Rev. Rul. 71-453

Advice has been requested as to the determination of the distribution period, under the circumstances described below, with respect to a controlled foreign corporation for purposes of the minimum distribution provisions of section 963 of the Internal Revenue Code of 1954.

During its taxable year 1969, X, a domestic corporation, owned all of the only class of outstanding stock of Y, a controlled foreign corporation within the meaning of section 957 of the Code. X reports its income on a calendar year basis. Y reported its income on a fiscal year basis for the year ending November 30, 1969, but was thereafter granted permission by the Commissioner of Internal Revenue to change to a calendar year basis. As a result, under section 441 of the Code, Y had two taxable years ending with or within the calendar year of X--the fiscal ending November 30, 1969, and the short period beginning December 1, 1969 and ending December 31, 1969. X elected under section 1.963-1 of the Income Tax Regulations to exclude from its gross income for its taxable year 1969 the income which would have been includible under section 951(a)(1)(A)(i) of the Code with respect to the subpart F income of Y for the taxable year ending November 30, 1969 and the short period beginning December 1, 1969 and ending December 31, 1969, subject to receipt by X of the required minimum distribution of the earnings and profits of Y for such taxable periods. X made no election under section 963 of the Code for the taxable year 1968.

Section 1.963-3(g)(1) of the regulations provides that the general distribution period with respect to a foreign corporation for its taxable year shall begin immediately after the close of the distribution period for the preceding taxable year and shall end with the close of the 60th day of the next succeeding taxable year. If no election to secure an exclusion under section 963 of the Code applied to the preceding taxable year, the distribution period for the taxable year shall begin with the 61st day of the taxable year. Section 1.963-3(g)(2) of the regulations provides that if the United States shareholder so elects, the distribution period with respect to such foreign corporation for its taxable year to which the election to secure the exclusion applies shall end with any day which occurs no earlier than the last day of such taxable year of such foreign corporation and no later than the 180th day after the close of such taxable year. The United States shareholder shall designate the day so elected as the end of the distribution period.

Revenue Ruling 68-477, C.B. 1968-2, 317, holds, in a situation similar to the instant case, that each of the two taxable years of a controlled foreign corporation ending with or within the taxable year of a United States shareholder will be treated as a separate taxable year under section 1.963-1(b)(6) of the regulations and that the minimum distribution requirement has to be met for each of the taxable years of the foreign corporation ending with or within the taxable year of such shareholder before the subpart F income of any of the taxable years of the foreign corporation ending with or within such shareholder's taxable year can be excluded from the shareholder's gross income.

It is held that, under section 1.963-3(g)(1) of the regulations, the normal distribution period with respect to Y for its taxable year ending on November 30, 1969, begins January 30, 1969 (61st day of the taxable year) and ends January 29, 1970 (60 days after the close of the taxable year) and for the short period beginning December 1, 1969, and ending on December 31, 1969, the distribution period of Y begins January 30, 1970, and ends March 1, 1970. If X elects the full 180-days special extended distribution period under section 1.963-3(g)(2) of the regulations, Y's distribution period for its taxable year ending on November 30, 1969, begins January 30, 1969, and ends May 29, 1970 (180 days after the close of the taxable year) and Y's distribution period for its short period beginning December 1, 1969, and ending on December 31, 1969, begins May 30, 1970, and ends June 29, 1970.

Revenue Ruling 68-477, C.B. 1968-2, 317, is amplified.