidated semiannually intoCumulative Bulletins, which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform applicationof the tax laws, including all rulings that supersede, revoke,modify, or amend any of those previously published in theBulletin. All published rulings apply retroactively unless other-wise indicated. Procedures relating solely to matters of in-ternal management are not published; however, statementsof internal practices and procedures that affect the rightsand duties of taxpayers are published.

Revenue rulings represent the conclusions of the Service onthe application of the law to the pivotal facts stated in therevenue ruling. In those based on positions taken in rulingsto taxpayers or technical advice to Service field offices,identifying details and information of a confidential natureare deleted to prevent unwarranted invasions of privacy andto comply with statutory requirements.

Rulings and procedures reported in the Bulletin do not havethe force and effect of Treasury Department Regulations,but they may be used as precedents. Unpublished rulingswill not be relied on, used, or cited as precedents by Servicepersonnel in the disposition of other cases. In applying pub-lished rulings and procedures, the effect of subsequent leg-islation, regulations, court decisions, rulings, and proce-

dures must be considered, and Service personnel and oth-ers concerned are cautioned against reaching the same con-clusions in other cases unless the facts and circumstancesare substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisionsof the Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions, and Subpart B, Legislation and RelatedCommittee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references tothese subjects are contained in the other Parts and Sub-parts. Also included in this part are Bank Secrecy Act Admin-istrative Rulings. Bank Secrecy Act Administrative Rulingsare issued by the Department of the Treasury’s Office of theAssistant Secretary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The first Bulletin for each month includes a cumulative indexfor the matters published during the preceding months.These monthly indexes are cumulated on a semiannual basis,and are published in the first Bulletin of the succeeding semi-annual period, respectively.

Mission of the Service

Provide America’s taxpayers top quality service by help-ing them understand and meet their tax responsibilities

and by applying the tax law with integrity and fairness toall.

Introduction

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

July 26, 1999 120 1999–30 I.R.B.

Section 954.—Foreign BaseCompany Income

26 CFR 1.954–1: Foreign base company income.

T.D. 8827

DEPARTMENT OF THE TREASURYInternal Revenue Service 26 CFR Parts 1 and 301

Removal of RegulationsProviding Guidance UnderSubpart F Relating toPartnerships and Branches

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Removal of temporary andfinal regulations.

SUMMARY: This document removesregulations relating to the treatment undersubpart F of certain payments involvingbranches of a controlled foreign corpora-tion (CFC) that are treated as separate en-tities for foreign tax purposes or partner-ships in which CFCs are partners, aspublished in the Federal RegisteronMarch 26, 1998. Removal of the tempo-rary regulations will allow Congress andthe Treasury the opportunity to considerin greater depth the issues pertaining tohybrid transactions.

EFFECTIVE DATES: These regulationsare removed effective March 23, 1998.

FOR FURTHER INFORMATION CON-TACT: Valerie Mark, (202) 622-3840(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On March 23, 1998 (63 F.R. 14669,March 26, 1998), the IRS issued proposedregulations (REG–104537–97, 1998–16I.R.B. 21) relating to the treatment undersubpart F of certain partnership and hy-brid branch transactions. The provisionsof the proposed regulations concerninghybrid branch transactions were also is-sued as temporary regulations (T.D. 8767,1998–16 I.R.B. 4 [63 F.R. 14613, March26, 1998]). Congress and taxpayers

raised concerns about the proposed andtemporary regulations relating to hybridbranch transactions. Accordingly, as an-nounced in Notice 98–35 (1998–27 I.R.B.35), the IRS has decided to withdraw theproposed regulations (seeREG–113909–98 withdrawing proposedregulations and setting out new proposedregulations on page 125) and remove thetemporary regulations. Removal of thetemporary regulations will allow Con-gress and the Treasury the opportunity toconsider in greater depth the issues per-taining to hybrid transactions.

Drafting Information

The principal author of these regula-tions is Valerie Mark, of the Office of theAssociate Chief Counsel (International).Other personnel from the IRS and Trea-sury Department also participated in thedevelopment of these regulations.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR parts 1 and 301are amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for26 CFR part 1 continues to read in part asfollows:

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

§1.904–5 [Amended]

Par. 2. In §1.904–5, paragraph (o) isamended by removing the last sentence.

§1.904–5T [Removed]

Par. 3. §1.904-5T is removed.

§1.954–1 [Amended]

Par. 4. Section 1.954–1 is amended byremoving paragraph (c)(1)(iv).


Par. 5. Section 1.954–1T is removed.


Par. 7. Section 1.954–2T is removed.


Par. 9. Section 1.954-9T is removed.

PART 301—PROCEDURE ANDADMINISTRATION

Par. 10. The authority citation for 26CFR part 301 continues to read in part asfollows:

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

§301.7701–3 [Amended]

Par. 11. In §301.7701–3, the last sen-tence in paragraph (f)(1) is removed.

§301.7701–3T [Removed]

Par. 12. Section 301.7701–3T is re-moved.

Robert E. Wenzel,Deputy Commissioner of

Internal Revenue.

Approved June 29, 1999.

Donald C. Lubick,Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on July9, 1999, 11:25 a.m., and published in the issue of theFederal Register for July 13, 1999, 64 F.R. 37677)

Section 6302.—Mode or Timeof Collection

26 CFR 1.6302–4: Use of financial institutions inconnection with income taxes; voluntary paymentsby electronic funds transfer.

T.D. 8828

DEPARTMENT OF THE TREASURYInternal Revenue Service26 CFR Parts 1, 20, 25, 31,and 40

Electronic Funds Transfer ofFederal Deposits


ACTION: Final regulations.

SUMMARY: This document containsfinal regulations relating to the deposit ofFederal taxes by electronic funds transfer(EFT). The final regulations affect cer-tain taxpayers required to make deposits

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

1999–30 I.R.B. 121 July 26, 1999

of Federal taxes. For calendar years be-ginning after 1999, the final regulationsprovide rules under which certain taxpay-ers must make deposits by EFT.

DATES: Effective Date: These regula-tions are effective July 13, 1999.

Applicability Date: For dates of ap-plicability, see §31.6302–1(h)(2).

FOR FURTHER INFORMATION CON-TACT: Vincent Surabian, (202) 622-4940(not a toll-free number).


Background

This document contains amendments tothe Income Tax Regulations (26 CFR part1), the Estate Tax Regulations (26 CFRpart 20), the Gift Tax Regulations (26CFR part 25), the Employment Taxes andCollection of Income Tax at Source Regu-lations (26 CFR part 31), and the ExciseTax Procedural Regulations (26 CFR part40). On March 23, 1999, a notice of pro-posed rulemaking (REG–100729–98,1999–14 I.R.B. 9) was published in theFederal Register (64 F.R. 13940). Apublic hearing originally scheduled in thenotice of proposed rulemaking for May11, 1999, was canceled as there were norequests to speak. Three written com-ments were received. After considerationof all comments, the proposed regulationsare adopted by this Treasury decision.

Explanation of Provisions

Section 6302(h) requires that, begin-ning in fiscal year 1999, 94 percent ofemployment taxes and 94 percent of otherdepository taxes be collected by EFT.The IRS and Treasury Department previ-ously concluded that the deposit thresholdhad to be set at $50,000 to satisfy thisstatutory requirement. More recent expe-rience suggests, however, that the statu-tory requirement can be satisfied even ifthe threshold is set at a substantiallyhigher level. Moreover, an increase in thethreshold would allow small businesses tomake the transition to the EFT system attheir own pace as they adopt electronicfunds transfer in their other business oper-ations. Accordingly, the final regulationsincrease the deposit threshold to $200,000in aggregate Federal tax deposits during acalendar year.

The new $200,000 aggregate depositsthreshold will be applied initially to 1998deposits, and taxpayers that exceed thethreshold in 1998 will be required to de-posit by EFT beginning in 2000. Taxpay-ers that first exceed the threshold in 1999or a subsequent year will similarly be re-quired to deposit by EFT beginning in thesecond succeeding calendar year. A tax-payer that exceeds the threshold will notbe permitted to resume making papercoupon deposits if its deposits fall below$200,000 in a subsequent year. Althougha similar rule applies under the currentregulations, taxpayers that are currentlyrequired to deposit by EFT will be given afresh start and will not be required to useEFT unless they exceed the $200,000threshold in 1998 or a subsequent calendaryear.

The final regulations also expand thetypes of nondepository tax payments forwhich voluntary payment by EFT is al-lowed to include nondepository paymentsof Federal income, estate and gift, em-ployment, and various specified excisetaxes.

Public Comments

Two commentators on the proposedregulations opposed the increase in thethreshold to $200,000. They were con-cerned that financial institutions and theFederal government would have to con-tinue to process large volumes of checksand paper coupons. In addition, theystated that the increase in threshold doesnot seem justified since the requirementto deposit by EFT does not require an in-vestment by the taxpayer in new technol-ogy and greater use of EFT paymentmethods will contribute to the mainte-nance of a secure and efficient paymentsystem. The two commentators concludethat the Federal government should con-tinue to use penalty waivers until taxpay-ers become adept at using the system ofdepositing by EFT efficiently and accu-rately. The two commentators did, how-ever, agree with the use of an aggregatedeposits test to determine whether a tax-payer is required to deposit by EFT.

As stated in the notice of proposedrulemaking, the IRS and Treasury Depart-ment are confident that most taxpayerscurrently required to deposit by EFT havecome to appreciate the simplicity and

convenience of the EFT system and willcontinue to deposit by EFT on a voluntarybasis. Despite the increase in the thresh-old, the continued participation of thesetaxpayers, coupled with continuing effortsto encourage voluntary enrollment,should ensure the Congressionally-man-dated 94 percent of collections by EFT. Alower threshold would, as the commenta-tors suggest, result in even greater use ofthe EFT system. The IRS and TreasuryDepartment have concluded, however,that the $200,000 threshold appropriatelybalances concerns relating to small busi-nesses against the benefit of reducedpaper transactions.

A third comment suggested removal ofthe rule in 31 CFR part 203 prohibitingbanks from charging fees for processingpaper coupon deposits. The regulations in31 CFR part 203 are issued by the Finan-cial Management Service (FMS) of theTreasury Department, rather than by theInternal Revenue Service. FMS has re-ceived similar comments and announced,in the preamble of the 1998 regulations re-vising 31 CFR part 203 (63 F.R. 5643),that it intends to issue a notice of proposedrulemaking on removing this prohibition.

Special Analyses

It has been determined that this Trea-sury decision is not a significant regula-tory action as defined in EO 12866.Therefore, a regulatory assessment is notrequired. It also has been determined thatsection 553(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to these regulations and, becausethese regulations do not impose a collec-tion of information requirement on smallentities, the Regulatory Flexibility Act (5U.S.C. chapter 6) does not apply. Pur-suant to section 7805(f) of the InternalRevenue Code, the notice of proposedrulemaking that preceded these regula-tions was submitted to the Chief Counselfor Advocacy of the Small Business Ad-ministration for comment on its impact onsmall business.


The principal author of these regula-tions is Vincent Surabian, Office of Assis-tant Chief Counsel (Income Tax & Ac-counting). However, other personnel

July 26, 1999 122 1999–30 I.R.B.

from the IRS and Treasury Departmentparticipated in their development.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR parts 1, 20, 25,31, and 40 are amended as follows:


Paragraph 1. The authority citation forpart 1 is amended by revising the entry for§1.6302–4 to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Section 1.6302–4 also issued under 26

U.S.C. 6302(a), (c), and (h). * * *Par. 2. Section 1.6302–4 is revised to

read as follows:

§1.6302–4 Use of financial institutionsin connection with income taxes;voluntary payments by electronic fundstransfer.

Any person may voluntarily remit byelectronic funds transfer any payment oftax imposed by subtitle A of the InternalRevenue Code, including any payment ofestimated tax. Such payment must bemade in accordance with procedures pre-scribed by the Commissioner.

PART 20—ESTATE TAX; ESTATES OFDECEDENTS DYING AFTERAUGUST 16, 1954

Par. 3. The authority citation for part20 is amended by adding an entry in nu-merical order to read in part as follows:


U.S.C. 6302(a) and (h). * * *Par. 4. Section 20.6302–1 is added to

read as follows:

§20.6302–1 Voluntary payments of estatetaxes by electronic funds transfer.

Any person may voluntarily remit byelectronic funds transfer any payment oftax to which this part 20 applies. Suchpayment must be made in accordancewith procedures prescribed by the Com-missioner.

PART 25—GIFT TAX; GIFTS MADEAFTER DECEMBER 31, 1954



U.S.C. 6302(a) and (h). * * *Par. 6. Section 25.6302–1 is added to

read as follows:

§25.6302–1 Voluntary payments of gifttaxes by electronic funds transfer.

Any person may voluntarily remit byelectronic funds transfer any payment oftax to which this part 25 applies. Suchpayment must be made in accordancewith procedures prescribed by the Com-missioner.

PART 31—EMPLOYMENT TAXESAND COLLECTION OF INCOME TAXAT SOURCE

Par. 7. The authority citation for part31 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *Par. 8. Section 31.6302–1 is amended

as follows:1. The heading for paragraph (h)(2) is

revised.2. A heading is added for paragraph

(h)(2)(i).3. New paragraph (h)(2)(i)(C) is

added.4. Paragraph (h)(2)(ii) is revised5. Paragraph (h)(2)(iii) is added.6. Paragraph (m) is redesignated as

paragraph (n).7. Paragraph (k) is redesignated as new

paragraph (m). 8. Paragraph (j) is redesignated as new

paragraph (k).9. New paragraph (j) is added. The additions and revisions read as fol-

lows:

§31.6302–1 Federal tax deposit rules forwithheld income taxes and taxes underthe Federal Insurance Contributions Act(FICA) attributable to payments madeafter December 31, 1992.

* * * * *

(h) * * *(2) Applicability of requirement—(i)

Deposits for return periods beginning be-fore January 1, 2000.(A) * * *

(C) This paragraph (h)(2)(i) appliesonly to deposits required to be made forreturn periods beginning before January1, 2000. Thus, a taxpayer, including ataxpayer that is required under this para-

graph (h)(2)(i) to make deposits by elec-tronic funds transfer beginning in 1999 oran earlier year, is not required to use elec-tronic funds transfer to make deposits forreturn periods beginning after December31, 1999, unless deposits by electronicfunds transfer are required under para-graph (h)(2)(ii) of this section.

(ii) Deposits for return periods begin-ning after December 31, 1999. Unlessexempted under paragraph (h)(5) of thissection, a taxpayer that deposits morethan $200,000 of taxes described in para-graph (h)(3) of this section during a calen-dar year beginning after December 31,1997, must use electronic funds transfer(as defined in paragraph (h)(4) of this sec-tion) to make all deposits of those taxesthat are required to be made for return pe-riods beginning after December 31 of thefollowing year and must continue to de-posit by electronic funds transfer in allsucceeding years. Thus, a taxpayer thatexceeds the $200,000 deposit thresholdduring calendar year 1998 is required tomake deposits for return periods begin-ning in or after calendar year 2000 byelectronic funds transfer.

(iii) Voluntary deposits.A taxpayerthat is not required by this section to useelectronic funds transfer to make a de-posit of taxes described in paragraph(h)(3) of this section may voluntarilymake the deposit by electronic fundstransfer, but remains subject to the rulesof paragraph (i) of this section, pertainingto deposits by Federal tax deposit (FTD)coupon, in making deposits other than byelectronic funds transfer.

* * * * *

(j) Voluntary payments by electronicfunds transfer. Any person may voluntar-ily remit by electronic funds transfer anypayment of tax imposed by subtitle C ofthe Internal Revenue Code. Such pay-ment must be made in accordance withprocedures prescribed by the Commis-sioner.

* * * * *

PART 40—EXCISE TAXPROCEDURAL REGULATIONS


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

1999–30 I.R.B. 123 July 26, 1999

Section 40.6302(a)–1 also issued under26 U.S.C. 6302(a) and (h). * * *

Par. 10. Section 40.6302(a)–1 is addedto read as follows:

§40.6302(a)–1 Voluntary payments ofexcise taxes by electronic funds transfer.

Any person may voluntarily remit by

electronic funds transfer any payment oftax to which this part 40 applies. Suchpayment must be made in accordancewith procedures prescribed by the Com-missioner.

Charles O. Rossotti,Commissioner of

Internal Revenue.

Approved July 2, 1999.

Donald C. Lubick,Assistant Secretary of the

Treasury.

(Filed by the Office of the Federal Register on July12, 1999, 8:45 a.m., and published in the issue of theFederal Register for July, 13, 1999, 64 F.R. 37675)

July 26, 1999 124 1999–30 I.R.B.

Returns Relating to Payments ofQualified Tuition and RelatedExpenses; and Returns Relatingto Payments of Interest onEducation Loans

Notice 99–37

PURPOSE

This notice announces that eligible ed-ucational institutions and certain personswho receive payments of student loan in-terest will be required to report the sameinformation under § 6050S of the InternalRevenue Code for the year 2000 as re-quired for the years 1998 and 1999.

BACKGROUND

Section 6050S requires eligible educa-tional institutions to file information re-turns with the Internal Revenue Service toassist taxpayers and the Service in deter-mining the Hope Scholarship Credit andthe Lifetime Learning Credit that taxpay-ers may claim under § 25A. Section6050S also requires the institutions to fur-nish a corresponding statement to each in-dividual named on the information returnshowing the information that is reportedto the Service. The specific informationreporting requirements applicable to eligi-ble educational institutions for the years1998 and 1999 are described in Notice97–73, 1997–2 C.B. 335 (as modified byNotice 98–46, 1998–36 I.R.B. 21, andNotice 98–59, 1998–49 I.R.B. 16).

In addition, § 6050S requires certainpersons who receive payments of intereston one or more qualified education loans,as defined in § 221(e)(1), (“payees”) tofile information returns with the Serviceto assist taxpayers and the Service in de-termining the amount of student loan in-terest that taxpayers may deduct under

§ 221. Section 6050S also requires pay-ees to furnish a corresponding statementto each individual named on the informa-tion return showing the information that isreported to the Service. The specific in-formation reporting requirements applica-ble to payees for the years 1998 and 1999are described in Notice 98–7, 1998–3I.R.B. 54 (as modified by Notice 98–54,1998–46 I.R.B. 25).

The legislative history of recentamendments to § 6050S reflects that Con-gress intended that no additional reporting(i.e., beyond the reporting currently re-quired in Notice 97–73) would be requiredof educational institutions until final regu-lations are issued under § 6050S. In ad-dition, Congress intended that the finalregulations would have an effective datethat gives institutions sufficient time toimplement additional required reporting.SeeH.R. Conf. Rep. No. 599, 105th Cong.,2d Sess., at 321–322 (1998).

DISCUSSION

The Treasury Department and the Ser-vice expect to issue proposed regulationsunder § 6050S this year. (See the Officeof Tax Policy and Internal Revenue Ser-vice 1999 Priority Guidance Plan.) Finalregulations under § 6050S, however, willnot be issued before 2000. Consistentwith the intent of Congress that the cur-rent reporting requirements remain in ef-fect until regulations are finalized, the in-formation reporting requirements under § 6050S for the year 2000 will be thesame as the reporting requirements de-scribed in Notice 97–73 (as modified) andNotice 98–7 (as modified).

Accordingly, for the year 2000, eligibleeducational institutions will be required tofile Forms 1098-T, Tuition PaymentsStatement, that include the same informa-tion required by Notice 97–73 (as modi-

fied). Similarly, for the year 2000, payeeswill be required to file Forms 1098-E,Student Loan Interest Statement, that in-clude the same information required byNotice 98–7 (as modified). Forms 1098-T and Forms 1098-E for the year 2000must be filed with the Service by Febru-ary 28, 2001, if filed on paper or by mag-netic media, or by April 2, 2001, if filedelectronically. A statement containing thesame information as reported on anyForm 1098-T or Form 1098-E filed withthe Service must be furnished to the indi-vidual named on the information returnby January 31, 2001.

Consistent with Notice 97–73 (as mod-ified) and Notice 98–7 (as modified) and§ 6050S, no penalties will be imposedunder § 6721 or § 6722 prior to the is-suance of final regulations for any failureto file correct information returns or tofurnish correct statements required under§ 6050S for the year 2000. Even afterfinal regulations are issued, no penaltieswill be imposed under § 6721 or § 6722for failure to file correct information re-turns or to furnish correct statements forthe year 2000 if the institution or payeemade a good faith effort to file informa-tion returns and furnish statements in ac-cordance with this notice.

EFFECT ON OTHER DOCUMENTS

Notice 97–73, Notice 98–7, Notice98–46, Notice 98–54, and Notice 98–59are modified.

DRAFTING INFORMATION

The principal author of this notice isDonna Welch of the Office of the Assis-tant Chief Counsel (Income Tax and Ac-counting). For further information re-garding this notice contact her on (202)622-4910 (not a toll-free call).

Part III. Administrative, Procedural, and Miscellaneous

1999–30 I.R.B. 125 July 26, 1999

Notice of Proposed Rulemaking;Notice of Public Hearing; andWithdrawal

Withdrawal of Guidance UnderSubpart F Relating toPartnerships and Branches; andIssuance of New GuidanceUnder Subpart F Relating toCertain Hybrid Transactions

REG–113909–98


ACTION: Withdrawal; Notice of pro-posed rulemaking; and notice of publichearing.

SUMMARY: This document withdrawsthe notice of proposed rulemaking andnotice of proposed rulemaking by cross-reference to temporary regulations thatwas published in the Federal RegisteronMarch 26, 1998, providing guidanceunder subpart F relating to partnershipsand branches. This document containsnew proposed regulations relating to thetreatment under subpart F of certain trans-actions involving hybrid branches. Theseregulations are necessary to provide guid-ance on transactions relating to such enti-ties. This document also provides noticeof a public hearing on these proposed reg-ulations.

DATES: Written comments, and outlinesof oral comments to be discussed at thepublic hearing scheduled for December 1,1999, must be received by November 10,1999.

ADDRESSES: Send submissions to:CC:DOM:CORP:R (REG–113909–98),room 5226, Internal Revenue Service,POB 7604, Ben Franklin Station, Wash-ington DC 20044. Submissions may behand delivered Monday through Fridaybetween the hours of 8 a.m. and 5 p.m. to:CC:DOM:CORP:R (REG–113909–98),Courier’s Desk, Internal Revenue Ser-vice, 1111 Constitution Avenue, NW,Washington DC. Alternatively, taxpayersmay submit comments electronically viathe Internet by selecting the “Tax Regs”option on the IRS Home Page, or by sub-

mitting comments directly to the IRS In-ternet site at http://www.irs.ustreas.gov/prod/tax_regs/regslist.html. The publichearing will be held in room 2615, Inter-nal Revenue Building, 1111 ConstitutionAvenue NW, Washington, DC 20224.

FOR FURTHER INFORMATION CON-TACT: Concerning the regulations, Va-lerie Mark, (202) 622-3840; concerningsubmissions of comments, the hearing,and/or to be placed on the building accesslist to attend the hearing, LaNita VanDyke (202) 622-7180 (not toll-free num-bers).


Background

On March 23, 1998 (63 F.R. 14669,March 26, 1998), the IRS issued proposedregulations (REG–104537–97, 1998–16I.R.B. 21) relating to the treatment undersubpart F of certain partnership and hy-brid branch transactions. The provisionsof the proposed regulations relating to hy-brid branch transactions were also issuedas temporary regulations (T.D. 8767,1998–16 I.R.B. 4 [63 F.R. 14613, March26, 1998]). Certain members of Congressand taxpayers raised concerns about theproposed and temporary regulations relat-ing to hybrid branch transactions. OnJune 19, 1998, the Treasury announced inNotice 98–35 (1998–27 I.R.B. 35) thatthe temporary regulations would be re-moved and that the proposed regulationsrelating to hybrid transactions would bere-proposed with new dates of applicabil-ity to give Congress the opportunity toconsider in greater depth the issues raisedby hybrid transactions.

As provided in Notice 98–35, theseproposed regulations substantially restatethe regulations relating to hybrid transac-tions issued in March of 1998. These pro-posed regulations, however, contain cer-tain clarifications requested by taxpayers.Further, as described in greater detailbelow, unlike the effective date rules an-nounced in Notice 98–35, these regula-tions are proposed to be effective only forpayments made in taxable years com-mencing after the date that is five yearsafter the date of finalization of these regu-lations. The permanent grandfather relief

described in Notice 98–35 remains un-changed.

These proposed regulations representthe IRS and Treasury’s views of how cur-rent law should be enforced. Treasury iscurrently undertaking a comprehensivestudy of subpart F. These proposed regu-lations will not control the results of thestudy. For example, an objective analysisof the policies and goals of subpart F maylead to the conclusion that subpart Fshould be significantly restructured.

To the extent, however, that Congressdoes not restructure subpart F in a mannerthat would alter the rules enforced bythese regulations, Treasury and the IRSbelieve that these regulations will be nec-essary to preserve the integrity of the cur-rent statutory scheme. The use of hybridarrangements, which is greatly facilitatedby the “check-the-box” entity classifica-tion regulations (§§301.7701–1 through301.7701–3), would otherwise give rise tothe following inconsistency: if sales in-come is shifted from one CFC to a relatedCFC in a different jurisdiction, subpart Fincome may arise; if sales income isshifted from one CFC to its branch in adifferent jurisdiction, subpart F incomemay arise; if income is shifted through in-terest payments from one CFC to a relatedCFC in a different jurisdiction, subpart Fincome may arise; however, if income isshifted through interest payments fromone CFC to its hybrid branch in a differ-ent jurisdiction, subpart F income will notarise. This final result does not seem anappropriate policy outcome within theframework of current subpart F, and is al-most certainly inconsistent with the Con-gressional intent underlying the rulesbeing interpreted here.

Treasury anticipates that taxpayers willcomment both on the appropriateness ofthese proposed regulations under currentlaw, and on the contents of its subpart Fstudy, including any conclusions that thestudy might draw about potential changesto subpart F. To allow proper time to con-sider all these issues, Treasury and the IRShave significantly modified and liberal-ized the effective date rules set forth inNotice 98–35. New regulations regardingthe treatment of a controlled foreign cor-poration’s distributive share of partnershipincome will be proposed at a later date.

Part IV. Items of General Interest

July 26, 1999 126 1999–30 I.R.B.

Explanation of Provisions

I. In General

In these proposed regulations, Treasuryand the IRS set forth a framework fordealing with issues arising under subpartF (sections 951 through 964) that relate tothe use of certain entities that are regardedas fiscally transparent for purposes ofU.S. tax law.

II. Hybrid Branches

Treasury and the IRS understand thatcertain taxpayers are using arrangementsinvolving hybrid branches to circumventthe purposes of subpart F. These arrange-ments generally involve the use of de-ductible payments to reduce the taxableincome of a CFC under foreign law,thereby reducing that CFC’s foreign taxand, also under foreign law, the corre-sponding creation in another entity oflow-taxed, passive income of the type towhich subpart F was intended to apply.Because of the structure of these arrange-ments, however, taxpayers take the posi-tion that this income is not taxed undersubpart F. Treasury and the IRS haveconcluded that use of these hybrid brancharrangements is contrary to the policiesand rules of subpart F.

Under these proposed regulations, hy-brid branch payments, as defined in theregulations, between a CFC and its hybridbranch, or between hybrid branches of theCFC may give rise to subpart F income.When certain conditions are present, thenon-subpart F income of the CFC, in theamount of the hybrid branch payment, isrecharacterized as subpart F income of theCFC. Those conditions include that: thehybrid branch payment reduces the for-eign tax of the payor; the hybrid branchpayment would have been foreign per-sonal holding company income if madebetween separate CFCs; and there is a dis-parity between the effective rate of tax onthe payment in the hands of the payee andthe hypothetical rate of tax that wouldhave applied if the payment had beentaxed in the hands of the payor.

The proposed regulations would makeclear that the CFC and the hybrid branch,or the hybrid branches, are treated as sep-arate corporations only to recharacterizenon-subpart F income as subpart F in-come in the amount of the hybrid branch

payment, and to apply the tax disparityrule of §1.954–9(a)(5)(iv). For all otherpurposes (e.g., for purposes of the earn-ings and profits limitation of section 952),a CFC and its hybrid branch, or hybridbranches, would not be treated as separatecorporations.

The proposed regulations would pro-vide that the amount recharacterized assubpart F income is the gross amount ofthe hybrid branch payment limited by theamount of the CFC’s earnings and profitsattributable to non-subpart F income. Thisamount is the excess of current earningsand profits over subpart F income, deter-mined after the application of the rules ofsections 954(b) and 952(c) and before theapplication of these proposed regulations.To the extent that the full amount requiredto be recharacterized under this provisioncannot be recharacterized because it ex-ceeds earnings and profits attributable tonon- subpart F income, there is no require-ment to carry such amounts back or for-ward to another year.

The proposed regulations would pro-vide that, under certain circumstances, therecharacterization rules will also apply toa CFC’s proportionate share of any hybridbranch payment made between a partner-ship in which the CFC is a partner and ahybrid branch of the partnership, or be-tween hybrid branches of such a partner-ship. When the partnership is treated asfiscally transparent by the CFC’s taxingjurisdiction, the recharacterization rulesare applied by treating the hybrid branchpayment as if it had been made directlybetween the CFC and the hybrid branch,or as though the hybrid branches of thepartnership had been hybrid branches ofthe CFC, as applicable. If the partnershipis treated as a separate entity by the CFC’staxing jurisdiction, the recharacterizationrules are applied to the partnership as if itwere a CFC.

The proposed regulations would pro-vide that income will not be recharacter-ized unless there is a disparity betweenthe effective rate at which the hybridbranch payment is taxed to the payee anda hypothetical tax rate that measures thetax savings to the payor from the de-ductible payment. This provision is simi-lar to the rule in §1.954–3(b), and adoptsthe same percentage tests as contained inthat provision. The regulations also pro-vide a special high tax exception applica-

ble to the hybrid branch payment that issimilar to the one contained in section954(b)(4).

For purposes of determining theamount of taxes deemed paid under sec-tion 960, the amount of non-subpart F in-come recharacterized as subpart F incomeis treated as attributable to income in sep-arate foreign tax credit baskets in propor-tion to the ratio of non-subpart F incomein each basket to the total amount of non-subpart F income of the CFC for the tax-able year.

III. Related Provisions

These proposed regulations would pro-vide rules, contained in §1.954–1(c)(1)-(i)(B), to prevent expenses, including re-lated person interest expense that wouldnormally be allocable under section954(b)(5) to subpart F income of a CFC,from being allocated to a payment fromwhich the expense arises. The allocationlimit applies: (i) to the extent such pay-ment is included in the subpart F incomeof the CFC; (ii) if the expense arises fromany payment between the CFC and a hy-brid partnership in which the CFC is apartner; and (iii) if the payment reducesforeign tax and there is a significant dis-parity in tax rates between the payor andpayee jurisdictions.

These proposed regulations also wouldaddress the application of the related per-son exceptions to the foreign personalholding company income rules in the con-text of partnership distributive shares andtransactions involving hybrid branches.Under section 954(c)(3), foreign personalholding company income does not in-clude certain interest, dividends, rents androyalties received from related corpora-tions. These exceptions apply, in the caseof interest and dividends, when the re-lated corporate payor is organized in thecountry in which the CFC is organizedand uses a substantial part of its assets in atrade or business in that country and, inthe case of rents and royalties, when therent or royalty payment is made for theuse or privilege of using property withinthe CFC’s country of incorporation.

Under these proposed regulations, ifthe partnership receives an item of in-come that reduces the foreign income taxof the payor, the related person exceptionsof section 954(c)(3) would apply to ex-

1999–30 I.R.B. 127 July 26, 1999

clude the income from the foreign per-sonal holding company income of theCFC partner only where: the exceptionwould have applied if the CFC earned theincome directly (testing relatedness andcountry of incorporation at the CFC part-ner level); and either the partnership is or-ganized and operates in the CFC’s coun-try of incorporation, the partnership istreated as fiscally transparent in theCFC’s countries of incorporation and op-eration, or there is no significant disparitybetween the effective rate of tax imposedon the income and the rate of tax thatwould be imposed on the income ifearned directly by the CFC partner.

In addition, these proposed regulationscontain rules that would apply the relatedperson exceptions to certain payments in-volving hybrid branches. These ruleswould apply to payments by a CFC to ahybrid branch of a related CFC. Underthese rules, the related person exceptionswould apply to exclude the paymentsfrom the foreign personal holding com-pany income of the recipient CFC only ifthe payment would have qualified for theexception if the hybrid branch had been aseparate CFC incorporated in the jurisdic-tion in which the payment is subject to tax(other than a withholding tax).

IV. Request for Comments

Comments on policy issues that relateto subpart F and deferral, generally, in-cluding comments on legislative modifi-cations to the current rules, and commentssolicited on the broad policy issues men-tioned in Notice 98–35, can be submittedin response to the study mentioned above.Treasury and the IRS invite comments onthe appropriateness of these regulationsunder the current subpart F rules.

Proposed Effective Date

These proposed regulations will not befinalized before July 1, 2000. It is pro-posed that, when finalized, these regula-tions would be effective only for pay-ments made in taxable years of acontrolled foreign corporation commenc-ing after the date that is five years afterthe date of finalization of these regula-tions. These regulations would not, how-ever, apply to any payments made underhybrid arrangements entered into beforeJune 19, 1998. This exception is perma-

nent so long as the arrangement is notsubstantially modified on or after June 19,1998. An illustrative list of events thatwould and would not constitute “substan-tial modification” of an arrangement is in-cluded in these regulations.

Special Analyses

It has been determined that this noticeof proposed rulemaking is not a signifi-cant regulatory action as defined in Exec-utive Order 12866. Therefore, a regula-tory assessment is not required. It hasalso been determined that section 553(b)of the Administrative Procedures Act (5U.S.C. chapter 5) does not apply to theseregulations, and, because the regulationdoes not impose a collection of informa-tion on small entities, the RegulatoryFlexibility Act (5 U.S.C. chapter 6) doesnot apply. Pursuant to section 7805(f) ofthe Internal Revenue Code, this notice ofproposed rulemaking will be submitted tothe Chief Counsel for Advocacy of theSmall Business Administration for com-ment on its impact on small business.

Request for Comments

Before these proposed regulations areadopted as final regulations, considera-tion will be given to any written com-ments (a signed original and eight (8)copies) that are submitted timely to theIRS. The IRS and Treasury specificallyrequest comments on the clarity of theseproposed regulations and how they maybe made easier to understand. All com-ments will be available for public inspec-tion and copying.

A public hearing has been scheduledfor December 1, 1999, at 10 a.m., in room2615, Internal Revenue Building, 1111Constitution Avenue NW, WashingtonDC. Due to building security procedures,visitors must enter at the 10th Street en-trance, located between Constitution andPennsylvania Avenues, NW. In addition,all visitors must present photo identifica-tion to enter the building. Because of ac-cess restrictions, visitors will not be ad-mitted beyond the immediate entrancearea more than 15 minutes before thehearing starts. For information abouthaving your name placed on the buildingaccess list to attend the hearing, see the“FOR FURTHER INFORMATIONCONTACT” section of this preamble.

The rules of 26 CFR 601.601(a)(3)apply to the hearing.

Persons that wish to present oral com-ments at the hearing must submit writtencomments and an outline of topics to bediscussed and time to be devoted to eachtopic (signed original and eight (8)copies) by November 10, 1999.

A period of 10 minutes will be allottedto each person for making comments.

An agenda showing the scheduling ofthe speakers will be prepared after thedeadline for receiving outlines haspassed. Copies of the agenda will beavailable free of charge at the hearing.


The principal author of these regula-tions is Valerie Mark, of the Office of theAssociate Chief Counsel (International).Other personnel from the IRS and Trea-sury Department also participated in thedevelopment of these regulations.

* * * * *

Withdrawal of Notice of ProposedRulemaking and Proposed Amendmentsto the Regulations

Accordingly, under the authority of 26U.S.C. 7805, the notice of proposed rule-making amending 26 CFR Parts 1 and301 that was published in the FederalRegister on March 26, 1998, 63 F.R.14669 (REG–104537–97), is withdrawn.In addition, 26 CFR part 1 is proposed tobe amended as follows:


Paragraph 1. The authority citation for26 CFR part 1 continues to read in part asfollows:

Authority: 26 U.S.C. 7805 * * * Par. 2. In §1.904–5, paragraph (k)(1) is

revised to read as follows:

§1.904–5 Look-through rules as appliedto controlled foreign corporations andother entities.

* * * * *

(k) Ordering rules—(1) In general. In-come received or accrued by a relatedperson to which the look-through rulesapply is characterized before amounts in-cluded from, or paid or distributed by, thatperson and received or accrued by a re-

July 26, 1999 128 1999–30 I.R.B.

lated person. For purposes of determin-ing the character of income received oraccrued by a person from a related personif the payor or another related person alsoreceives or accrues income from the re-cipient and the look-through rules applyto the income in all cases, the rules ofparagraph (k)(2) of this section apply.Notwithstanding any other provision ofthis section, the principles of §1.954–1(c)(1)(i) will apply to any expense sub-ject to §1.954–1(c)(1)(i).

* * * * *

Par. 3. Section 1.954–0 (b) is amendedas follows:

1. The entry for §1.954–1(c)(1)(i) is re-vised.

2. Entries for §1.954–1(c)(1)(i)(A)through (c)(1)(i)(E) are added.

3. An entry for §1.954–2(a)(5) is added.4. An entry for §1.954–2(a)(6) is added.The revision and additions read as fol-

lows:

§954–0 Introduction.

* * * * *

(b) * * *

§1.954–1 Foreign base company income

* * * * *

(c) * * *(1) * * *(i) Deductions.(A) Deductions against gross foreign

base company income.(B) Special rule for deductible payments

to certain non-fiscally transparententities.

(C) Limitations.(D) Example.(E) Effective date.

* * * * *

§1.954–2 Foreign personal holdingcompany income.

(a) * * *(5) Special rules applicable to distribu-

tive share of partnership income.(i) Application of related person excep-

tions where payment reduces foreigntax of payor.

(ii) Certain other exceptions applicableto foreign personal holding companyincome. [Reserved]

(iii) Effective date.(6) Special rules applicable to excep-

tions from foreign personal holdingcompany income treatment in cir-cumstances involving hybridbranches.

(i) In general.(ii) Exception where no tax reduction or

tax disparity. (iii) Effective date.

* * * * *

Par. 4. Section 1.954–1 is amended asfollows:

1. Paragraphs (c)(1)(i) heading and in-troductory text and (c)(1)(i)(A) through(c)(1)(i)(D) are redesignated as para-graphs (c)(1)(i)(A) heading and introduc-tory text and (c)(1)(i)(A)(1) through(c)(1)(i)(A)(4), respectively.

2. A heading for paragraph (c)(1)(i) isadded.

3. Paragraphs (c)(1)(i)(B) through(c)(1))(i)(E) are added.

The additions read as follows:

§1.954–1 Foreign base company income.

* * * * *

(c) * * *(1) * * *(i) Deductions—(A) Deductions

against gross foreign base company in-come.* * *

(B) Special rule for deductible pay-ments to certain non-fiscally transparententities. Notwithstanding any other pro-vision of this section, except as providedin paragraph (c)(1)(i)(C) of this section,an expense (including a distributive shareof any expense) that would otherwise beallocable under section 954(b)(5) againstthe subpart F income of a controlled for-eign corporation shall not be allocatedagainst subpart F income of the controlledforeign corporation resulting from thepayment giving rise to the expense if—

(1) Such expense arises from a pay-ment between the controlled foreign cor-poration and a partnership in which thecontrolled foreign corporation is a partnerand the partnership is not regarded as fis-cally transparent, as defined in §1.954–9(a)(7), by any country in which the con-trolled foreign corporation does businessor has substantial assets; and

(2) The payment from which the ex-pense arises would have reduced foreign

tax, under §1.954–9(a)(3), and wouldhave fallen within the tax disparity rule of§1.954–9(a)(5)(iv), if those provisionshad been applicable to the payment.

(C) Limitations.Paragraph (c)(1)(i)(B)of this section shall not apply to the extentthat the controlled foreign corporationpartner has no income against which to al-locate the expense, other than its distribu-tive share of a payment described in para-graph (c)(1)(i)(B) of this section.Similarly, to the extent an expense de-scribed in paragraph (c)(1)(i)(B) of thissection exceeds the controlled foreigncorporation partner’s distributive share ofthe payment from which the expensearises, such excess amount of the expensemay reduce subpart F income (other thansuch payment) to which it is properly al-locable or apportionable under section954(b)(5).

(D) Example. The following exampleillustrates the application of paragraphs(c)(1)(i)(B) and (C) of this section:

Example. CFC, a controlled foreign corporationin Country A, is a 70 percent partner in partnershipP, located in Country B. Country A’s tax laws do notclassify P as a fiscally transparent entity. The rate oftax in country B is 15 percent of the tax rate in coun-try A. P loans $100 to CFC at a market rate of inter-est. In year 1, CFC pays P $10 of interest on theloan. The interest payment would have caused therecharacterization rules of §1.954–9 to apply if thepayment were made between the entities describedin §1.954–9(a)(2). CFC’s distributive share of P’sinterest income is $7, which is foreign personalholding company income to CFC under section954(c). Under paragraph (c)(1)(i)(B) of this section,$7 of the $10 interest expense may not be allocatedagainst any of CFC’s subpart F income. However,to the extent the remaining $3 of interest expense isproperly allocable to subpart F income of CFC otherthan its distributive share of P’s interest income, thisexpense may offset such other subpart F income.

(E) Effective date.Paragraph (c)(1)(i)-(B), (C) and (D) of this section shall beapplicable for all payments made or ac-crued in taxable years commencing after[date that is 5 years after publication ofthe final regulations in the federal regis-ter], under hybrid arrangements, unlesssuch payments are made pursuant to anarrangement that would qualify for per-manent relief under §1.954–9(c)(2) ifmade between a controlled foreign corpo-ration and its hybrid branch, in whichcase the relief afforded under that sectionshall also be afforded under this section.

* * * * *

1999–30 I.R.B. 129 July 26, 1999

Par. 5. In §1.954–2, paragraphs (a)(5)and (a)(6) are added to read as follows:

§1.954–2 Foreign personal holdingcompany income.

(a) * * *(5) Special rules applicable to distribu-

tive share of partnership income—(i) Ap-plication of related person exceptionswhere payment reduces foreign tax ofpayor. If a partnership receives an item ofincome that reduced the foreign incometax of the payor (determined under theprinciples of §1.954–9(a)(3)), to deter-mine the extent to which a controlled for-eign corporation’s distributive share ofsuch item of income is foreign personalholding company income, the exceptionscontained in section 954(c)(3) shall applyonly if—

(A)(1) Any such exception would haveapplied to exclude the income from for-eign personal holding company income ifthe controlled foreign corporation hadearned the income directly (determinedby testing, with reference to such con-trolled foreign corporation, whether anentity is a related person, within themeaning of section 954(d)(3), or is orga-nized under the laws of, or uses propertyin, the foreign country in which the con-trolled foreign corporation is created ororganized); and

(2) The distributive share of such in-come is not in respect of a payment madeby the controlled foreign corporation tothe partnership; and

(B)(1) The partnership is created or or-ganized, and uses a substantial part of itsassets in a trade or business in the countryunder the laws of which the controlledforeign corporation is created or orga-nized (determined under the principles ofparagraph (b)(4) of this section);

(2) The partnership is regarded as fis-cally transparent, as defined in §1.954–9(a)(7), by all countries under the laws ofwhich the controlled foreign corporationis created or organized or has substantialassets; or

(3) The income is taxed in the yearwhen earned at an effective rate of tax(determined under the principles of§1.954–1(d)(2)) that is not less than 90percent of, and not more than five per-centage points less than, the effective rateof tax that would have applied to such in-come under the laws of the country in

which the controlled foreign corporationis created or organized if such incomewere earned directly by the controlled for-eign corporation partner from localsources.

(ii) Certain other exceptions applicableto foreign personal holding company in-come. [Reserved].

(iii) Effective date.Paragraph (a)(5)(i)of this section shall apply to all amountspaid or accrued in taxable years com-mencing after [date that is 5 years afterpublication of the final regulations in thefederal register], under hybrid arrange-ments, unless such payments are madepursuant to an arrangement which wouldqualify for permanent relief under§1.954–9(c)(2) if made between a con-trolled foreign corporation and its hybridbranch, in which case the relief affordedunder that section shall also be affordedunder this section.

(6) Special rules applicable to excep-tions from foreign personal holding com-pany income treatment in circumstancesinvolving hybrid branches—(i) In gen-eral. In the case of a payment between acontrolled foreign corporation (or its hy-brid branch, as defined in §1.954–9(a)(6))and the hybrid branch of a related con-trolled foreign corporation, the exceptionscontained in section 954(c)(3) shall applyonly if the payment would have qualifiedfor the exception if the payor were a sepa-rate controlled foreign corporation cre-ated or organized in the jurisdiction whereforeign tax is reduced and the payee werea separate controlled foreign corporationcreated or organized under the laws of thejurisdiction in which the payment is sub-ject to tax (other than a withholding tax).

(ii) Exception where no tax reductionor tax disparity. Paragraph (a)(6)(i) ofthis section shall not apply unless the pay-ment would have reduced foreign tax,under §1.954–9(a)(3), and fallen withinthe tax disparity rule of §1.954–9(a)-(5)(iv) if those provisions had been ap-plicable to the payment.

(iii) Effective date.The rules of thissection shall apply to all amounts paid oraccrued in taxable years commencingafter [date that is 5 years after publicationof the final regulations in the federal reg-ister], under hybrid arrangements, unlesssuch payments are made pursuant to anarrangement which would qualify for per-manent relief under §1.954–9(c)(2) if

made between a controlled foreign corpo-ration and its hybrid branch, in whichcase the relief afforded under that sectionshall also be afforded under this section.

Par. 6. Section 1.954–9 is added toread as follows:

§1.954–9 Hybrid branches.

(a) Subpart F income arising from cer-tain payments involving hybridbranches—(1) Payment causing foreigntax reduction gives rise to additional sub-part F income. The non-subpart F in-come of a controlled foreign corporationwill be recharacterized as subpart F in-come, to the extent provided in paragraph(a)(5) of this section, if—

(i) A hybrid branch payment, as definedin paragraph (a)(6) of this section, ismade between the entities described inparagraph (a)(2) of this section;

(ii) The hybrid branch payment reducesforeign tax, as determined under para-graph (a)(3) of this section; and

(iii) The hybrid branch payment istreated as falling within a category of for-eign personal holding company incomeunder the rules of paragraph (a)(4) of thissection.

(2) Hybrid branch payment betweencertain entities—(i) In general. Para-graph (a)(1) of this section shall apply tohybrid branch payments between—

(A) A controlled foreign corporationand its hybrid branch;

(B) Hybrid branches of a controlledforeign corporation;

(C) A partnership in which a controlledforeign corporation is a partner (either di-rectly or through one or more branches orother partnerships) and a hybrid branch ofthe partnership; or

(D) Hybrid branches of a partnership inwhich a controlled foreign corporation isa partner (either directly or through one ormore branches or other partnerships).

(ii) Hybrid branch payment involvingpartnership—(A) Fiscally transparentpartnership. To the extent of the con-trolled foreign corporation’s proportion-ate share of a hybrid branch payment, therules of paragraphs (a)(3), (4) and (5) ofthis section shall be applied by treatingthe hybrid branch payment between thepartnership and the hybrid branch as if itwere made directly between the con-trolled foreign corporation and the hybridbranch, or as if the hybrid branches of the

July 26, 1999 130 1999–30 I.R.B.

partnership were hybrid branches of thecontrolled foreign corporation, if the hy-brid branch payment is made between—

(1) A fiscally transparent partnership inwhich a controlled foreign corporation isa partner (either directly or through one ormore branches or other fiscally transpar-ent partnerships) and the partnership’s hy-brid branch; or

(2) Hybrid branches of a fiscally trans-parent partnership in which a controlledforeign corporation is a partner (either di-rectly or through one or more branches orother fiscally transparent partnerships).

(B) Non-fiscally transparent partner-ship. To the extent of the controlled for-eign corporation’s proportionate share ofa hybrid branch payment, the rules ofparagraphs (a)(3) and (4) and (a)(5)(iv) ofthis section shall be applied to the non-fis-cally transparent partnership as if it werethe controlled foreign corporation, if thehybrid branch payment is made be-tween—

(1) A non-fiscally transparent partner-ship in which a controlled foreign corpo-ration is a partner (either directly orthrough one or more branches or otherpartnerships) and the partnership’s hybridbranch; or

(2) Hybrid branches of a non-fiscallytransparent partnership in which a con-trolled foreign corporation is a partner (ei-ther directly or through one or morebranches or other partnerships).

(C) Examples.The following examplesillustrate the application of this paragraph(a)(2)(ii):

Example 1. CFC, a controlled foreign corpora-tion in Country A, is a 90 percent partner in partner-ship P, which is treated as fiscally transparent underthe laws of Country A. P has a hybrid branch, BR,in Country B. P makes an interest payment of $100to BR. Under Country A law, CFC’s 90 percentshare of the payment reduces CFC’s Country A in-come tax. Under paragraph (a)(2)(ii)(A) of this sec-tion, the recharacterization rules of this section areapplied by treating the payment as if made by CFCto BR. Ninety dollars of CFC’s non-subpart F in-come, to the extent available, and subject to theearnings and profits and tax rate limitations of para-graph (a)(5) of this section, is recharacterized assubpart F income.

Example 2. CFC, a controlled foreign corpora-tion in Country A, is a 90 percent partner in partner-ship P, which is treated as fiscally transparent underthe laws of Country A. P has two branches in Coun-try B, BR1 and BR2. BR1 is treated as fiscallytransparent under the laws of Country A. BR2 is ahybrid branch. BR1 makes an interest payment of$100 to BR2. Under paragraph (a)(2)(ii)(A) of this

section, the payment by BR1, the fiscally transpar-ent branch, is treated as a payment by P, and thedeemed payment by P, a fiscally transparent partner-ship, is treated as made by CFC. Under Country Alaw, CFC’s 90 percent share of BR1’s payment re-duces CFC’s Country A income tax. Ninety dollarsof CFC’s non-subpart F income, to the extent avail-able, and subject to the earnings and profits and taxrate limitations of paragraph (a)(5) of this section, isrecharacterized as subpart F income.

(3) Application when payment reducesforeign tax. For purposes of paragraph(a)(1) of this section, a hybrid branch pay-ment reduces foreign tax when the foreigntax imposed on the income of the payor,or any person that is a related person withrespect to the payor (as determined underthe principles of section 954(d)(3)), is lessthan the foreign tax that would have beenimposed on such income had the hybridbranch payment not been made, or the hy-brid branch payment creates or increasesa loss or deficit or other tax attributewhich may be carried back or forward toreduce the foreign income tax of thepayor or any owner in another year (deter-mined by taking into account any refundof such tax made to the payor, payee orany other person).

(4) Hybrid branch payment that is in-cluded within a category of foreign per-sonal holding company income—(i) Ingeneral. For purposes of paragraph (a)(1)of this section, whether the hybrid branchpayment is treated as income includedwithin a category of foreign personalholding company income is determinedby treating a hybrid branch that is eitherthe payor or recipient of the hybrid branchpayment as a separate wholly-owned sub-sidiary corporation of the controlled for-eign corporation that is incorporated inthe jurisdiction under the laws of whichsuch hybrid branch is created, organizedfor foreign law purposes, or has substan-tial assets. Thus, the hybrid branch pay-ment will be treated as included within acategory of foreign personal holding com-pany income if, taking into account anyspecific exceptions for that category, thepayment would be included within a cate-gory of foreign personal holding companyincome if the branch or branches weretreated as separately incorporated for U.S.tax purposes.

(ii) Extent to which controlled foreigncorporation and hybrid branches treatedas separate entities.For purposes of thissection, other than the determination

under paragraph (a)(4)(i) of this section, acontrolled foreign corporation and its hy-brid branch, a partnership and its hybridbranch, or hybrid branches shall not betreated as separate entities. Thus, for ex-ample, if a controlled foreign corporation,including all of its hybrid branches, hasan overall deficit in earnings and profitsto which section 952(c) applies, the limi-tation of such section on the amount in-cludible in the subpart F income of suchcorporation will apply. Similarly, for pur-poses of applying the de minimis and fullinclusion rules of section 954(b)(3), acontrolled foreign corporation and its hy-brid branch, or hybrid branches shall notbe treated as separate corporations. Fur-ther, a hybrid branch payment that wouldreduce foreign personal holding companyincome under section 954(b)(5) if madebetween two separate entities will not cre-ate an expense if made between a con-trolled foreign corporation and its hybridbranch, a partnership and its hybridbranch, or hybrid branches.

(5) Recharacterization of income at-tributable to current earnings and profitsas subpart F income—(i) General rule.Non-subpart F income of a controlled for-eign corporation in an amount equal to theexcess of earnings and profits of the con-trolled foreign corporation for the taxableyear over subpart F income, as defined insection 952(a), will be recharacterized assubpart F income under paragraph (a)(1)of this section only to the extent providedunder paragraphs (a)(5)(ii) through (vi) ofthis section.

(ii) Subpart F income.For purposes ofdetermining the excess of current earn-ings and profits over subpart F incomeunder paragraph (a)(1) of this section, theamount of subpart F income is determinedbefore the application of the rules of thissection but after the application of therules of sections 952(c) and 954(b). Fur-ther, such amount is determined by treat-ing the controlled foreign corporation andall of its hybrid branches as a single cor-poration.

(iii) Recharacterization limited to grossamount of hybrid branch payment—(A)In general. The amount recharacterizedas subpart F income under paragraph(a)(1) of this section is limited to theamount of the hybrid branch payment.

(B) Exception for duplicative pay-ments.[Reserved].

1999–30 I.R.B. 131 July 26, 1999

(iv) Tax disparity rule—(A) In general.Paragraph (a)(1) of this section will applyonly if the hybrid branch payment fallswithin the tax disparity rule. The hybridbranch payment falls within the tax dis-parity rule if it is taxed in the year whenearned at an effective rate of tax that isless than 90 percent of, and at least 5 per-centage points less than, the hypotheticaleffective rate of tax imposed on the hy-brid branch payment, as determined underparagraph (a)(5)(iv)(B) of this section.

(B) Hypothetical effective rate of tax—(1) In general. The hypothetical effectiverate of tax imposed on the hybrid branchpayment is—

(i) For the taxable year of the payor inwhich the hybrid branch payment ismade, the amount of income taxes thatwould have been paid or accrued by thepayor if the hybrid branch payment hadnot been made, less the amount of incometaxes paid or accrued by the payor; di-vided by

(ii ) The amount of the hybrid branchpayment.

(2) Hypothetical effective rate of taxwhen hybrid branch payment causes orincreases loss or deficit.If the hybridbranch payment causes or increases a lossor deficit of the payor for foreign tax pur-poses, and such loss or deficit can be car-ried forward or back, the hypothetical ef-fective rate of tax imposed on the hybridbranch payment is the effective rate of taxthat would be imposed on the taxable in-come of the payor for the year in whichthe payment is made if the payor’s taxableincome were equal to the amount of thehybrid branch payment.

(C) Examples. The application of thisparagraph (a)(5)(iv) is illustrated by thefollowing examples:

Example 1. In 2006, CFC organized in CountryA had net income of $60 from manufacturing forCountry A tax purposes. It also had a branch (BR) inCountry B. BR is a hybrid entity under paragraph(a)(1) of this section. CFC made a payment of $40to BR, which was a hybrid branch payment underparagraph (a)(6) of this section, and was treated byCFC as a deductible payment for Country A tax pur-poses. CFC paid $30 of Country A taxes in 2006. Itwould have paid $50 of Country A taxes without thedeductible payment. Country A did not impose anywithholding tax on the $40 payment to BR. CountryB also did not impose a tax on the $40 received byBR. Therefore, the effective rate of tax on that pay-ment is 0%. Furthermore, the hypothetical effectiverate of tax on the $40 hybrid branch payment is 50%($50-$30/$40). The effective rate of tax (0%) is less

than 90% of, and more than 5 percentage points lessthan, this hypothetical rate of tax of 50%. As a re-sult, the $40 hybrid branch payment falls within thetax disparity rule of this paragraph (a)(5)(iv).

Example 2.Assume the same facts as in Example1, except that CFC has a loss of $100 for the year forCountry A tax purposes. Under Country A law, CFCcan carry the loss forward for use in subsequentyears. CFC paid no Country A taxes in 2006. Therate of tax in Country A is graduated from 20% to50%. If the $40 hybrid branch payment were theonly item of taxable income of CFC, Country Awould have imposed tax at an effective rate of 30%.The effective rate of tax (0%) is less than 90% of,and more than 5 percentage points less than, the hy-pothetical effective rate of tax (30%) imposed on thehybrid branch payment. As a result, the $40 hybridbranch payment falls within the tax disparity rule ofthis paragraph (a)(5)(iv).

Example 3.Assume the same facts as in Example1, except that Country B imposes tax on the $40 hy-brid payment to BR at an effective rate of 50%. Theeffective rate of 50% is equal to the hypothetical ef-fective rate of tax. As a result, the hybrid branchpayment does not fall within the tax disparity rule ofthis paragraph (a)(5)(iv) and, thus, the recharacteri-zation rules of paragraph (a)(1) of this section do notapply. See also the special high tax exception ofparagraph (a)(5)(v) of this section.

(v) Special high tax exception—(A) Ingeneral. Paragraph (a)(1) of this sectionshall not apply if the non-subpart F in-come that would be recharacterized assubpart F income under this section wassubject to foreign income taxes imposedby a foreign country or countries at an ef-fective rate that is greater than 90 percentof the maximum rate of tax specified insection 11 for the taxable year of the con-trolled foreign corporation.

(B) Effective rate of tax. The effectiverate of tax imposed on the non-subpart Fincome that would be recharacterized assubpart F income under this section is de-termined under the principles of §1.954–1(d)(2) and (3). See paragraph (b) of thissection for the application of section 960to amounts recharacterized as subpart Fincome under this section.

(vi) No carryback or carryforward ofamounts in excess of current year earn-ings and profits limitation. To the extentthat some or all of the amount required tobe recharacterized under this section is notrecharacterized as subpart F income be-cause the hybrid branch payment exceedsthe amount that can be recharacterized, asdetermined under paragraph (a)(5)(i) ofthis section, this excess shall not be car-ried back or forward to another year.

(6) Definitions for this section.Forpurposes of this section:

(i) Arrangementshall mean any agree-ment to pay interest, rents, royalties or sim-ilar amounts. It shall also include the dec-laration and payment of a dividend (but notan agreement or undertaking to pay future,unspecified dividends). An arrangementshall not, however, include the mere for-mation or acquisition (or similar event) ofa hybrid branch that is intended to becomea party to an arrangement.

(ii) Entity means any person that istreated by the United States or any juris-diction as other than an individual.

(iii) Hybrid branchmeans an entitythat—

(A) Is disregarded as an entity separatefrom its owner for federal tax purposesand is owned (including ownershipthrough branches) by either a controlledforeign corporation or a partnership inwhich a controlled foreign corporation isa partner (either directly or indirectlythrough one or more branches or partner-ships);

(B) Is treated as fiscally transparent bythe United States; and

(C) Is treated as non-fiscally transpar-ent by the country in which the payor en-tity, any owner of a fiscally-transparentpayor entity, the controlled foreign corpo-ration, or any intermediary partnership iscreated, organized or has substantial as-sets.

(iv) Hybrid branch paymentmeans thegross amount of any payment (includingany accrual) which, under the tax laws ofany foreign jurisdiction to which thepayor is subject, is regarded as a paymentbetween two separate entities but which,under U.S. income tax principles, is notincome to the recipient because it is be-tween two parts of a single entity.

(7) Fiscally transparent and non-fis-cally transparent. For purposes of thissection an entity shall be treated as fis-cally transparent with respect to an inter-est holder of the entity, if such interestholder is required, under the laws of anyjurisdiction to which it is subject, to takeinto account separately, on a current basis,such interest holder’s share of all itemswhich, if separately taken into account bysuch interest holder, would result in an in-come tax liability for the interest holder insuch jurisdiction different from thatwhich would result if the interest holderdid not take the share of such items intoaccount separately. A non-fiscally trans-

July 26, 1999 132 1999–30 I.R.B.

parent entity is an entity that is not fis-cally transparent under this paragraph(a)(7).

(b) Application of section 960.Forpurposes of determining the amount oftaxes deemed paid under section 960, theamount of non-subpart F income rechar-acterized as subpart F income under thissection shall be treated as attributable toincome in separate categories, as definedin §1.904–5(a)(1), in proportion to theratio of non-subpart F income in eachsuch category to the total amount of non-subpart F income of the controlled foreigncorporation for the taxable year.

(c) Effective dates—(1) In general.This section shall be applicable for allamounts paid or accrued in taxable yearscommencing after [date that is 5 yearsafter publication of the final regulations inthe federal register], under hybrid arrange-ments, except as otherwise provided.

(2) Permanent Relief—(i) In general.This section shall not apply to any pay-ments made under hybrid arrangementsentered into before June 19, 1998. Thisexception shall be permanent so long asthe arrangement is not substantially modi-fied, within the meaning of paragraph(c)(2)(ii) of this section, on or after June19, 1998.

(ii) Substantial modification—(A) Ingeneral.Substantial modification of a hy-brid arrangement includes—

(1) The expansion of the hybrid ar-rangement (other than de minimis expan-sion);

(2) A more than 50% change in the U.S.ownership (direct or indirect) of any en-tity that is a party to the hybrid arrange-ment, other than—

(i ) A transfer of ownership of suchparty within a controlled group deter-mined under section 1563(a), without re-gard to section 1563(a)(4); or

(ii ) A change in ownership of the entirecontrolled group (determined under sec-tion 1563(a), without regard to section1563(a)(4)) of which such party is a mem-ber;

(3) Any measure taken by a party to thearrangement (or any related party) thatmaterially increases the tax benefit of thehybrid arrangement, regardless ofwhether such measure alters the legal re-lationship between the parties to thearrangement. For example, in the case ofa hybrid branch payment determined with

reference to a percentage of sales, agrowth in the amount of the hybrid branchpayment (and, thus, the tax benefit)caused by a growth of sales will not, ingeneral, be a substantial modification.However, in the case of a significant salesgrowth resulting from a transfer of assetsby a related party, that transfer would be ameasure which materially increased thebenefit of the arrangement, and thatarrangement would be deemed to havebeen substantially modified.

(B) Transactions not treated as sub-stantial modification.Substantial modifi-cation of a hybrid arrangement does notinclude—

(1) The daily reissuance of a demandloan by operation of law;

(2) The renewal of a loan, license orrental agreement on the same terms andconditions if—

(i) The renewal occurs pursuant to theterms of the agreement and without morethan a de minimis amount of action of anyparty thereto;

(ii ) As contemplated by the originalagreement, the same parties agree torenew the agreement without modifica-tion; or

(iii ) The renewal occurs solely by rea-son of a subsequent drawdown under agrandfathered master credit facility agree-ment;

(3) The renewal of a loan, license, orrental agreement by the same parties onterms which do not increase the tax bene-fit of the arrangement (other than a deminimis increase);

(4) The making of payments under a li-cense agreement in respect of copyrightsor patents (or know-how associated withsuch copyrights or patents), not in exis-tence at the time the agreement was en-tered into, but only where the develop-ment of such property was anticipated bythe agreement, and such property is sub-stantially derived from (or otherwise in-corporates substantial features of) copy-rights and patents (or know-howassociated with such copyrights orpatents) in existence at the time of, andcovered under, the original agreement;

(5) A final transfer pricing adjustmentmade by the taxation authorities of the ju-risdiction in which the tax reduction oc-curs, so long as such adjustment wouldnot have been a substantial valuation mis-statement (as defined in section

6662(e)(1)(B)) if the adjustment had beenmade by the Internal Revenue Service; or

(6) A de minimisperiodic adjustmentby the parties to the arrangement madeannually (or more frequently) to conformthe payments to the requirements of sec-tion 482.

Charles O. Rossotti,Commissioner of

Internal Revenue.


Deletion From Cumulative Listof Organizations Contributionsto Which are Deductible UnderSection 170 of the Code

Announcement 99–72

The name of an organization that nolonger qualifies as an organization de-scribed in section 170(c)(2) of the InternalRevenue Code of 1986 is listed below.

Generally, the Service will not disallowdeductions for contributions made to alisted organization on or before the dateof announcement in the Internal RevenueBulletin that an organization no longerqualifies. However, the Service is notprecluded from disallowing a deductionfor any contributions made after an orga-nization ceases to qualify under section170(c)(2) if the organization has nottimely filed a suit for declaratory judg-ment under section 7428 and if the con-tributor (1) had knowledge of the revoca-tion of the ruling or determination letter,(2) was aware that such revocation wasimminent, or (3) was in part responsiblefor or was aware of the activities or omis-sions of the organization that broughtabout this revocation.

If on the other hand a suit for declara-tory judgment has been timely filed, con-tributions from individuals and organiza-tions described in section 170(c)(2) thatare otherwise allowable will continue tobe deductible. Protection under section7428(c) would begin on (Date) 1999, andwould end on the date the court first de-termines that the organization is not de-scribed in section 170(c)(2) as more par-ticularly set forth in section 7428 (c)(1).For individual contributors, the maximumdeduction protected is $1,000, with a hus-

1999–30 I.R.B. 133 July 26, 1999

band and wife treated as one contributor.This benefit is not extended to any indi-vidual, in whole or in part, for the acts oromissions of the organization that werethe basis for revocation.

Horizon Alliance, Inc.San Diego, CA

Requirements Respecting theAdoption or Change ofAccounting Method; Extensionsof Time To Make Elections;Correction


AGENCY: Internal Revenue Service(IRS), Treasury

ACTION: Correcting amendment.

SUMMARY: This document containscorrections to final regulations (T.D.8742, 1998–5 I.R.B. 4), which were pub-lished in the Federal Register onWednesday, December 31, 1997 (62 F.R.68167), providing the procedures for re-questing an extension of time to makecertain elections under the Internal Rev-enue Code.

DATES: This correction is effective De-cember 31, 1997.

FOR FURTHER INFORMATION CON-TACT: Cheryl Lynn Oseekey (202) 622-4970 (not a toll-free number).


Background

Sections 301.9100–2 and 301.9100–3of the Procedure and Administration Reg-ulations are the subject of these correc-tions. These regulations require informa-tion to be collected from taxpayersseeking to obtain from the Commissionerextensions of time to make certain elec-tions.

Need for Correction

As published, final regulations (T.D.8742) contain errors which may prove tobe misleading and are in need of clarifica-tion.

Correction of Publication

Accordingly, 26 CFR part 602 is cor-rected by making the following correctingamendment:

PART 602—OMB CONTROLNUMBERS UNDER THEPAPERWORK REDUCTION ACT

Paragraph 1. The authority citation forpart 602 continues to read as follows:

Authority: 26 U.S.C. 7805.Par. 2. In §602.101, paragraph (b) is

amended by removing the entry for§301.9100–1 from the table and addingentries for §§301.9100–2 and 301.9100–3to the table in numerical order to read asfollows:

§602.101 OMB Control numbers.

* * * * *

(b) * * *

CFR part or section Current OMBwhere identified and control No.described

* * * * *

301.9100–2 . . . . . . . . . . . . . 1545–1488301.9100–3 . . . . . . . . . . . . . 1545–1488

* * * * *

Cynthia E. Grigsby,Chief, Regulations Unit,

Assistant Chief Counsel (Corporate).


Arbitrage Restrictions on Tax-Exempt Bonds; Correction




SUMMARY: This document containscorrections to final regulations (T.D.8476, 1993–2 C.B. 13) which were pub-lished in the Federal Registeron Friday,

June 18, 1993 (58 F.R. 33510), relating tothe arbitrage and related restrictions ap-plicable to tax-exempt bonds issued byStates and local governments. DATES:This correction is effective December 30,1998.

FOR FURTHER INFORMATION CON-TACT: David White, (202) 622-3980 (nota toll-free number).


Background

The final regulations that are the sub-ject of these corrections are under section148 of the Internal Revenue Code.

Need for Correction

As published, the final regulations(T.D. 8476) contain errors which mayprove to be misleading and are in need ofclarification.


Accordingly, 26 CFR part 1 is cor-rected by making the following correctingamendments:


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

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 1.148–11 is amended

by adding paragraphs (b)(4), (h) and (i) toread as follows:

§1.148–11 Effective dates.

* * * * *

(b) * * *(4) No elective retroactive application

for safe harbor for establishing fair mar-ket value for guaranteed investment con-tracts and investments purchased for ayield restricted defeasance escrow.Theprovisions of §§1.148–5(d)(6)(iii) (relat-ing to the safe harbor for establishing fairmarket value of guaranteed investmentcontracts and yield restricted defeasanceescrow investments) and 1.148–5(e)-(2)(iv) (relating to a special rule for yieldrestricted defeasance escrow investments)may not be applied to any bond sold be-fore December 30, 1998.

* * * * *

July 26, 1999 134 1999–30 I.R.B.

(h) Safe harbor for establishing fairmarket value for guaranteed investmentcontracts and investments purchased fora yield restricted defeasance escrow.Theprovisions of §1.148–5(d)(6)(iii) are ap-plicable to bonds sold on or after March1, 1999. Issuers may apply these provi-sions to bonds sold on or after December30, 1998, and before March 1, 1999.

(i) Special rule for investments pur-chased for a yield restricted defeasanceescrow. The provisions of §1.148–5(e)-(2)(iv) are applicable to bonds sold on orafter March 1, 1999. Issuers may applythese provisions to bonds sold on or afterDecember 30, 1998, and before March 1,1999.

Cynthia E. Grigsby, Chief, Regulations Unit,



Payment by Credit Card andDebit Card; Correction




SUMMARY: This document contains acorrection to temporary regulations (T.D.8793, 1999–7 I.R.B. 15) that were pub-lished in the Federal Registeron Tues-day, December 15, 1998 (63 F.R. 68995)relating to the payment of taxes by creditcard and debit card.

DATES: This correction is effective Janu-ary 1, 1999.

FOR FURTHER INFORMATION CON-TACT: Mitchel S. Hyman, (202) 622-3620 (not a toll-free number).


Background

The temporary regulations that are sub-ject to this correction are under section6311 of the Internal Revenue Code.

Need for correction

As published, the temporary regula-tions (T.D. 8793) contain an error thatmay prove to be misleading and are inneed of clarification.

* * * * *


Accordingly, 26 CFR Part 301 is cor-rected by making the following correctingamendment:

PART 301—PROCEDURE ANDADMINISTRATION

Paragraph 1. The authority citation forpart 301 continues to read in part as fol-lows:

Authority: 26 U.S.C. 7805 * * *Par. 2. Section 301.6311–2T (c) (2) is

amended by revising the first sentence toread as follows:

§301.6311–2T Payment by credit cardand debit card (temporary).

* * * * *

(c) * * * (2) Liability of financial institutions. If

a taxpayer has tendered a payment of inter-nal revenue taxes by credit card or debitcard, and the credit card or debit cardtransaction has been guaranteed expresslyby a financial institution, and the UnitedStates is not duly paid, the United Statesshall have a lien for the guaranteed amountof the transaction upon all the assets of theinstitution making such guarantee. * * *

* * * * *

Cynthia E. Grigsby,Chief, Regulations Unit,



1999–30 I.R.B. i July 26, 1999

Revenue rulings and revenue procedures(hereinafter referred to as “rulings”)that have an effect on previous rulingsuse the following defined terms to de-scribe the effect:

Amplified describes a situation whereno change is being made in a prior pub-lished position, but the prior position isbeing extended to apply to a variation ofthe fact situation set forth therein. Thus,if an earlier ruling held that a principleapplied to A, and the new ruling holdsthat the same principle also applies to B,the earlier ruling is amplified. (Comparewith modified, below).

Clarified is used in those instanceswhere the language in a prior ruling isbeing made clear because the languagehas caused, or may cause, some confu-sion. It is not used where a position in aprior ruling is being changed.

Distinguisheddescribes a situationwhere a ruling mentions a previouslypublished ruling and points out an essen-tial difference between them.

Modified is used where the substanceof a previously published position isbeing changed. Thus, if a prior rulingheld that a principle applied to A but notto B, and the new ruling holds that it ap-

plies to both A and B, the prior ruling ismodified because it corrects a publishedposition. (Compare with amplified andclarified, above).

Obsoleted describes a previously pub-lished ruling that is not considered deter-minative with respect to future transac-tions. This term is most commonly usedin a ruling that lists previously publishedrulings that are obsoleted because ofchanges in law or regulations. A rulingmay also be obsoleted because the sub-stance has been included in regulationssubsequently adopted.

Revoked describes situations where theposition in the previously published rul-ing is not correct and the correct positionis being stated in the new ruling.

Superseded describes a situation wherethe new ruling does nothing more thanrestate the substance and situation of apreviously published ruling (or rulings).Thus, the term is used to republish underthe 1986 Code and regulations the sameposition published under the 1939 Codeand regulations. The term is also usedwhen it is desired to republish in a singleruling a series of situations, names, etc.,that were previously published over a pe-riod of time in separate rulings. If the

new ruling does more than restate thesubstance of a prior ruling, a combinationof terms is used. For example, modifiedand superseded describes a situationwhere the substance of a previously pub-lished ruling is being changed in part andis continued without change in part and itis desired to restate the valid portion ofthe previously published ruling in a newruling that is self contained. In this casethe previously published ruling is firstmodified and then, as modified, is super-seded.

Supplemented is used in situations inwhich a list, such as a list of the names ofcountries, is published in a ruling andthat list is expanded by adding furthernames in subsequent rulings. After theoriginal ruling has been supplementedseveral times, a new ruling may be pub-lished that includes the list in the originalruling and the additions, and supersedesall prior rulings in the series.

Suspended is used in rare situations toshow that the previous published rulingswill not be applied pending some futureaction such as the issuance of new oramended regulations, the outcome ofcases in litigation, or the outcome of aService study.

AbbreviationsThe following abbreviations in current use and for-merly used will appear in material published in theBulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedral Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

Definition of Terms

July 26, 1999 ii 1999–30 I.R.B.

Numerical Finding List1

Bulletins 1999–27 through 1999–29

Announcements:

99–47, 1999–28 I.R.B. 2999–64, 1999–27 I.R.B.799–65, 1999–27 I.R.B. 999–66, 1999–27 I.R.B. 999–67, 1999–28 I.R.B. 3199–68, 1999–28 I.R.B. 3199–69, 1999–28 I.R.B. 3399–70, 1999–29 I.R.B. 118

Notices:

99–35, 1999–28 I.R.B.26

Proposed Regulations:

REG–101519–97, 1999–29 I.R.B. 114REG–108287–98, 1999–28 I.R.B.27REG–105327–99, 1999–29 I.R.B. 117

Revenue Procedures:

99–28, 1999–29 I.R.B.109

Revenue Rulings:

99–29, 1999–27 I.R.B.399–30, 1999–28 I.R.B. 24

Treasury Decisions:

8822, 1999–27 I.R.B.58823, 1999–29 I.R.B. 348824, 1999–29 I.R.B. 628825, 1999–28 I.R.B. 198826, 1999–29 I.R.B. 107

1 A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., published inInternal Revenue Bulletins 1999–1 through 1999–26will be found in Internal Revenue Bulletin 1999–27,dated July 6, 1999.

1999–30 I.R.B. iii July 26, 1999

Finding List of Current Action onPreviously Published Items1

Bulletins 1999–27 through 1999–29

Revenue Procedures:

96–9Superseded by Rev. Proc. 99–28, 1999–29 I.R.B. 109

94–16Obsoleted by Notice 99–22, 1999–19 I.R.B. 5

96–64Modified by Rev. Proc. 99–23, 1999–16 I.R.B. 5



98–61Modified by99–29, 1999–21 I.R.B. 8


Revenue Procedures:

78–10Obsoleted by99–12, 1999–3 I.R.B. 13

89–9Modified by99–23, 1999–16 I.R.B. 5

89–13Modified by99–23, 1999–16 I.R.B. 5

93–39, section 13Modified by99–23, 1999–16 I.R.B. 5

94–56Superseded by99–9, 1999–2 I.R.B. 17

95–12Modified by99–23, 1999–16 I.R.B. 5


97–41Modified by99–23, 1999–16 I.R.B. 5




Revenue Procedures—Continued






98–14Modified by99–23, 1999–16 I.R.B. 5

98–22Modified and amplified by99–13, 1999–5 I.R.B. 52

98–28Obsoleted by (except as provided in section 5.02 of)99–22, 1999–15 I.R.B. 5




98–63Modified by announcement99–7, 1999–2 I.R.B. 45

Revenue Rulings:

79–162Revoked by99–28, 1999–25 I.R.B. 6

92–19Supplemented in part by99–10, 1999–10 I.R.B. 10

1 A cumulative finding list for previously publisheditems mentioned in Internal Revenue Bulletins1999–1 through 1999–26 will be found in InternalRevenue Bulletin 1999–27, dated July 6, 1999.

INTERNAL REVENUE BULLETINThe Introduction on page 3 describes the purpose and content of this publication. The weekly Internal Revenue Bulletin is sold

on a yearly subscription basis by the Superintendent of Documents. Current subscribers are notified by the Superintendent ofDocuments when their subscriptions must be renewed.

CUMULATIVE BULLETINSThe contents of this weekly Bulletin are consolidated semiannually into a permanent, indexed, Cumulative Bulletin. These are

sold on a single copy basis and are not included as part of the subscription to the Internal Revenue Bulletin. Subscribers to the week-ly Bulletin are notified when copies of the Cumulative Bulletin are available. Certain issues of Cumulative Bulletins are out of printand are not available. Persons desiring available Cumulative Bulletins, which are listed on the reverse, may purchase them from theSuperintendent of Documents.

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