Firm Submits Proposal to Provide Relief Under Transition Tax Regs

November 2, 2018

Lafayette "Chip" G. Harter III
Deputy Assistant Secretary (International Tax Affairs)
Office of the International Tax Counsel
Department of the Treasury
1500 Pennsylvania Avenue, NW, Room 3058
Washington, DC 20220

Re: October 31, 2018 meeting and proposals to address the issues discussed therein and in our September 21 letter

Dear Mr. Harter:

We are writing to thank you for meeting with us on Wednesday to discuss the regulations recently proposed under Section 965 as amended by Congress in P.L. 115-97, which were published in the Federal Register on August 9, 2018, at 83 Fed. Reg. 39,514 (the "Proposed Regulations").

To follow up on the discussions in our meeting, we are attaching on behalf of a client a proposal that seeks to provide relief for taxpayers from the approach adopted by the Proposed Regulations in a narrowly tailored fashion to address the circumstances where a foreign corporation was repatriated into a domestic corporation prior to November 2, 2017 in a transaction governed by Section 381.

We look forward to discussing further these proposals with you.

Respectfully submitted,

Avishai Shachar
212 450 4638
avishai.shachar@dpw.com

Mario J. Verdolini
212 450 4969
mario.verdolini@dpw.com

William A. Curran
212 450 3020
william.curran@dpw.com

Davis Polk & Wardwell LLP
New York, NY

cc:
Douglas Poms
International Tax Counsel
Department of the Treasury

Brenda Zent
Special Advisor to the International Tax Counsel
Department of the Treasury

Lindsay Kitzinger
Attorney Advisor
Department of the Treasury

Gary Scanlon
Attorney Advisor
Department of the Treasury

Jason Yen
Attorney Advisor
Department of the Treasury

Marjorie Rollinson
Associate Chief Counsel (International)
Internal Revenue Service

Daniel McCall
Deputy Associate Chief Counsel
Internal Revenue Service

John Merrick
Senior Level Counsel, Office of Associate Chief Counsel (International)
Internal Revenue Service

Raymond Stahl
Special Counsel, Office of Associate Chief Counsel (International)
Internal Revenue Service

Leni C. Perkins
Attorney Advisor, Office of Associate Chief Counsel (International)
Internal Revenue Service

Karen J. Cate
Tax Law Specialist, Office of Associate Chief Counsel (International)
Internal Revenue Service

Brent J. McIntosh
General Counsel
Department of the Treasury

Brian Callanan
Deputy General Counsel
Department of the Treasury

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 Section 965 Regulations:
DPW Proposal to Limit Scope of Foreign Cash Rule

§1.965-1(f)

(45) Specified foreign corporation —

(i) General rule. Except as provided in paragraphparagraphs (f)(45)(iii) or (f)(45)(iv) of this section, the term specified foreign corporation means —

(A) A controlled foreign corporation, or

(B) A foreign corporation of which one or more domestic corporations is a United States shareholder.

(ii) Special attribution rule. Solely for purposes of determining whether a foreign corporation is a specified foreign corporation within the meaning of section 965(e)(1)(B) and paragraph (f)(45)(i)(B) of this section, stock owned, directly or indirectly, by or for a partner (tested partner) will not be considered as being owned by a partnership under sections 958(b) and 318(a)(3)(A) and § 1.958-2(d)(1)(i) if the tested partner owns less than five percent of the interests in the partnership's capital and profits. For purposes of the preceding sentence, an interest in the partnership owned by another partner will be considered as being owned by the tested partner under the principles of sections 958(b) and 318, as modified by this paragraph (f)(45)(ii), as if the interest in the partnership were stock.

(iii) Passive foreign investment companies. A foreign corporation that is a passive foreign investment company (as defined in section 1297) with respect to a United States shareholder and that is not a controlled foreign corporation is not a specified foreign corporation with respect to the United States shareholder.

(iv) Certain repatriated foreign corporations. For purposes of determining the aggregate foreign cash position of a section 958(a) U.S. shareholder under paragraph (f)(8) of this section and the consolidated group aggregate foreign cash position (as defined in § 1.965-8(f)(4)) of the consolidated group of which such section 958(a) U.S. shareholder is a member, a foreign corporation the assets of which were, prior to November 2, 2017, acquired by such section 958(a) U.S. shareholder in a transaction described in § 1.367(b)-3(a) is not a specified foreign corporation.