Definitions and Reporting Requirements for Shareholders of Passive Foreign Investment Companies; Insurance Income of a Controlled Foreign Corporation for Taxable Years Beginning AfterDecember 31, 1986
SUMMARY: This document contains temporary regulations that provide guidance on determining ownership of a passive foreign investment company ("PFIC") and on the annual filing requirements for shareholders of PFICs. These temporary regulations primarily affect shareholders of PFICs that do not currently file Form 8621, "Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund," with respect to their PFIC interests. In addition, these temporary regulations provide guidance on an exception to the requirement for certain shareholders of foreign corporations to file Form 5471, "Information Return of U.S. Persons with Respect to Certain Foreign Corporations." These regulations also update certain rules related to Form 5471 to take into account statutory changes. The text of these temporary regulations also serves as the text of the proposed regulations (REG-140974-11) set forth in the notice of proposed rulemaking on this subject in the Proposed Rules section of this issue of the Federal Register .
EFFECTIVE DATE: Effective Date: These regulations are effective on December 31, 2013.
Applicability Date: For dates of applicability, see SUBSEC 1.1291-1T(k), 1.1291-9T(k)(3), 1.1298-1T(h), 1.6038-2T(m), and 1.6046-1T(l)(3).
FOR FURTHER INFORMATION CONTACT: Barbara E. Rasch or Susan E. Massey at (202) 317-6934 (not a toll-free number).
A. Sections 1291 and 1298
Sections 1291 through 1298 of the Internal Revenue Code ("Code") set forth three tax regimes for shareholders that own stock of a PFIC: (i) the excess distribution rules under section 1291 ("section 1291 regime"); (ii) the qualified electing fund ("QEF") rules under section 1293; and (iii) the mark to market ("MTM") rules under section 1296. In general, section 1291 imposes a special tax and interest charge on a United States person that is a shareholder of a PFIC and that receives an excess distribution (within the meaning of section 1291(b)) from a PFIC or recognizes gain derived from a disposition of stock in a PFIC that is treated as an excess distribution (within the meaning of section 1291(a)(2)). A shareholder that is subject to the QEF rules includes amounts in gross income under section 1293, and a shareholder that is subject to the MTM rules includes amounts in gross income under section 1296. Section 1298 sets forth special rules applicable to shareholders of PFICs, including attribution rules that treat a United States person as the owner of PFIC stock that is owned by another person (other than an individual). For instance, section 1298(a)(2) sets forth the attribution rules for ownership through a corporation, and section 1298(a)(3) sets forth the attribution rules for ownership through a partnership, estate, or trust. In addition, section 1298(a)(1)(B) provides that, pursuant to regulations, stock owned (or treated as owned) by a United States person may be treated as owned by another United States person.
On April 1, 1992, the Federal Register published proposed regulations (57 FR 11024) under sections 1291, 1293, 1295, and 1297 of the Code concerning, among other things, the taxation of shareholders of certain PFICs upon payment of distributions by such companies or upon disposition of the stock of such companies ("1992 proposed regulations"). The IRS and the Department of the Treasury ("Treasury Department") received written comments on the 1992 proposed regulations and held a hearing on November 23, 1992.
Subsequently, the Taxpayer Relief Act of 1997 (Public Law 105-34, 111 Stat. 788) ("Taxpayer Relief Act") modified certain aspects of the PFIC rules. Section 1122(a) of the Taxpayer Relief Act added the MTM regime under section 1296 to the Code, and section 1121 of the Taxpayer Relief Act added section 1297(d). Section 1297(d) provides that, in certain situations, a PFIC that is also a controlled foreign corporation ("CFC") is not treated as a PFIC with respect to certain shareholders. However, section 1298(a)(2)(B) provides that a foreign corporation that would, but for the rules of section 1297(d), be a PFIC is treated as a PFIC with respect to its shareholders for purposes of determining whether the shareholders own an interest in any PFIC held by the foreign corporation.
Section 521 of the Hiring Incentives to Restore Employment Act of 2010 (Pub. L. 111-147, 124 Stat. 71) ("HIRE Act") added new paragraph (f) to section 1298, effective March 18, 2010. Section 1298(f) requires a United States person that is a shareholder of a PFIC to file an annual report containing such information as the Secretary may require. The HIRE Act also amended section 6501(c)(8) (which was further amended by Public Law 111-226, 124 Stat. 2389) to extend the statute of limitations for assessment of tax for a shareholder that fails to comply with the reporting requirements of section 1298(f).
In Notice 2010-34 (2010-1 CB 612 (April 26, 2010)) (see 26 CFR SEC 601.601(d)(2)(ii)( b)), the IRS and the Treasury Department announced that they were developing further guidance regarding the reporting obligations under section 1298(f) and that PFIC shareholders that were not otherwise required to file Form 8621 prior to March 18, 2010, would not be required to file an annual report under section 1298(f) for taxable years beginning before March 18, 2010.
In Notice 2011-55 (2011-29 CB 663 (July 18, 2011)) (see 26 CFR SEC 601.601(d)(2)(ii)( b)), the IRS and the Treasury Department announced their intention to issue regulations under section 1298(f) and to release a revised Form 8621, modified to reflect the reporting requirements under section 1298(f). In addition, Notice 2011-55 suspended the section 1298(f) reporting requirements until the release of the revised Form 8621 for PFIC shareholders that were not otherwise required to file Form 8621 under the then-current Instructions to Form 8621. The notice stated that PFIC shareholders with Form 8621 reporting obligations as provided in the then-current Instructions to Form 8621 were required to continue filing Form 8621 with an income tax or information return filed prior to the release of the revised Form 8621. Notice 2011-55 further provided that following the release of revised Form 8621, PFIC shareholders for which the filing of Form 8621 had been suspended under the notice would be required to attach Form 8621 for the suspended taxable year to their next income tax or information return required to be filed with the IRS. The notice also provided that a failure to furnish Form 8621 for a suspended taxable year could result in the extension of the statute of limitations for such year under section 6501(c)(8), and penalties could apply. However, since Notice 2011-55 was issued, the IRS and the Treasury Department have determined that it is not necessary for taxpayers to file a Form 8621 under section 1298(f) for suspended taxable years. Accordingly, these regulations provide that PFIC shareholders are not required to file Form 8621 under section 1298(f) with respect to taxable years ending before December 31, 2013.
This document contains amendments to 26 CFR part 1 under sections 1291 and 1298. Although comments were received on the 1992 proposed regulations, none relate to the specific issues addressed in these temporary regulations. These temporary regulations generally adopt certain portions of the 1992 proposed regulations, some of which are revised to take into account statutory changes. This preamble discusses these revisions but does not discuss comments concerning other rules in the 1992 proposed regulations, which are beyond the scope of these temporary regulations. These temporary regulations also set forth the filing requirements under section 1298(f), including the time and manner for filing Form 8621 for taxable years ending on or after December 31, 2013.
B. Sections 6038 and 6046
This document contains amendments to 26 CFR part 1 under sections 6038 and 6046. Sections 6038 and 6046 set forth information return reporting requirements applicable to certain United States persons that own an interest in foreign corporations and certain United States persons that are officers and directors of the foreign corporations. These temporary regulations provide guidance on an exception to the requirement to file Form 5471 under sections 6038 and 6046 that is applicable to certain United States persons that own an interest in a foreign corporation under constructive ownership rules.
In addition, these regulations take into account statutory changes in section 1012(i) of the Technical and Miscellaneous Revenue Act of 1988 (Pub. L. 100-647, 102 Stat. 3342) and section 1146(a) of the Taxpayer Relief Act. The first statutory change relates to the requirement for persons treated as United States shareholders under section 953(c) to file an information return under section 6046. This requirement was added to the Code in 1988, shortly after section 953(c) was added to the Code by the Tax Reform Act of 1986 (Pub. L. 99-514, 100 Stat. 2085). On April 17, 1991, the Federal Register published proposed regulations (56 FR 15540; INTL-939-86; REG-208289-86) under sections 953 and 6046 concerning, among other things, the requirements for persons treated as United States shareholders under section 953(c) to file an information return with respect to the CFC, and for certain United States persons that are officers and directors of such CFCs to file an information return ("1991 proposed regulations"). These regulations finalize SEC 1.6046-1 of the 1991 proposed regulations (REG-116180-12; RIN 1545-BK91) without substantive changes. The other portions of the 1991 proposed regulations (REG-123286-13; RIN 1545-BL63) remain in proposed form.
--This is a summary of a Federal Register article originally published on the page number listed below--
Final and temporary regulations.
CFR Part: "26 CFR Part 1"
RIN Number: "RIN 1545-BK67; RIN 1545-BK91"
Citation: "78 FR 79602"
Document Number: "TD 9650"
Federal Register Page Number: "79602"
"Rules and Regulations"