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###### Department of the Treasury

###### Internal Revenue Service 

          - 26 CFR Part 1 
          - [TD 8862] 
          - RIN 1545-AI32 

# AGENCY:

Internal Revenue Service (IRS), Treasury. 

# ACTION:

Correcting amendment.

# SUMMARY:

                        This document contains corrections to Treasury Decision 8862, which was published in the                         **Federal Register**                         on Monday, January 24, 2000                               ( print page 66501)                            (65 FR 3589). The corrections relate to the stock transfer rules under section 367(b).                     

# DATES:

Effective February 23, 2000. 

# FOR FURTHER INFORMATION CONTACT:

Mark D. Harris, (202) 622-3860 (not a toll-free number). 

# SUPPLEMENTARY INFORMATION: 

## Background 

The final regulations that are the subject of these corrections are under section 367 of the Internal Revenue Code. 

## Need for Correction 

As published, the final regulations contain errors that may prove to be misleading and are in need of clarification. 

# List of Subjects in 26 CFR Part 1

      - Income taxes
      - Reporting and recordkeeping requirements

# PART 1—INCOME TAXES 

Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments: 

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

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

§ 1.367(b)-0 

**Par. 2.**                        In § 1.367(b)-0, the entry for § 1.367(b)-1(c)(5) is revised to read as follows:                     

§ 1.367(b)-0 

* * * * *

§ 1.367(b)-1 

(c) * * * 

(5) Abbreviated notice provision for shareholders that make the election described in § 1.367(b)-3(c)(3).

* * * * *

§ 1.367(b)-1 

**Par. 3.**                        Section 1.367(b)-1, the heading for paragraph (c)(5) is revised to read as follows:                     

§ 1.367(b)-1 

* * * * *

(c) * * * 

                            (5)                             *Abbreviated notice provision for shareholders that make the election described in § 1.367(b)-3(c)(3).*                             * * *                         

* * * * *

§ 1.367(b)-2 

**Par. 4.**                        Section 1.367(b)-2 is amended as follows:                     

1. Paragraph (c)(1)(i) is amended by removing the language “corporation, and” and adding “corporation; and” in its place. 

2. Paragraph (e)(4) *Example 3*, the penultimate sentence, the language “56” is removed and “356” is added in its place.                     

3. Revising the introductory text of paragraph (f)(4). 

4. Revising the penultimate sentence of paragraph (j)(2)(i). 

The revisions read as follows: 

§ 1.367(b)-2 

* * * * *

(f) * * * 

                            (4)                             *Closing of taxable year.*                            In a reorganization described in paragraph (f)(1) of this section, the taxable year of the foreign transferor corporation shall end with the close of the date of the transfer and, except as otherwise required under the Internal Revenue Code (                            *e.g.*                             section 1502 and the regulations thereunder), the taxable year of the acquiring corporation shall end with the close of the date on which the transferor's taxable year would have ended but for the occurrence of the reorganization if—                         

* * * * *

(j) * * * 

(2) * * * 

(i) * * * The exchange gain or loss recognized under this paragraph (j)(2)(i) will increase or decrease the exchanging shareholder's adjusted basis in the stock of the foreign corporation, including for purposes of computing gain or loss realized with respect to the stock on the transaction. * * * 

* * * * *

§ 1.367(b)-3 

**Par. 5.**                        Section 1.367(b)-3 is amended as follows:                     

1. Revising paragraph (b)(2). 

2. In paragraph (d)(1), the first sentence, the language “Unused foreign tax credits allowable to the foreign acquired corporation under section 906” is removed and “Excess foreign taxes under section 904(c) allowable to the foreign acquired corporation under section 906” is added in its place. 

The revision reads as follows: 

§ 1.367(b)-3 

* * * * *

(b) * * * 

                            (2)                             *United States shareholder.*                            For purposes of this section (and for purposes of the other section 367(b) regulation provisions that specifically refer to this paragraph (b)(2)), the term                             *United States shareholder*                            means any shareholder described in section 951(b) (without regard to whether the foreign corporation is a controlled foreign corporation), and also any shareholder described in section 953(c)(1)(A) (but only if the foreign corporation is a controlled foreign corporation as defined in section 953(c)(1)(B) subject to the rules of section 953(c)).                         

* * * * *

§ 1.367(b)-4 

**Par. 6.**                        Section 1.367(b)-4 is amended as follows:                     

1. In paragraph (a) the language “another” is removed in the first sentence and “a” is added in its place. 

2. A new sentence is added after the first sentence of paragraph (a). 

3. Paragraph (b)(1)(i)(B)( *2*) is revised.                     

4. Revising the first sentence of paragraph (d) (1). 

The addition and revisions read as follows: 

§ 1.367(b)-4 

(a) * * * This section applies notwithstanding that the foreign acquiring corporation and the foreign acquired corporation may be the same corporation (such as in a section 368(a)(1)(E) reorganization). * * * 

(b) * * * 

(1) * * *

(i) * * * 

(B) * * * 

                            (                            *2*) Immediately after the exchange, the foreign acquiring corporation or the foreign acquired corporation (if any, such as in a transaction described in section 368(a)(1)(B) and/or section 351), is not a controlled foreign corporation as to which the United States person described in paragraph (b)(1)(i)(A) of this section is a section 1248 shareholder.                         

* * * * *

                            (d) * * * (1)                             *In general.*                            If income is not required to be included under paragraph (b) of this section in a section 367(b) exchange described in paragraph (a) of this section (non-inclusion exchange) then, for purposes of applying section 367(b) or 1248 to subsequent exchanges and subject to the limitation of § 1.367(b)-2(d)(3)(iii) (in the case of a transaction described in § 1.367(b)-3), the determination of the earnings and profits attributable to an exchanging shareholder's stock received in the non-inclusion exchange shall include a computation that refers to the exchanging shareholder's pro rata interest in the earnings and profits of the foreign acquiring corporation (and, in the case of a stock transfer, the foreign acquired corporation) that accumulate after the non-inclusion exchange, as well as its pro rata interest in the earnings and profits of the foreign                                   ( print page 66502)                                acquired corporation that accumulated before the non-inclusion exchange. * * *                         

* * * * *

§ 1.367(b)-5 

**Par. 7.**                        Section 1.367(b)-5 is amended as follows:                     

1. Paragraph (a)(1) is amended by revising the first sentence. 

2. Paragraph (f) is revised. 

3. Paragraph (g), *Example 1*                        (ii)(B), the second sentence is amended by removing the language “$60 and $0” and by adding “$0 and $60” in its place.                     

4. Revising the fourth sentence of paragraph (g), *Example 1*                        (ii)(C) by removing the language “from FC”.                     

5. Adding two new sentences after the fourth sentence of paragraph (g), *Example 1*                        (ii)(C).                     

6. Adding a new sentence at the end of paragraph (g), *Example 2*                        (ii)(C).                     

The additions and revisions read as follows: 

§ 1.367(b)-5 

                            (a) * * * (1)                             *Scope.*                            This section provides rules relating to a distribution described in section 355 (or so much of section 356 as relates to section 355) and to which section 367(b) applies. * * *                         

* * * * *

                            (f)                             *Exclusion of deemed dividend from foreign personal holding company income.*                            In the event an amount is included in income as a deemed dividend by a foreign corporation under paragraph (c) or (d) of this section (including amounts received as an intermediate owner under the rule of § 1.367(b)-2(e)(2)), such deemed dividend shall not be included as foreign personal holding company income under section 954(c).                         

(g) * * *

# Example 1.

* * * 

(ii) * * * 

(C) * * * Under § 1.367(b)-2(e)(2), the $20 deemed dividend is considered as having been paid by FC to FD, and by FD to USS, immediately prior to the distribution. Under paragraph (f) of this section, the deemed dividend is not included by FD as foreign personal holding company income under section 954(c). * * * 

# Example 2.

* * * 

(ii) * * * 

(C) * * * Under paragraph (f) of this section, the deemed dividend is not included by FD as foreign personal holding company income under section 954(c). 

Dale D. Goode, 

Federal Register Liaison, Office of Special Counsel (Modernization and Strategic Planning). 

[FR Doc. 00-28433 Filed 11-3-00; 8:45 am] 

BILLING CODE 4830-01-U