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Treaty-Based Return Position Rules Amended Again -- Final Regs Under Section 6114

JUL. 12, 1990

T.D. 8305; 55 F.R. 28608-28610

DATED JUL. 12, 1990
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Citations: T.D. 8305; 55 F.R. 28608-28610

 [4830-01]

 

 DEPARTMENT OF THE TREASURY

 

 Internal Revenue Service

 

 26 CFR Part 301

 

 Treasury Decision 8305

 

 RIN: 1545-A068

 

 

 AGENCY: Internal Revenue Service, Treasury.

 ACTION: Final regulations.

 SUMMARY: This document contains final Income Tax Regulations that amend final regulations previously issued on March 14, 1990, that relate to the requirement that any taxpayer who takes a position that a treaty of the United States overrules, or otherwise modifies, an internal revenue law of the United States shall disclose such position. These final regulations are necessary to provide additional guidance needed to implement section 6114 of the Internal Revenue Code.

 DATES: These regulations are effective for taxable years of the taxpayer for which the due date for filing returns (without extensions) occurs after December 31, 1988.

 FOR FURTHER INFORMATION CONTACT: David Bergkuist of the Office of Associate Chief Counsel (International), within the Office of Chief Counsel, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, DC 20224 (Attention: CC:CORP:T:R: (INTL-292-90)) (202-566-6442), not a toll-free call).

SUPPLEMENTARY INFORMATION:

PAPERWORK REDUCTION ACT

The collection of information contained in this final regulation has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under the control number 1545-1126. The estimated annual burden per respondent to comply with section 301.6114-1 varies from 1/2 hour to 3 hours depending on individual circumstances, with an average estimate of one hour.

 These estimates are an approximation of the average time expected to be necessary for a collection of information. They are based on such information as is available to the Internal Revenue Service. Individual respondents may require greater or less time, depending on their particular circumstances.

 Comments concerning the accuracy of this burden estimate and suggestions for reducing this burden should be directed to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington, DC 20224, and to the Office of Management and Budget, Attention: Desk Officer for the Department of Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503.

BACKGROUND

 This document contains amendments to the Income Tax Regulations (26 CFR Part 301) under section 6114 of the Internal Revenue Code that were published in the FEDERAL REGISTER (55 FR 9438) on March 14, 1990. These amendments respond to comments received after the final regulations under section 6114 were published and provide further guidance with respect to section 6114. These amendments are discussed below.

EXPLANATION OF PROVISIONS

 Several commentators stated that the language of section 301.6114-1(b)(4)(ii) was unclear. In response to these comments, section 301.6114-1(b)(4)(ii) has been revised to narrow specifically required reporting under section 6114 to certain payments received from related persons. In addition, paragraph (b)(4)(ii)(B)(4) includes, as a foreign person who must report under section 6114, a foreign related party as defined in section 6038A(c)(2).

 In response to a comment, section 301.6114-1(b)(5) and (c)(1) has been revised to clarify that income derived from certain independent personal services is subject to reporting under section 6114.

 In response to comments, section 301.6114-1(c)(7) has been revised to limit to foreign insurers and reinsurers only the class of persons required to report with respect to payments of insurance premiums described in section 4371. Thus, insureds and insurance brokers are not required to so report. Under the final regulations previously issued, insureds, insurance brokers, and foreign insurers or reinsurers were required to report, unless an exception to reporting applied. Information provided by commentators indicated that this information could be provided most efficiently by foreign insurers or reinsurers. Language has been added to section 301.6114-1(d) to indicate that reporting with respect to payments of premiums must be made for each of three specified categories, as described in section 4371(a), and that aggregation of payments within each category is permitted. Also, for reports first due before May 1, 1991, the report may disclose, for the previous calendar year, for each of the three categories either the total amount of premiums derived in U.S. dollars (even if a portion of the premiums relate to risks that are not U.S. situs) or the total amount of premiums derived with respect to U.S. situs risks. For reports first due after April 30, 1991, the report must disclose, for the previous calendar year, for each of the three categories the total amount of premiums that is derived with respect to U.S. situs risks. In each case, as is the general rule, reasonable estimates of the amounts required to be disclosed will satisfy these reporting requirements. Foreign insurers and reinsurers must report for calendar years 1988 and 1989 no later than August 15, 1990.

 Language has been added to section 301.6114-1(c) to provide a rule, applicable only to individuals, that reporting of a treaty- based return position is not required for any payments received by the individual during the course of his taxable year if such payments, in total, do not exceed $10,000.

SPECIAL ANALYSES

 It has been determined that these rules are not major rules as defined in Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. Chapter 5) and the Regulatory Flexibility Act (5 U.S.C. Chapter 6) do not apply to these regulations, and, therefore, a final Regulatory Flexibility Analysis is not required. Pursuant to section 7805 (f) of the Code, the notice of proposed rulemaking for the previous regulations under section 6114 was submitted to the Administrator of the Small Business Administration for comment on their impact on small business.

DRAFTING INFORMATION

 The principal author of these regulations is David Bergkuist of the Office of Associate Chief Counsel (International), within the office of Chief Counsel, Internal Revenue Service. Other personnel from the Internal Revenue Service and Treasury Department participated in developing these regulations.

LIST OF SUBJECTS IN 26 CFR PART 301

 Administrative practice and procedure, Bankruptcy, Courts, Crime, Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Investigations, Law enforcement, Penalties, Pensions, Statistics, Taxes, Disclosure of information, Filing requirements.

Treasury Decision 8305

ADOPTION OF AMENDMENTS TO THE REGULATIONS

Accordingly, 26 CFR Part 301 is amended as follows:

PART 301 -- REGULATIONS ON PROCEDURE AND ADMINISTRATION

Paragraph 1. The authority for part 301 continues to read in part:

Authority: 25 U.S.C 7805 * * *

Par. 2. Section 301.6114-1(b)(4)(ii), that portion of paragraph (b)(5) that precedes paragraph (b)(5)(i), and paragraph (c)(1) and (c)(7)(i) and (ii) are revised. In addition, one sentence is added at the beginning of that portion of paragraph (c) that follows paragraph (c)(7)(iii), four sentences are added at the end of that portion of paragraph (d) that follows paragraph (d)(4)(v), and one sentence is added at the end of paragraph (e), all to read as follows:

SECTION 301.6114-1 TREATY-BASED RETURN POSITIONS.

* * * * *

(b) REPORTING SPECIFICALLY REQUIRED.

* * * * *

(4) * * *

(ii) A treaty exempts from tax, or reduces the rate of tax on, fixed or determinable annual or periodical income subject to withholding under sections 1441 or 1442 that a foreign person receives from a U.S. person, but only if --

(A) The payment is not properly reported to the Service on a Form 1042S; and

(B) The foreign person is any of the following:

(1) A controlled foreign corporation (as defined in section 957) in which the U.S. person is a U.S. shareholder within the meaning of section 951(b);

(2) A foreign corporation that is controlled within the meaning of section 6038 by the U.S. person;

(3) A foreign shareholder of the U.S. person that, in the case of tax years beginning on or before July 10, 1989, is controlled within the meaning of section 6038A by the foreign shareholder, or, in the case of tax years beginning after July 10, 1989, is 25-percent owned within the meaning of section 6038A by the foreign shareholder; or

(4) With respect to payments made after October 10, 1990, a foreign related party, as defined in section 6038A (c)(2)(B), to the U.S. person; or

(5) That, notwithstanding paragraph (c)(1) of this section, under a treaty --

* * * * *

(c) REPORTING REQUIREMENT WAIVED.

* * * * *

(1) Except as provided in paragraph (b)(4) or (5) of this section, that a treaty has reduced the rate of withholding tax otherwise applicable to a particular type of fixed or determinable annual or periodical income subject to withholding under section 1441 or 1442, such as dividends, interest, rents, or royalties;

* * * * *

(7) * * *

(i) The person claiming such treaty-based return position is an insured, as defined in section 4372(d) (without the limitation therein referring to section 4371(1)), or a U.S. or foreign broker of insurance risks,

(ii) Reporting under this section that would otherwise be required to be made by foreign insurers or reinsurers on a Form 720 on a quarterly basis is made on an annual basis on a Form 720 by a date no later than the date on which the return is due for the first quarter after the end of the calendar year, or

* * * * *

* * * Reporting is waived for an individual where payments or income items otherwise reportable under this section received by the individual during the course of the taxable year do not exceed $10,000 in the aggregate.

* * * * *

(d) INFORMATION TO BE REPORTED.

* * * * *

(4) * * *

(v) * * *

* * * For purposes of reporting by foreign insurers or reinsurers, as described in paragraph (c)(7)(ii) of this section, such reporting must separately set forth premiums paid with respect to: casualty insurance and indemnity bonds (subject to section 4371(1)); life insurance, sickness and accident policies, and annuity contracts (subject to section 4371(2)); and reinsurance (subject to section 4371(3)). All premiums paid with respect to each of these three categories may be treated as a single payment or income item within that category. For reports first due before May 1, 1991, the report may disclose, for each of the three categories, the total amount of premiums derived by the foreign insurer or reinsurer in U.S. dollars (even if a portion of these premiums relate to risks that are not U.S. situs). Reasonable estimates of the amounts required to be disclosed will satisfy these reporting requirements.

(e) EFFECTIVE DATE.

* * * * *

* * * Foreign insurers and reinsurers subject to reporting described in paragraph (c)(7)(ii) of this section must so report for calendar years 1988 and 1989 no later than August 15, 1990.

Fred T. Goldberg, Jr.

 

Commissioner of Internal Revenue

 

Approved: June 14, 1990

 

Kenneth W. Gideon

 

Assistant Secretary of the Treasury
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