[Federal Register Volume 62, Number 8 (Monday, January 13, 1997)]
[Proposed Rules]
[Pages 1700-1701]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-527]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-208288-90]
RIN 1545-AP36


Filing Requirements for Returns Claiming the Foreign Tax Credit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains a proposed regulation relating to the 
substantiation requirements for taxpayers claiming foreign tax credits. 
The proposed regulation is necessary to provide guidance to U.S. 
taxpayers who claim foreign tax credits.

DATES: Written comments and requests for a public hearing must be 
received by April 14, 1997.

ADDRESSES: Send Submissions to: CC:DOM:CORP:R (REG-208288-90), room 
5228, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered between the 
hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-208288-90), Courier's 
Desk, Internal Revenue Service, 1111 Constitution Avenue NW., 
Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the internet by selecting the ``Tax Regs'' option on 
the IRS Home Page, or by submitting comments directly to the IRS 
internet site at HTTP://<a href="http://www.irs.ustreas.gov/prod/tax__regs/
comments.html">www.irs.ustreas.gov/prod/tax__regs/
comments.html</a>.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Joan 
Thomsen, (202) 622-3840 (not a toll-free call); concerning submissions, 
Evangelista Lee, (202) 622-7190 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Background

    On June 3, 1988, the Internal Revenue Service issued a Notice 
(Notice 88-65, 1988-1 C.B. 552) which stated that regulations would be 
issued suspending portions of Sec. 1.905-2 of the Treasury Regulations. 
Section 1.905-2 requires taxpayers who claim foreign tax credits to 
attach documents to their returns substantiating the credits. The 
Notice was issued in response to problems taxpayers were experiencing 
because they could not timely obtain and prepare the necessary 
documentation in a form suitable for submission with their tax returns. 
The intent of the Notice was to advise taxpayers that Treasury and the 
IRS would issue a new regulation that would suspend, beginning on 
January 1, 1988, the existing regulation requiring the submission of 
this documentation with a tax return. This new regulation has not been 
issued. Instead of suspending the relevant portions of the existing 
regulation, Treasury and the IRS now have decided to permanently 
eliminate the requirement that documentation be submitted with the tax 
return, effective January 1, 1988.

Explanation of Provisions

Sec. 1.905-2(a)(1), 1.905-2(b) (1) and (2), and 1.905-2(c)

    Sections 1.905-2(a)(1), 1.905-2(b) (1) and (2), and 1.905-2(c) are 
unchanged from the final regulations.

Sec. 1.905-2(a)(2)

    Under Sec. 1.905-2(a)(2), taxpayers generally are required to 
attach to their income tax returns either (1) the receipt for the 
foreign tax payment, or (2) a foreign tax return for accrued foreign 
taxes. Proposed Sec. 1.905-2(a)(2) removes the requirement that the 
documentation must be attached to the income tax return.
    The proposed regulation now provides that such evidence of foreign 
taxes must be presented to the district director upon request.

Sec. 1.905-2(b)(3)

    Section 1.905-2(b)(3) addresses issues for taxes withheld at the 
source. The section allows the district director to accept secondary 
evidence of such withholding. The proposed regulation clarifies that 
evidence of a tax withheld at the source and the amount withheld is 
only sufficient for an interim credit.

[[Page 1701]]

Upon request of the district director, taxpayers must provide evidence, 
as provided in Sec. 1.905-2(a)(2), that the tax withheld was actually 
paid to the foreign country. Although this regulation will be effective 
on the date that is 30 days after the date the final regulation is 
published in the Federal Register, it reflects an IRS requirement 
upheld as a reasonable interpretation of current law by the Tax Court 
and the Court of Appeals for the Seventh Circuit in Continental 
Illinois Corp. v. Commissioner, T.C. Memo. 1991-66, 61 T.C.M. (CCH) 
1916, 1939-42 (1991), aff'd in part and rev'd in part, 998 F.2d 513, 
516-17 (7th Cir. 1993).

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 has also been 
determined that section 553(b) of the Administrative Procedures Act (5 
U.S.C. chapter 5) does not apply to this regulation, 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, this 
notice of proposed rulemaking will be submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact on small business.

Comments and Requests for a Public Hearing

    Before this proposed regulation is adopted as a final regulation, 
consideration will be given to any comments that are submitted timely 
to the IRS. All comments will be available for public inspection and 
copying. A public hearing may be scheduled if requested in writing by 
any person that timely submits comments. If a public hearing is 
scheduled, notice of the date, time, and place for the hearing will be 
published in the Federal Register.

Drafting Information

    The principal author of this regulation is Joan Thomsen of the 
Office of the Associate Chief Counsel (International), IRS.
    However, other personnel from the IRS and Treasury Department 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for 26 CFR part 1 continues to 
read in part as follows:

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

    Par. 2. Section 1.905-2 is amended by:
    1. Revising the second through fourth sentences in paragraph 
(a)(2).
    2. Adding two sentences to the end of paragraph (b)(3).
    The revision and addition read as follows:


Sec. 1.905-2  Conditions of allowance of credit.

    (a) * * *
    (2) * * * Except where it is established to the satisfaction of the 
district director that it is impossible for the taxpayer to furnish 
such evidence, the taxpayer must provide upon request the receipt for 
each such tax payment if credit is sought for taxes already paid or 
withheld, or the return on which each such accrued tax was based if 
credit is sought for taxes accrued. This receipt or return must be 
either the original, a duplicate original, or a duly certified or 
authenticated copy. The preceding two sentences are effective for 
returns whose original due date falls on or after January 1, 1988. * * 
*
    (b) * * *
    (3) * * * Any foreign tax credit claimed for taxes withheld at the 
source is an interim credit and the taxpayer must prove that any taxes 
withheld at the source were paid to the foreign country, as required in 
paragraph (a) of this section. The preceding sentence is effective the 
date that is 30 days after the date this regulation is published in the 
Federal Register as a final regulation, however, for periods prior to 
the date that is 30 days after the date this regulation is published in 
the Federal Register as a final regulation, see Continental Illinois 
Corp. v. Commissioner, T.C. Memo. 1991-66, 61 T.C.M. (CCH) 1916, 1939-
42 (1991), aff'd in part and rev'd in part, 998 F.2d 513, 516-17 (7th 
Cir. 1993), wherein the court upheld this rule as a reasonable 
interpretation of section 905(b) of the Internal Revenue Code.
* * * * *
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 97-527 Filed 1-10-97; 8:45 am]
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