12448 Federal Register / Vol. 66, No. 39 / Tuesday, February 27, 2001 / Proposed Rules

of the Internal Revenue Code and the

applicable income tax treaty as a

dividend, and the tax to be withheld

from the payment described in

paragraph (d)(2)(ii)(B)(1)(ii) of this

section shall be determined based on

the appropriate rate of withholding that

would be applicable to dividends paid

from the domestic reverse hybrid entity

to the related foreign interest holder

under the U.S. treaty with the related

foreign interest holder’s jurisdiction had

that jurisdiction viewed the domestic

reverse hybrid entity as not fiscally

transparent; and

(iv) For purposes of determining the

amount to be recharacterized under

paragraph (d)(2)(ii)(B)(1)(iii) of this

section, the portion of the payments

described in paragraph (d)(2)(ii)(B)(1)(i)

of this section treated as derived by the

related foreign interest holder shall be

reduced by the amount of any prior

actual dividend payments made by the

domestic reverse hybrid entity to the

related foreign interest holder and by

the amount of any payments from the

domestic reverse hybrid entity to the

related foreign interest holder

previously rechacterized under

paragraph (d)(2)(ii)(B)(1)(iii) of this

section.

(2) Tiered entities. The principles of

this paragraph (d)(2)(ii)(B) shall also

apply to payments referred to in this

paragraph (d)(2)(ii)(B) made among

related entities when there is more than

one domestic reverse hybrid entity or

other fiscally transparent entities

involved.

(3) Definition of related. Related shall

mean any entity satisfying the

ownership requirements of section

267(b) or 707(b)(1), except that 80

percent shall be substituted for 50

percent. For purposes of determining

whether a person is related to another

person, the constructive ownership

rules of section 318 shall apply, and the

attribution rules of section 267(c) also

shall apply to the extent they attribute

ownership to persons to whom section

318 does not attribute ownership. If a

person enters into a transaction (or

series of transactions) with the domestic

reverse hybrid entity, its related interest

holders, or its related entities, and the

effect of the transaction (or series of

transaction) is to avoid the principles of

this paragraph (d)(2)(ii)(B), then that

person shall be treated as related to the

domestic reverse hybrid entity for

purposes of this section.

(C) Commissioner’s discretion. The

Commissioner may, as the

Commissioner determines to be

appropriate, recharacterize for all

purposes of the Internal Revenue Code

all or part of any transaction (or series

of transactions) between related parties

if the effect of the transaction (or series

of transactions) is to avoid the

principles of this paragraph (d)(2).

(iii) Examples. The rules of this

paragraph (d)(2) are illustrated by the

following examples:

Example 1. Treatment of payment by

unrelated entity to domestic reverse hybrid

entity. (i) Facts. Entity A is a domestic

reverse hybrid entity, as defined in paragraph

(d)(2)(i) of this section, with respect to the

U.S. source dividends it receives from B, a

domestic corporation to which A is not

related, within the meaning of paragraph

(d)(2)(ii)(B)(3) of this section. A’s 85-percent

shareholder FC is a corporation organized

under the laws of Country X, which has an

income tax treaty in effect with the United

States. Under Country X law, FC is not

fiscally transparent with respect to the

dividend, as defined in paragraph (d)(3)(ii) of

this section. In year 1, A receives a $100 of

dividend income from B. Under Country X

law, FC is treated as deriving $85 of the $100

dividend payment received by A. The

applicable rate of tax on dividends under the

U.S.-Country X income tax treaty is 5 percent

with respect to a 10-percent or more

corporate shareholder.

(ii) Analysis. Under paragraph (d)(2)(i) of

this section, the U.S.-Country X income tax

treaty does not apply to the dividend income

received by A because the income is paid by

B, a domestic corporation, to A, another

domestic corporation. A remains fully

taxable under the U.S. tax laws as a domestic

corporation with regard to that item of

income. Further, pursuant to paragraph

(d)(2)(i) of this section, notwithstanding the

fact that under the laws of Country X A is

treated as fiscally transparent with respect to

the dividend income, FC may not claim a

reduced rate of taxation on its share of the

U.S. source dividend income received by A.

Example 2. Treatment of payment by

domestic reverse hybrid entity to related

foreign interest holder involving unrelated

party. (i) Facts. The facts are the same as in

Example 1. Both the United States and

Country X characterize the payment by B in

year 1 as a dividend. In addition, in year 2,

A makes a payment of $25 to FC that is

characterized under U.S. tax laws as an

interest payment to FC on a loan from FC to

A. Under the U.S.-Country X income tax

treaty, the rate of tax on interest is zero.

Under Country X laws, had the interest been

paid by an entity that is not fiscally

transparent under Country X’s laws with

respect to any item of income, FC would not

be fiscally transparent as defined in

paragraph (d)(2)(ii) of this section with

respect to the interest.

(ii) Analysis. The analysis is the same as

in Example 1 with respect to the $100

payment from B to A. With respect to the $25

payment from A to FC, paragraph (d)(2)(ii)(B)

of this section will not apply because,

although FC is related to A, A is not related

to the payor of the dividend income it

received. Under paragraph (d)(2)(ii)(A) of this

section, the $25 interest income paid from A

to FC in year 2 will be characterized under

U.S. law as interest . Accordingly, in year 2,

FC may obtain the reduced rate of

withholding applicable to interest under the

U.S.-Country X income tax treaty, assuming

all other requirements for claiming treaty

benefits are met.

Example 3. Treatment of payment by

domestic reverse hybrid entity to related

foreign interest holder. (i) Facts. The facts are

the same as in Example 2, except the $100

dividend income received by A in year 1 is

from A’s wholly owned subsidiary S.

(ii) Analysis. The analysis is the same as

in Example 1 with respect to the $100

dividend payment from S to A. However, the

$25 interest payment in year 2 by A to FC

will be treated as a dividend for all purposes

of the Internal Revenue Code and the U.S.-

Country X income tax treaty because $25

does not exceed FC’s share of the $100

dividend payment made by S to A ($85).

Since FC is not fiscally transparent with

respect to the payment as determined under

paragraph (d)(2)(ii)(A) of this section, FC will

be entitled to obtain the reduced rate

applicable to dividends under the U.S.-

Country X income tax treaty with respect to

the $25 payment. Because the $25 payment

in year 2 is recharacterized as a dividend for

all purposes of the Internal Revenue Code

and the U.S.-Country X income tax treaty, A

would not be entitled to an interest

deduction with respect to that payment and

FC would not be entitled to claim the

reduced rate of withholding applicable to

interest.

(iv) Effective date. This paragraph

(d)(2) applies to items of income paid by

a domestic reverse hybrid entity on or

after the date these regulations are

published as final regulations in the

Federal Register with respect to

amounts received by the domestic

reverse hybrid entity on or after the date

these regulations are published as final

regulations in the Federal Register.

* * * * *

Robert E Wenzel,

Deputy Commissioner of Internal Revenue.

[FR Doc. 01–1687 Filed 2–26–01; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG–106702–00]

RIN 1545–AX94

Determination of Basis of Partner’s

Interest; Special Rules; Correction

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Correction to notice of proposed

rulemaking and notice of public

hearing.

SUMMARY: This document contains

corrections to REG–106702–00 which

Federal Register / Vol. 66, No. 39 / Tuesday, February 27, 2001 / Proposed Rules 12449

was published in the Federal Register

on Wednesday, January 3, 2001 (66 FR

315). These regulations relate to special

rules on determination of basis of

partner’s interest under section 705 of

the Internal Revenue Code.

FOR FURTHER INFORMATION CONTACT:

Barbara MacMillan, (202) 622–3050 (not

a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The notice of proposed rulemaking

that is the subject of these corrections is

under section 705 of the Internal

Revenue Code.

Need for Correction

As published, REG–106702–00

contains errors which may prove to be

misleading and are in need of

clarification.

Correction of Publication

Accordingly, the publication of the

notice of proposed rulemaking (REG–

106702–00 ), which is the subject of FR

Doc. 01–32189, is corrected as follows:

1. On page 315, column 2, in the

preamble, under the caption DATES:, last

line, the language ‘‘must be received by

April 3, 2001’’ is corrected to read

‘‘must be received by April 12, 2001’’.

2. On page 316, column 3, in the

preamble under the paragraph heading

‘‘Comments and Public Hearing’’, first

full paragraph in the column, last line,

the language ‘‘April 3, 2001.’’ is

corrected to read April 12, 2001.’’.

§ 1.705–2 [Corrected]

3. On page 317, column 2, § 1.705–

2(b)(2), paragraph (ii) of the Example,

line 1 the language ‘‘Normally, X would

be entitled to a $40’’ is corrected to read

‘‘Normally, X would be entitled to a

$40,000’’.

4. On page 318, column 3, § 1.705–

2(c)(2), paragraph (vi) of Example 2, line

19 the language ‘‘The amount of UTP’s

gain’’ is corrected to read ‘‘The amount

of LTP’s gain’’.

Cynthia Grigsby,

Chief, Regulations Unit, Office of Special

Counsel (Modernization & Strategic

Planning).

[FR Doc. 01–4671 Filed 2–26–01; 8:45 am]

BILLING CODE 4830–01–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 73

[DA 01–349; MM Docket No. 01–37; RM–

10065]

Radio Broadcasting Services

(Houston, Anchorage, Alaska)

AGENCY: Federal Communications

Commission.

ACTION: Proposed rule. Order to Show

Cause.

SUMMARY: The Commission requests

comment on a petition for rulemaking

filed by Chester P. Coleman, licensee of

Station KADX(FM), Houston, Alaska,

proposing the substitution of Channel

234C1 for Channel 234C2 at Houston,

Alaska, and the modification of Station

KADX’s license to reflect the change. To

accommodate the change the petition

also proposes the substitution of

Channel 286C1 for Channel 287C1 at

Anchorage, Alaska, and the

modification of the license of Station

KNIK–FM, Anchorage, to specify the

new channel. Ubix Corporation,

licensee of Station KNIK–FM, is ordered

to show cause why Channel 286C1

should not be substituted for Channel

287C1 at Houston, and must respond by

the comment deadline specified below.

Channel 234C1 can be allotted at

Houston in compliance with the

Commission’s minimum distance

separation requirements, with respect to

domestic allotments, at a site 17.2

kilometers (10.7 miles) south of the

community at coordinates 61–29–03 NL

and 149–45–52 WL. Channel 286C1 can

be allotted at Anchorage, Alaska, at

Station KNIK-FM’s licensed site 2.8

kilometers (1.8 miles) south of the

community at coordinates 61–11–33 NL

and 149–54–01 WL.

DATES: Comments must be filed on or

before April 2, 2001, and reply

comments must be filed on or before

April 17, 2001.

FOR FURTHER INFORMATION CONTACT:

Victoria M. McCauley, Mass Media

Bureau, (202) 418–2180.

SUPPLEMENTARY INFORMATION: This is a

synopsis of the Commission’s Notice of

Proposed Rule Making, MM Docket No.

01–37, adopted January 31, 2001, and

released February 9, 2001. The full text

of this Commission decision is available

for inspection and copying during

normal business hours in the FCC

Reference Center (Room 239), 445 12th

Street, SW., Washington, DC. The

complete text of this decision may also

be purchased from the Commission’s

copy contractor, International

Transcription Services, Inc., (202) 857–

3800, 1231 20th Street, NW.,

Washington, DC 20036.

List of Subjects in 47 CFR Part 73

Radio broadcasting.

Part 73 of Title 47 of the Code of

Federal Regulations is amended as

follows:

PART 73—[AMENDED]

1. The authority citation for Part 73

continues to read as follows:

Authority: 47 U.S.C. 154, 303, 334 and 336.

§ 73.202 [Amended]

2. Section 73.202(b), the Table of FM

Allotments under Alaska is amended by

removing Channel 234C2 and adding

234C1 at Houston, and by removing

Channel 287C1 and adding Channel

286C1 at Anchorage.

Federal Communications Commission.

John A. Karousos,

Chief, Allocations Branch, Policy and Rules

Division, Mass Media Bureau.

[FR Doc. 01–4727 Filed 2–26–01; 8:45 am]

BILLING CODE 6712–01–U

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Part 73

[DA 01–335; MM Docket No. 01–35; RM–

10054]

Radio Broadcasting Services; Young

Harris, GA

AGENCY: Federal Communications

Commission.

ACTION: Proposed rule.

SUMMARY: The Commission requests

comments on a petition for rule making

filed by M. Terry Carter and Douglas

Sutton, Jr. d/b/a/ Tugart

Communications seeking the allotment

of Channel 236A to Young Harris, GA,

as its first local aural service. Channel

236A can be allotted to Young Harris in

compliance with the Commission’s

minimum distance separation

requirements without the imposition of

a site restriction, at coordinates 34–56–

00 NL; 83–50–54 WL.

DATES: Comments must be filed on or

before April 2, 2001, and reply

comments on or before April 17, 2001.

ADDRESSES: Secretary, Federal

Communications Commission,

Washington, DC 20554. In addition to

filing comments with the FCC,

interested parties should serve the

petitioner, as follows: John F. Garziglia,

Pepper & Corazzini, LLP, 1776 K Street,