[Federal Register Volume 70, Number 235 (Thursday, December 8, 2005)]
[Proposed Rules]
[Pages 72952-72953]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-23628]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-133446-03]
RIN 1545-BC37


Guidance on Passive Foreign Investment Company (PFIC) Purging 
Elections

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 the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations that provide 
certain elections for taxpayers, who in limited circumstances, continue 
to be subject to the excess distribution regime of section 1291 even 
though the foreign corporation in which they own stock is no longer 
treated as a PFIC under section 1297(e). The regulations are necessary 
to provide guidance about purging the PFIC taint for such foreign 
corporations. The regulations will affect U.S. persons that hold stock 
in a PFIC. The text of those temporary regulations also serves as the 
text of these proposed regulations. This document also provides notice 
of a public hearing on these proposed regulations.

DATES: Written or electronic comments must be received by March 8, 
2006. Outlines of topics to be discussed at the public hearing 
scheduled for March 22, 2006, at 10 a.m. must be received by March 1, 
2006.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-133446-03), room 5203, 
Internal Revenue Building, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand delivered between the hours of 8 a.m. 
and 4 p.m. to CC:PA:LPD:PR (REG-133446-03), Courier's Desk, Internal 
Revenue Building, 1111 Constitution Avenue, NW., Washington, DC, 
electronically via the IRS Internet site at http://www.irs.gov/regs or 
via the Federal Rulemaking Portal at http://www.regulations.gov (IRS 
REG-133446-03). The public hearing will be held in the Auditorium, 
Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, 
DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Ethan 
Atticks at (202) 622-3840, concerning submissions and the hearing, 
LaNita Van Dyke (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in this notice of proposed 
rulemaking have been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collections of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:FP:S 
Washington, DC 20224. Comments on the collections of information should 
be received by February 6, 2006. Comments are specifically requested 
concerning:
    Whether the proposed collections of information are necessary for 
the proper performance of the functions of the IRS, including whether 
the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in these proposed regulations is in 
Sec.  1.1297-3(c)(5)(ii). This information is required to enable the 
IRS to verify that a taxpayer is reporting the correct amount of 
income, gain or loss from that taxpayer's interest in the foreign 
corporation. The collections of information are mandatory. The 
respondents are shareholders of PFICs.
    Estimated total annual reporting burden: 250 hours.
    The estimated annual burden per respondent is 1 hour.
    Estimated number of respondents: 250.
    The estimated annual frequency of responses: One time.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register provide certain elections for taxpayers 
that continue to be subject to the excess distribution regime of 
section 1291 even though the foreign corporation in which they own 
stock is no longer treated as a PFIC under section 1297(e) or section 
1298(b)(1). The text of the temporary regulations also serves as the 
text of these proposed regulations. The preamble to the temporary 
regulations explains the temporary regulations and these proposed 
regulations.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It

[[Page 72953]]

has also 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 regulations do 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 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 Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The IRS and Treasury Department request comments on the clarity of 
the proposed rules and how they can be made easier to understand. All 
comments will be available for public inspection and copying.
    A public hearing is scheduled for March 22, 2006, beginning at 10 
a.m. in the Auditorium, Internal Revenue Building, 1111 Constitution 
Avenue, NW., Washington, DC. Due to building security procedures, 
visitors must enter at the Constitution Avenue entrance. In addition, 
all visitors must present photo identification to enter the building. 
Because of access restrictions, visitors will not be admitted beyond 
the entrance more than 30 minutes before the hearing starts. For 
information about having your name placed on the building access list 
to attend the hearing, see the FOR FURTHER INFORMATION CONTACT portion 
of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to this hearing. Persons 
who wish to present oral comments must submit written comments and an 
outline of the topics to be discussed and the time to be devoted to 
each topic (a signed original and eight (8) copies) by March 1, 2006. A 
period of 10 minutes will be allotted to each person for making 
comments. An agenda showing the scheduling of the speakers will be 
prepared after the deadline for reviewing outlines has passed. Copies 
of the agenda will be available free of charge at the hearing.

Drafting Information

    The principal author of this regulation is Ethan Atticks, Office of 
Associate Chief Counsel (International). 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 part 1 continues to read in 
part as follows:

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

    Par. 2. In Sec.  1.1291-9, paragraph (j)(2)(v) is revised to read 
as follows:


Sec.  1.1291-9  Deemed dividend election.

* * * * *
    (j) * * *
    (2) * * *
    (v) [The text of the proposed amendment to Sec.  1.1291-9(j)(2)(v) 
is the same as the text for Sec.  1.1291-9T(j)(2)(v) published 
elsewhere in this issue of the Federal Register.]
* * * * *
    Par. 3. Section 1.1297-0 is revised to read as follows:


Sec.  1.1297-0  Table of contents.

    [The text of proposed Sec.  1.1297-0 is the same as the text of 
Sec.  1.1297-0T published elsewhere in this issue of the Federal 
Register.]
    Par. 4. Section 1.1297-3 is added to read as follows:


Sec.  1.1297-3  Deemed sale or deemed dividend election by a U.S. 
person that is a shareholder of a section 1297(e) PFIC.

    [The text of proposed Sec.  1.1297-3 is the same as the text of 
Sec.  1.1297-3T published elsewhere in this issue of the Federal 
Register.]
    Par. 5. Section 1.1298-0 is revised to read as follows:


Sec.  1.1298-0  Table of contents.

    [The text of proposed Sec.  1.1298-0 is the same as the text of 
Sec.  1.1298-0T published elsewhere in this issue of the Federal 
Register].
    Par. 6. In Sec.  1.1298-3, paragraph (e) and paragraph (f) are 
revised to read as follows:


Sec.  1.1298-3  Deemed sale or deemed dividend election by a U.S. 
person that is a shareholder of a former PFIC.

* * * * *
    (e) [The text of the proposed revision to Sec.  1.1298-3(e) is the 
same as the text of Sec.  1.1298-3T(e) published elsewhere in this 
issue of the Federal Register].
    (f) [The text of the proposed revision to Sec.  1.1298-3(f) is the 
same as the text of Sec.  1.1298-3T(f) published elsewhere in this 
issue of the Federal Register].

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 05-23628 Filed 12-7-05; 8:45 am]
BILLING CODE 4830-01-P