[Federal Register Volume 77, Number 79 (Tuesday, April 24, 2012)]
[Rules and Regulations]
[Pages 24380-24381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-9760]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9585]
RIN 1545-BI41


Treatment of Gain Recognized With Respect to Stock in Certain 
Foreign Corporations Upon Distributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations relating to the 
characterization of gain recognized with respect to stock in certain 
foreign corporations upon distributions. The regulations finalize 
proposed regulations and remove temporary regulations that characterize 
gain recognized with respect to stock in foreign corporations upon 
distributions as a deemed dividend in certain situations. The 
regulations affect certain persons that recognize gain with respect to 
stock in connection with the receipt of a distribution of property from 
a foreign corporation.

DATES: Effective Date: These regulations are effective on April 24, 
2012.
    Applicability Date: These regulations apply to distributions 
occurring on or after February 10, 2009.

FOR FURTHER INFORMATION CONTACT: Ryan A. Bowen, (202) 622-3860 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    On February 11, 2009, the IRS and the Department of the Treasury 
(the Treasury Department) published temporary and proposed regulations 
in the Federal Register (REG-147636-08, 74 FR 6824; TD 9444, 2009-1 CB 
603) (the temporary or proposed regulations, as applicable, and 
collectively, the 2009 regulations). The 2009 regulations, in part, 
provide that for purposes of section 1248(a), gain recognized under 
section 301(c)(3) in connection with the receipt of a distribution of 
property from a foreign corporation with respect to its stock shall be 
treated as gain from the sale or exchange of the stock of such foreign 
corporation (2009 section 1248 regulations).
    The 2009 regulations also addressed the application of section 367 
to certain related party stock transactions that are recharacterized 
under section 304. As described in Notice 2012-15 (2012-9 IRB 495 
(February 27, 2012)) (see Sec.  601.601(d)(2)(ii)(b) of this chapter), 
the IRS and the Treasury Department intend to amend the regulations 
under section 367 to provide that the section 351 exchange that is 
deemed to occur in a section 304 transaction is subject to section 
367(a) and (b), as applicable. Accordingly, this Treasury decision does 
not finalize the portions of the 2009 regulations that address the 
interaction of sections 304 and 367. Those portions of the 2009 
regulations will be withdrawn in separate published guidance (REG-
104400-12).

[[Page 24381]]

    No public hearing on the 2009 section 1248 regulations was 
requested or held and no written comments were received. This Treasury 
decision adopts the 2009 section 1248 regulations, with one 
modification to remove a deadwood provision, as final regulations under 
section 1248(a). This Treasury decision also removes the temporary 
regulations under section 1248(a).

Explanation of Provisions

    The final regulations provide that gain recognized under section 
301(c)(3) on the receipt of a distribution of property from a foreign 
corporation with respect to its stock shall be treated for purposes of 
section 1248(a) as gain from the sale or exchange of the stock of such 
corporation. For purposes of section 1248(a), a sale or exchange also 
includes a distribution that gives rise to gain with respect to stock 
under section 302(a) or 331(a). The final regulations ensure that the 
earnings and profits of lower-tier foreign subsidiaries described in 
section 1248(c)(2) are taken into account when gain is recognized with 
respect to stock of a controlled foreign corporation.
    The 2009 section 1248 regulations incorporated a provision from the 
prior final regulations under section 1248 providing that section 
1248(a) applies to gain recognized with respect to stock under section 
331(a)(2) by reason of a partial liquidation of a corporation. The 
final regulations remove the reference to partial liquidations under 
section 331(a)(2) in order to reflect amendments made in 1982 by the 
Tax Equity and Fiscal Responsibility Act of 1982 (Public Law 97-248, 96 
Stat. 324 (1982)), which repealed section 331(a)(2) and provided new 
rules regarding redemptions in partial liquidation under section 302. 
See section 302(b)(4) and (e).

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that 5 U.S.C. 553(b) and (d) do not apply to these 
regulations. Pursuant to the Regulatory Flexibility Act (5 U.S.C. 601 
et seq.), it is hereby certified that this rule will not have a 
significant economic impact on a substantial number of small entities. 
These regulations primarily will affect large domestic corporations. 
Thus, the number of affected small entities will not be substantial. 
Pursuant to section 7805(f) of the Internal Revenue Code, the notice of 
proposed rulemaking preceding this regulation was submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comments on its impact on small business.

Drafting Information

    The principal author of these regulations is Ryan A. Bowen of the 
Office of Associate Chief Counsel (International). 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 as 
follows:

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


0
Par. 2. Section 1.1248-1 is amended by:
0
1. Revising paragraphs (b) and (g)(2).
0
2. Removing paragraph (h).

    The revisions read as follows.


Sec.  1.1248-1  Treatment of gain from certain sales or exchanges of 
stock in certain foreign corporations.

* * * * *
    (b) Sale or exchange. For purposes of section 1248(a), the term 
sale or exchange includes the receipt of a distribution which is 
treated as in exchange for stock under section 302(a) (relating to 
distributions in redemption of stock) or section 331(a) (relating to 
distributions in complete liquidation of a corporation). For purposes 
of section 1248(a), gain recognized by a shareholder under section 
301(c)(3) in connection with a distribution of property by a 
corporation with respect to its stock shall be treated as gain from the 
sale or exchange of stock of such corporation.
* * * * *
    (g) * * *
    (2) Paragraph (b) of this section applies to distributions that 
occur on or after February 10, 2009.

Sec.  1.1248-1T  [Removed]

0
Par. 3. Section 1.1248-1T is removed.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
    Approved: April 13, 2012.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2012-9760 Filed 4-23-12; 8:45 am]
BILLING CODE 4830-01-P