New Regs Impose Lengthy Moratorium on Hybrid Branch Rules

 [4830-01-u]

[2] ACTION: Removal of temporary and final regulations.

[3] SUMMARY: This document removes regulations relating to the treatment under subpart F of certain payments involving branches of a controlled foreign corporation (CFC) that are treated as separate entities for foreign tax purposes or partnerships in which CFCs are partners, as published in the Federal Register on March 26, 1998. Removal of the temporary regulations will allow Congress and the Treasury the opportunity to consider in greater depth the issues pertaining to hybrid transactions.

[4] EFFECTIVE DATES: These regulations are removed effective March 23, 1998.

[5] FOR FURTHER INFORMATION CONTACT: Valerie Mark, (202) 622-3840 (not a toll-free number).

[6] SUPPLEMENTARY INFORMATION:

Background

[7] On March 23, 1998 (63 FR 14669, March 26, 1998), the IRS issued proposed regulations (REG-104537-97) relating to the treatment under subpart F of certain partnership and hybrid branch transactions. The provisions of the proposed regulations concerning hybrid branch transactions were also issued as temporary regulations (TD 8767) (63 FR 14613, March 26, 1998). Congress and taxpayers raised concerns about the proposed and temporary regulations relating to hybrid branch transactions. Accordingly, as announced in Notice 98-35 (1998-27 I.R.B. 35), the IRS has decided to withdraw the proposed regulations (see document withdrawing proposed regulations and setting out new proposed regulations, published elsewhere in this issue of the Federal Register) and remove the temporary regulations. Removal of the temporary regulations will allow Congress and the Treasury the opportunity to consider in greater depth the issues pertaining to hybrid transactions.

Drafting Information

[8] The principal author of these regulations is Valerie Mark, of the Office of the Associate Chief Counsel (International). Other personnel from the IRS and Treasury Department also participated in the development of these regulations.

List of Subjects

26 CFR Part 1

[9] Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

[10] Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

[11] Accordingly, 26 CFR parts 1 and 301 are amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for 26 CFR part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 1.904-5 [Amended]

Par. 2. In section 1.904-5, paragraph (o) is amended by removing the last sentence.

Section 1.904-5T [Removed]

Par. 3. Section 1.904-5T is removed.

Section 1.954-1 [Amended]

Par. 4. Section 1.954-1 is amended by removing paragraph (c)(1)(iv).

Section 1.954-1T [Removed]

Par. 5. Section 1.954-1T is removed.

Section 1.954-2T [Removed]

Par. 7. Section 1.954-2T is removed.

Section 1.954-9T [Removed]

Par. 9. Section 1.954-9T is removed.

PART 301--PROCEDURE AND ADMINISTRATION

Par. 10. The authority citation for 26 CFR part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Section 301.7701-3 [Amended]

Par. 11. In section 301.7701-3, the last sentence in paragraph (f)(1) is removed.

Section 301.7701-3T [Removed]

Par. 12. Section 301.7701-3T is removed.