[Federal Register Volume 71, Number 150 (Friday, August 4, 2006)]
[Proposed Rules]
[Pages 44247-44250]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-6674]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 31

[REG-146893-02; REG-115037-00; REG-138603-03]
RIN 1545-BB31, 1545-AY38, 1545-BC52


Treatment of Services Under Section 482 Allocation of Income and 
Deductions From Intangibles Stewardship Expense

AGENCY: Internal Revenue Service (IRS), Treasury.

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

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SUMMARY: In a separate part to this issue of the Federal Register, the 
IRS is issuing temporary regulations relating to the treatment of 
controlled services transactions under section 482. These temporary 
regulations also provide guidance regarding the allocation of income 
from intangibles, in particular with respect to contribution by a 
controlled party to the value of an intangible owned by another 
controlled party as it relates to controlled services transactions and 
modify the regulations under section 861 concerning stewardship 
expenses to be consistent with the changes made to the regulations 
under section 482. The text of those regulations also serves as the 
text of these proposed regulations. These proposed regulations also 
contain a coordination rule with global dealing operations. The 
Treasury Department and the IRS are presently working on new global 
dealing regulations and intend that when final regulations are issued, 
those regulations, not Sec.  1.482-9T, will govern the evaluation of 
the activities performed by a global dealing operation within the scope 
of those regulations. Pending finalization of the global dealing 
regulations, taxpayers may rely on the proposed global dealing 
regulations, not the temporary services regulations, to govern 
financial transactions entered into in connection with a global dealing 
operation as defined in proposed Sec.  1.482-8. Therefore, proposed 
regulations under Sec.  1.482-9(m)(5) clarify that a controlled 
services transaction does not include a financial transaction entered 
into in connection with a global dealing operation. These proposed 
regulations potentially affect controlled taxpayers within the meaning 
of section 482. This document also provides notice of a public hearing 
on these proposed regulations.

DATES: Written or electronic comments must be received by November 2, 
2006.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-146893-02, REG-
115037-00, and REG-138603-03), Internal Revenue Service, PO Box 7604, 
Ben Franklin Station, Washington, DC 20044. Submissions may be sent 
electronically, via the IRS Internet site at http://www.irs.gov/regs or 
via Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-
146893-02, REG-115037-00, and REG-138603-03).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Thomas A. Vidano, (202) 435-5265, or Carol B. Tan, (202) 435-5265 for 
matters relating to section 482, or David Bergkuist (202) 622-3850 for 
matters relating to stewardship expenses; concerning submission of 
comments, the hearing, and/or, to be placed on the building access list 
to attend the hearing, [Insert Name], (202) 622-7180 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION: 

Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
parts 1 and 31) relating to section 482. The temporary regulations set 
forth guidance on the treatment of controlled services transactions, 
the allocation from intangibles under section 482, and stewardship 
expenses under section 861. The text of those regulations also serves 
as the text of these proposed regulations. The preamble to the 
temporary regulations explains the temporary regulations and these 
proposed regulations. These proposed regulations potentially affect 
controlled taxpayers within the meaning of section 482.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined

[[Page 44248]]

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

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are submitted timely 
to the IRS. The IRS and Treasury Department specifically request 
comments on the clarity of the proposed rule and how it may be made 
easier to understand. All comments will be available for public 
inspection and copying.
    A public hearing will be scheduled if requested in writing by any 
person that timely submits written comments. If a public hearing is 
scheduled, notice of the date, time, and place for the public hearing 
will be published in the Federal Register.

Drafting Information

    The principal authors of these regulations are Thomas A. Vidano and 
Carol B. Tan, Office of Associate Chief Counsel (International).

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 31

    Employment taxes, Income taxes, Penalties, Pensions, Railroad 
retirement, Reporting and recordkeeping requirements, Social Security 
and Unemployment compensation.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 31 are proposed to be amended as 
follows:

PART 1--INCOME TAXES

    Paragraph. 1. The authority citation for part 1 is amended by 
adding an entry in numerical order to read in part as follows:

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

    Section 1.482-9 also issued under 26 U.S.C. 482. * * *

    Par. 2. Section 1.482-0 is amended as follows:
    1. The section heading is revised.
    2. The entries for Sec.  1.482-2(b) are revised.
    3. The entries for Sec.  1.482-4(f)(3), (f)(4) and (f)(5) are 
revised and new entries for Sec.  1.482-4(f)(6) are added.
    4. New entries for Sec. Sec.  1.482-6T(c)(3)(i)(B)(1) and (2) and 
1.482-9T are added.
    The revisions and additions read as follows:


Sec.  1.482-0  Outline of regulations under section 482.

* * * * *
    [The text of the proposed amendment to Sec.  1.482-0 is the same as 
the text of Sec.  1.482-0T published elsewhere in this issue of the 
Federal Register].
    Par. 3. Section 1.482-1 is amended as follows:
    1. Paragraphs (a)(1), (b)(2)(i), (d)(3)(ii)(C) Example 3, 
(d)(3)(v), (f)(2)(ii)(A), (f)(2)(iii)(B), (g)(4)(i), (g)(4)(iii) and 
paragraph (i) are revised.
    2. Paragraphs (d)(3)(ii)(C), Example 4 and Example 5 and (j) are 
added.
    The additions and revisions read as follows:


Sec.  1.482-1  Allocation of income and deductions among taxpayers.

    (a)(1) [The text of the proposed amendment to Sec.  1.482-1(a)(1) 
is the same as the text of Sec.  1.482-1T(a)(1) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (b) * * *
    (1) * * *
    (b)(2)(i) [The text of the proposed amendment to Sec.  1.482-
1(b)(2)(i) is the same as the text of Sec.  1.482-1T(b)(2)(i) published 
elsewhere in this issue of the Federal Register].
* * * * *
    (d) * * *
    (3) * * *
    (ii) * * *
    (C) * * *

    Example 3. [The text of the proposed amendment to Sec.  1.482-
1(d)(3)(ii)(C), Example 3 is the same as the text of Sec.  1.482-
1T(d)(3)(ii)(C) Example 3 published elsewhere in this issue of the 
Federal Register].
    Example 4. [The text of the proposed amendment to Sec.  1.482-
1(d)(3)(ii)(C) Example 4 is the same as the text of Sec.  1.482-
1T(d)(3)(ii)(C) Example 4 published elsewhere in this issue of the 
Federal Register].
    Example 5. [The text of the proposed amendment to Sec.  1.482-
1(d)(3)(ii)(C) Example 5 is the same as the text of Sec.  1.482-
1T(d)(3)(ii)(C) Example 5 published elsewhere in this issue of the 
Federal Register].
    Example 6. [The text of the proposed amendment to Sec.  1.482-
1(d)(3)(ii)(C) Example 6 is the same as the text of Sec.  1.482-
1T(d)(3)(ii)(C) Example 6 published elsewhere in this issue of the 
Federal Register].

    (v) Property or services. [The text of the proposed amendment to 
Sec.  1.482-1(d)(3)(v) is the same as the text of Sec.  1.482-
1T(d)(3)(v) published elsewhere in this issue of the Federal Register].
* * * * *
    (f) * * *
    (2) * * *
    (ii)(A) [The text of the proposed amendment to Sec.  1.482-
1(f)(2)(ii)(A) is the same as the text of Sec.  1.482-1T(f)(2)(ii)(A) 
published elsewhere in this issue of the Federal Register].
    (iii) * * *
    (B) [The text of the proposed amendment to Sec.  1.482-
1(f)(3)(iii)(B) is the same as the text of Sec.  1.482-1T(f)(3)(iii)(B) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (g) * * *
    (4) * * *
    (i) * * * [The text of the proposed amendment to Sec.  1.482-
1(g)(4)(i) is the same as the text of Sec.  1.482-1T(g)(4)(i) published 
elsewhere in this issue of the Federal Register].
    (iii) * * *

    Example 1. [The text of the proposed amendment to Sec.  1.482-
1(g)(4)(iii) Example 1 is the same as the text of Sec.  1.482-
1T(g)(4)(iii) Example 1 published elsewhere in this issue of the 
Federal Register].
* * * * *
    (i) [The text of the proposed amendment to Sec.  1.482-1(i) is the 
same as the text of Sec.  1.482-1T(i) published elsewhere in this issue 
of the Federal Register].
* * * * *
    (j) [The text of the proposed amendment to Sec.  1.482-1(j) is the 
same as the text of Sec.  1.482-1T(j)(1) and (2) published elsewhere in 
this issue of the Federal Register].
    Par. 4. Section 1.482-2 is amended as follows:
    1. Paragraph (b) is revised.
    2. Paragraph (e) is added.
    The revision and addition reads as follows:


Sec.  1.482-2  Determination of taxable income in specific situations.

* * * * *
    (b) [The text of the proposed amendment to Sec.  1.482-2(b) is the 
same as the text of Sec.  1.482-2T(b) published elsewhere in this issue 
of the Federal Register].
* * * * *

[[Page 44249]]

    (e) [The text of the proposed amendment to Sec.  1.482-2(e) is the 
same as the text of Sec.  1.482-2T(e)(1) and (2) published elsewhere in 
this issue of the Federal Register].
    Par. 5. Section 1.482-4 is amended as follows:
    1. Paragraph (f)(3) is revised.
    2. Paragraphs (f)(4) and (f)(5) are redesignated as paragraphs 
(f)(5) and (f)(6), respectively.
    3. New paragraphs (f)(4) and (f)(7) are added.
    The revision and addition read as follows:


Sec.  1.482-4  Methods to determine taxable income in connection with a 
transfer of intangible property.

* * * * *
    (f) * * *
    (3) [The text of the proposed amendment to Sec.  1.482-4(f)(3) is 
the same as the text of Sec.  1.482-4T(f)(3) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (4) [The text of the proposed amendment to Sec.  1.482-4(f)(4) is 
the same as the text of Sec.  1.482-4T(f)(4) published elsewhere in 
this issue of the Federal Register].
* * * * *
    (7) [The text of the proposed amendment to Sec.  1.482-4(f)(7) is 
the same as the text of Sec.  1.482-4T(f)(7)(i) and (ii) published 
elsewhere in this issue of the Federal Register].
* * * * *
    Par. 6. Section 1.482-6 is amended by revising paragraphs 
(c)(2)(ii)(B)(1), (c)(2)(ii)(D), (c)(3)(i)(A), (c)(3)(i)(B), and 
(c)(3)(ii)(D), and adding paragraph (d) to read as follows:


Sec.  1.482-6  Profit split method.

* * * * *
    (c) * * *
    (2) * * *
    (ii) * * *
    (B) * * * (1) * * * [The text of the proposed amendment to Sec.  
1.482-6(c)(2)(ii)(B)(1) is the same as the text of Sec.  1.482-
6T(c)(2)(ii)(B)(1) published elsewhere in this issue of the Federal 
Register].
* * * * *
    (D) [The text of the proposed amendment to Sec.  1.482-
6(c)(2)(ii)(D) is the same as the text of Sec.  1.482-6T(c)(2)(ii)(D) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (3) * * *
    (i) * * * (A) [The text of the proposed amendment to Sec.  1.482-
6(c)(3)(i)(A) is the same as the text of Sec.  1.482-6T(c)(3)(i)(A) 
published elsewhere in this issue of the Federal Register].
    (B) [The text of the proposed amendment to Sec.  1.482-
6(c)(3)(i)(B) is the same as the text of Sec.  1.482-6T(c)(3)(i)(B) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (ii) * * *
    (D) [The text of the proposed amendment to Sec.  1.482-
6(c)(3)(ii)(D) is the same as the text of Sec.  1.482-6T(c)(3)(ii)(D) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (d) [The text of the proposed amendment to Sec.  1.482-6(d) is the 
same as the text of Sec.  1.482-6T(d)(1) and (2) published elsewhere in 
this issue of the Federal Register].

    Par. 7. Section 1.482-8 is amended by adding Examples 10 through 12 
to read as follows:


Sec.  1.482-8  Examples of the best method rule.

* * * * *
    (a) Example 10. Cost of services plus method preferred to other 
methods. [The text of the proposed amendment to Sec.  1.482-8(a) 
Example 10 is the same as the text of Sec.  1.482-8T(a) Example 10 
published elsewhere in this issue of the Federal Register].
    Example 11. CPM for services preferred to other methods. [The 
text of the proposed amendment to Sec.  1.482-8(a) Example 11 is the 
same as the text of Sec.  1.482-8T(a) Example 11 published elsewhere 
in this issue of the Federal Register].
    Example 12. Residual profit split preferred to other methods. 
[The text of the proposed amendment to Sec.  1.482-8(a) Example 12 
is the same as the text of Sec.  1.482-8T(a) Example 12 published 
elsewhere in this issue of the Federal Register].
    (b) [The text of the proposed amendment to Sec.  1.482-8(b) is 
the same as the text of Sec.  1.482-8T(b)(1) and (2) published 
elsewhere in this issue of the Federal Register].

    Par. 8. A new Sec.  1.482-9 is added to read as follows:


Sec.  1.482-9  Methods to determine taxable income in connection with a 
controlled services transaction.

    (a) through (m)(5) [The text of the proposed Sec.  1.482-9(a) 
through (m)(5) is the same as the text of Sec.  1.482-9T(a) through 
(m)(5) published elsewhere in this issue of the Federal Register].
    (m)(6) Global dealing operations. A controlled services transaction 
does not include a financial transaction entered into in connection 
with a global dealing operation as defined in Sec.  1.482-8.
    (n) [The text of the proposed Sec.  1.482-9(n) is the same as the 
text of Sec.  1.482-9T(n)(1) and (n)(2) published elsewhere in this 
issue of the Federal Register].

    Par. 9. Section 1.861-8 is amended by revising paragraphs (a)(5), 
the fifth and sixth sentences in paragraph (b)(3), (e)(4), (f)(4)(i), 
(g) Examples 17, 18, and 30, and the first sentence in paragraph (h) 
introductory text to read as follows:


Sec.  1.861-8  Computation of taxable income from sources within the 
United States and from other sources and activities.

    (a) * * *
    (5) [The text of the proposed amendment to Sec.  1.861-8(a)(5) is 
the same as the text of Sec.  1.861-8T (a)(5) published elsewhere in 
this issue of the Federal Register]
    (b) * * *
    (3) * * * [The text of the proposed amendment to Sec.  1.861-
8(b)(3) is the same as the text in Sec.  1.861-8T(b)(3) published 
elsewhere in this issue of the Federal Register]. * * *
* * * * *
    (e) * * *
    (4) [The text of the proposed amendment to Sec.  1.861-8(e)(4) is 
the same as the text of Sec.  1.861-8T(e)(4) published elsewhere in 
this issue of the Federal Register].
    (f) * * *
    (4) * * * (i) [The text of the proposed amendment to Sec.  1.861-
8(f)(4)(i) is the same as the text of Sec.  1.861-8T(e)(4)(i) published 
elsewhere in this issue of the Federal Register].
    (g) * * *

    Example 17. [The text of the proposed amendment to Sec.  1.861-
8(g) Example 17 is the same as the text of Sec.  1.861-8T(g) Example 
17, published elsewhere in this issue of the Federal Register].
    Example 18. [The text of the proposed amendment to Sec.  1.861-
8(g) Example 18 is the same as the text of Sec.  1.861-8T(g) Example 
18, published elsewhere in this issue of the Federal Register].
* * * * *
    Example 30. [The text of the proposed amendment to Sec.  1.861-
8(g) Example 30 is the same as the text of Sec.  1.861-8T(g) Example 
30, published elsewhere in this issue of the Federal Register].

    (h) [The text of the proposed amendment to Sec.  1.861-8(h) is the 
same as the text of Sec.  1.861-8T(h)(1) published elsewhere in this 
issue of the Federal Register]. * * *
* * * * *
    Par. 10. Section 1.6038A-3(a)(3) is amended by revising paragraph 
(a)(3) Example 4 and (i) to read:


Sec.  1.6038A-3  Record maintenance.

    (a) * * *
    (3) * * *

    Example 4. [The text of the proposed amendment to Sec.  1.6038A-
3, Example 4 is the same as the text of Sec.  1.6038A-3T, Example 4 
published elsewhere in this issue of the Federal Register].
* * * * *
    (i) [The text of the proposed amendment to Sec.  1.6038A-3(i) is 
the

[[Page 44250]]

same as the text of Sec.  1.6038A-3T(i)(1) and (2) published elsewhere 
in this issue of the Federal Register].

    Par. 11. Section 1.6662-6 is amended by revising paragraphs 
(d)(2)(ii)(B), (d)(2)(iii)(B)(4), (d)(2)(iii)(B)(6) and (g) to read as 
follows:


Sec.  1.6662-6  Transactions between persons described in section 482 
and net section 482 transfer price adjustments.

* * * * *
    (d) * * *
    (2) * * *
    (ii) * * *
    (B) [The text of the proposed amendment to Sec.  1.6662-
6(d)(2)(ii)(B) is the same as the text of Sec.  1.6662-6T(d)(2)(ii)(B) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (iii) * * *
    (B) * * * (4) [The text of the proposed amendment to Sec.  1.6662-
6(d)(2)(iii)(B)(4) is the same as the text of Sec.  1.6662-
6T(d)(2)(iii)(B)(4) published elsewhere in this issue of the Federal 
Register].
* * * * *
    (6) [The text of the proposed amendment to Sec.  1.6662-
6(d)(2)(iii)(B)(6) is the same as the text of Sec.  1.6662-
6T(d)(2)(iii)(B)(6) published elsewhere in this issue of the Federal 
Register].
* * * * *
    (g) [The text of the proposed amendment to Sec.  1.6662-6(g) is the 
same as the text of Sec.  1.6662-6T(g)(1) and (2) published elsewhere 
in this issue of the Federal Register].

PART 31--EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT THE 
SOURCE

    Par. 12. The authority citation for part 31 continues to read as 
follows:


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

    Par. 13. Section 31.3121(s)-1 is amended by revising paragraphs 
(c)(2)(iii) and (d) to read as follows:


Sec.  31.3121(s)-1  Concurrent employment by related corporations with 
common paymaster.

* * * * *
    (c) * * *
    (2) * * *
    (iii) [The text of the proposed amendment to Sec.  31.3121(s)-
1(c)(2)(iii) is the same as the text of Sec.  31.3121(s)-1T(c)(2)(iii) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (d) [The text of the proposed amendment to Sec.  31.3121(s)-1(d) is 
the same as the text of Sec.  31.3121(s)-1T(d)(1) and (2) published 
elsewhere in this issue of the Federal Register].
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 06-6674 Filed 7-31-06; 4:40 pm]
BILLING CODE 4830-01-P