SERVICE GIVES RELIEF FOR ELIMINATION OF ONE-YEAR RULE FOR CFC INVESTMENTS IN U.S. PROPERTY, BUT ADEQUACY OF RELIEF IS CRITICIZED.

Notice 88-108

On June 14, 1988, in T.D. 8209, Temporary and Proposed Income Tax Regulations were issued under section 956 regarding investments in U.S. property by a controlled foreign corporation (CFC). Section 1.956-2T(d)(2) of the Temporary regulations eliminated the exception from the definition of U.S. property for obligations not exceeding one year for loans made on or after June 14, 1988. This Notice announces that final regulations issued under section 956 will exclude from the definition of the term "obligation" an obligation that would constitute an investment in U.S. property if held at the end of the CFC's taxable year, so long as the obligation is collected within 30 days from the time it is incurred. This exclusion shall not apply, however, if the CFC holds for 60 or more calendar days during such taxable year (or 120 days or more during the CFC's taxable year that includes June 14, 1988) obligations which, without regard to the 30 day rule described in the preceding sentence, would constitute an investment in U.S. property if held at the end of the CFC's taxable year.

This document is an "administrative pronoucement" as that term is used in section 1.6661-3(b)(2) of the Income Tax Regulations and may be relied on to the same extent as a revenue ruling or revenue procedure.

DRAFTING INFORMATION

The principal author of this notice is Riea M. Lainoff of the Office of Associate Chief Counsel (International). For further information contact Ms. Lainoff at (202) 566-6645 (not a toll-free call), or write to CC:INTL:Br2, Rm. 4617, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C. 20224.