Rule2023-03457
Single-Entity Treatment of Consolidated Groups for Specific Purposes
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 23, 2023
Effective
February 23, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains final regulations that treat members of a consolidated group as a single United States shareholder in certain cases for purposes of section 951(a)(2)(B) of the Internal Revenue Code (the "Code"). The document finalizes proposed regulations published on December 14, 2022. The final regulations affect consolidated groups that own stock of foreign corporations.
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 36 (Thursday, February 23, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 36 (Thursday, February 23, 2023)]
[Rules and Regulations]
[Pages 11393-11394]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-03457]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9973]
RIN 1545-BQ51
Single-Entity Treatment of Consolidated Groups for Specific
Purposes
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations that treat members of
a consolidated group as a single United States shareholder in certain
cases for purposes of section 951(a)(2)(B) of the Internal Revenue Code
(the ``Code''). The document finalizes proposed regulations published
on December 14, 2022. The final regulations affect consolidated groups
that own stock of foreign corporations.
DATES:
Effective date: These regulations are effective on February 23,
2023.
Applicability date: These regulations apply to taxable years for
which the original consolidated return is due (without extensions)
after February 23, 2023.
FOR FURTHER INFORMATION CONTACT: Austin Diamond-Jones, (202) 317-5085
(Corporate) and Julie T. Wang, (202) 317-6975 (Corporate) regarding
section 1502 and the amendments to Sec. 1.1502-80, and Joshua P.
Roffenbender, (202) 317-6934 (International) regarding sections 951,
951A, and 959.
SUPPLEMENTARY INFORMATION:
Background
On December 14, 2022, the Department of the Treasury (``Treasury
Department'') and the IRS published a notice of proposed rulemaking
(REG-113839-22) in the Federal Register (87 FR 76430) under sections
1502 and 7805(a) of the Code (the ``proposed regulations''). No
comments were received from the public in response to the notice of
proposed rulemaking. No public hearing was requested or held. This
Treasury Decision adopts the proposed regulations as final regulations
without modification.
Applicability Date
The final regulations apply to taxable years for which the original
consolidated return is due (without extensions) after February 23,
2023. See section 1503(a).
Special Analyses
I. Regulatory Planning and Review--Economic Analysis
These final regulations are not subject to review under section
6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement
(April 11, 2018) between the Treasury Department and the Office of
Management and Budget regarding review of tax regulations.
II. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that these final regulations will not have a
significant economic impact on a substantial number of small entities.
This certification is based on the fact that these final regulations
apply only to corporations that file consolidated Federal income tax
returns, and that such corporations almost exclusively consist of
larger businesses. Specifically, based on data available to the IRS,
corporations that file consolidated Federal income tax returns
represent only approximately two percent of all filers of Forms 1120
(U.S. Corporation Income Tax Return). However, these consolidated
Federal income tax returns account for approximately 95 percent of the
aggregate amount of receipts provided on all Forms 1120. Therefore,
these final regulations would not create additional obligations for, or
impose an economic impact on, small entities. Accordingly, the
Secretary certifies that the final regulations will not have a
significant economic impact on a substantial number of small entities.
III. Section 7805(f)
Pursuant to section 7805(f), the proposed regulations (REG-113839-
22) preceding these final regulations were submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small business, and no comments were received.
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a state,
local, or tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. These final regulations do not include any Federal mandate
that may result in expenditures by state, local, or tribal governments,
or by the private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (entitled ``Federalism'') prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial, direct compliance costs on state and local
governments, and is not required by statute, or preempts state law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These final regulations do not have
federalism implications and do not impose substantial direct compliance
costs on state and local governments or preempt state law within the
meaning of the Executive order.
Drafting Information
The principal authors of these regulations are Joshua P.
Roffenbender, Office of Associate Chief Counsel (International), and
Jeremy Aron-Dine and Gregory J. Galvin, Office of Associate Chief
Counsel (Corporate). However, other personnel from the IRS and the
Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. In Sec. 1.1502-80, reserved paragraph (i) and paragraph (j)
are added to read as follows:
Sec. 1.1502-80 Applicability of other provisions of law.
* * * * *
(i) [Reserved]
(j) Special rules for application of section 951(a)(2)(B) to
distributions to which section 959(b) applies--(1) Single United States
shareholder treatment. In determining the amount described in section
951(a)(2)(B) that is attributable to distributions to which section
959(b)
[[Page 11394]]
applies, members of a group are treated as a single United States
shareholder (within the meaning of section 951(b) (or section
953(c)(1)(A), if applicable)) for purposes of determining the part of
the year during which such shareholder did not own (within the meaning
of section 958(a)) the stock described in section 951(a)(2)(A). The
purpose of this paragraph (j) is to facilitate the clear reflection of
income of a consolidated group by ensuring that the location of
ownership of stock of a foreign corporation within the group does not
affect the amount of the group's income by reason of sections
951(a)(1)(A) and 951A(a).
(2) Examples. The following examples illustrate the application of
paragraph (j)(1) of this section. For purposes of the examples in this
paragraph (j)(2): M1 and M2 are members of a consolidated group of
which P is the common parent (P group); each of CFC1, CFC2, and CFC3 is
a controlled foreign corporation (within the meaning of section 957(a))
with the U.S. dollar as its functional currency (within the meaning of
section 985); the taxable year of all entities is the calendar year for
Federal income tax purposes; and a reference to stock owned means stock
owned within the meaning of section 958(a). These examples do not
address common law doctrines or other authorities that might apply to
recast a transaction or to otherwise affect the tax treatment of a
transaction.
(i) Example 1: Intercompany transfer of stock of a controlled
foreign corporation--(A) Facts. Throughout Year 1, M1 directly owns all
the stock of CFC1, which directly owns all the stock of CFC2. In Year
1, CFC2 has $100x of subpart F income (as defined in section 952). M1's
pro rata share of CFC2's subpart F income for Year 1 is $100x, which M1
includes in its gross income under section 951(a)(1)(A). In Year 2,
CFC2 has $80x of subpart F income and distributes $80x to CFC1 (the
CFC2 Distribution). Section 959(b) applies to the entire CFC2
Distribution. On December 29, Year 2, M1 transfers all of its CFC1
stock to M2 in an exchange described in section 351(a). As a result, on
December 31, Year 2 (the last day of Year 2 on which CFC2 is a
controlled foreign corporation), M2 owns 100% of the stock of CFC1,
which owns 100% of the stock of CFC2.
(B) Analysis. Under paragraph (j)(1) of this section, in
determining the amount described in section 951(a)(2)(B) that is
attributable to the CFC2 Distribution, all members of the P group are
treated as a single United States shareholder for purposes of
determining the part of Year 2 during which such shareholder did not
own the stock of CFC2. Thus, the ratio of the number of days in Year 2
that such United States shareholder did not own the stock of CFC2 to
the total number of days in Year 2 is 0/365. The amount described in
section 951(a)(2)(B) is $0, M2's pro rata share of CFC2's subpart F
income for Year 2 is $80x ($80x-$0), and M2 must include $80x in its
gross income under section 951(a)(1)(A).
(ii) Example 2: Transfer of stock of a controlled foreign
corporation between controlled foreign corporations--(A) Facts. The
facts are the same as in paragraph (j)(2)(i)(A) of this section (the
facts in Example 1), except that M1 does not transfer its CFC1 stock to
M2. Additionally, throughout Year 1 and from January 1, Year 2, to
December 29, Year 2, M2 directly owns all 90 shares of the only class
of stock of CFC3. Further, on December 29, Year 2, CFC3 acquires all
the CFC2 stock from CFC1 in exchange for 10 newly issued shares of the
same class of CFC3 stock in a transaction described in section
368(a)(1)(B). As a result, on December 31, Year 2, M1 owns 10% of the
stock of CFC2, and M2 owns 90% of the stock of CFC2.
(B) Analysis. Under paragraph (j)(1) of this section, in
determining the amount described in section 951(a)(2)(B) that is
attributable to the portion of the CFC2 Distribution with respect to
each of the CFC2 stock that M1 owns on December 31, Year 2, and the
CFC2 stock that M2 owns on that day, all members of the P group are
treated as a single United States shareholder for purposes of
determining the part of Year 2 during which such shareholder did not
own such stock. In each case, the ratio of the number of days in Year 2
that such United States shareholder did not own such stock to the total
number of days in Year 2 is 0/365, and the amount described in section
951(a)(2)(B) is $0. M1's and M2's pro rata shares of CFC2's subpart F
income for Year 2 are $8x ($8x-$0) and $72x ($72x-$0), respectively,
and M1 and M2 must include $8x and $72x in gross income under section
951(a)(1)(A), respectively.
(3) Applicability date. This paragraph (j) applies to taxable years
for which the original consolidated Federal income tax return is due
(without extensions) after February 23, 2023.
Melanie R. Krause,
Acting Deputy Commissioner for Services and Enforcement.
Approved: February 6, 2023.
Lily L. Batchelder,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2023-03457 Filed 2-22-23; 8:45 am]
BILLING CODE 4830-01-P
</pre></body>
</html>Indexed from Federal Register on February 23, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.