Rev. Rul. 72-116

Advice has been requested whether the choice by a corporate United States shareholder made under section 1.963-2(d)(1)(iii) of the Income Tax Regulations may be changed before the expiration of the limitations period prescribed by section 6511(a) of the Internal Revenue Code of 1954 without obtaining the consent of the Commissioner of Internal Revenue.

A corporate United States shareholder elected for a taxable year to secure an exclusion under section 963 of the Code with respect to a group of foreign corporations described in section 1.963-1(f) of the regulations. In determining the earnings and profits of a foreign corporation in the group for such year, the United States shareholder chose under section 1.963-2(d)(1)(iii) of the regulations to take into its calculation of the effective foreign tax rate on the income of the foreign corporation the foreign tax which the corporation paid on an intercorporate distribution received by it from another member of the group. Within the limitations period prescribed by section 6511(a) of the Code for such year, the United States shareholder changed its choice and instead recalculated the minimum distribution in accordance with section 1.963-3(b)(2) of the regulations by applying the foreign tax on the intercorporate distribution directly to reduce the amount required to be distributed to the United States shareholder.

Section 1.963-1(c)(3) of the regulations provides that an election to make a minimum distribution under section 963 of the Code for any taxable year, once made, is irrevocable unless the Commissioner of Internal Revenue is satisfied that reasonable cause exists to revoke or to modify the election. Section 1.963-1(c)(3)(ii) of the regulations sets forth a variety of types of revocation or modification which may be approved.

The specific types of revocation or modification listed in section 1.963-1(c)(3)(ii) of the regulations are not exclusive. A change in a choice as between sections 1.963-2(d)(1)(iii) and 1.963-3(b)(2) of the regulations will modify the minimum distribution calculation previously made and, as such, must receive advance approval by the Commissioner of Internal Revenue in accordance with the procedures set forth in section 1.963-1(c)(3) of the regulations.

Accordingly, it is held, in the instant case, that the change in choice by the corporate United States shareholder made under section 1.963-2(d)(1)(iii) of the regulations requires the advance approval of the Commissioner of Internal Revenue.