Part IV. Items of General Interest

Notice of Proposed Rulemaking

Retirement Bonds

EE–148–81

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of proposed regulations.

SUMMARY: This document withdraws proposed regulations relating to retirement bonds as part of the President’s Regulatory Reinvention Initiative.

DATES: The proposed regulations are withdrawn January 8, 1996.

FOR FURTHER INFORMATION CONTACT: Philip Bennet, (202) 622-3926.

SUPPLEMENTARY INFORMATION:

Background

As part of the President’s Regulatory Reinvention Initiative, the Treasury Department and the IRS identified obsolete regulations that relate to prior law, provide elections for prior years, or are otherwise outdated due to changes in the underlying statutory provisions.

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Withdrawal of Proposed Amendments to the Regulations

Accordingly, under the authority of 26 U.S.C. 7805, proposed regulations §1.409–1(b)(2)(i) that were published in the Federal Register on January 23, 1984 (49 FR 2794 [EE–148–81, 1984– 1, C.B. 580]) are withdrawn.

Margaret Milner Richardson, Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

January 5, 1996, 8:45 a.m., and published in the issue of the Federal Register for January 8, 1996, 61 F.R. 552)

Notice of Proposed Rulemaking and Notice of Public Hearing

Automatic Extension of Time for Filing Individual Income Tax Returns

IA–41–93

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross reference to temporary regulations and notice of public hearing.

SUMMARY: In the Rules and Regulations section of this issue of the Federal Register, the IRS is issuing temporary regulations that reflect the new procedures for obtaining an automatic extension of time to file an individual income tax return. The text of the temporary regulations also serves as the comment document for this notice of proposed rulemaking. This document also provides notice of a public hearing on these proposed regulations.

DATES: Written comments must be received by April 1, 1996. Outlines of topics to be discussed at the public hearing scheduled for May 8, 1996, beginning at 10:00 a.m. must be received by April 1, 1996.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (IA–41–93), Room 5228, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. In the alternative, submissions may be hand delivered between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (IA–41–93), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., Washington, DC. The public hearing will be held in the IRS Auditorium.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Margaret A. Owens, 202622-6232 (not a toll-free number). Concerning submissions and the public hearing, Michael Slaughter, 202622-7190 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed rulemaking has been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507).

Comments on the collection of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington, DC 20224. Comments on the collection of information should be received by March 4, 1996.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

The collection of information is in §1.6081–4T(a). This information is required by the IRS to monitor the filing of individual income tax returns. This information will be used to determine which individuals need automatic 4-month extensions of time to file. The likely respondents are individuals or households. Responses to this collection of information are required to obtain a benefit (an automatic 4-month extension of time to file an individual income tax return).

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

Estimates of the reporting burden in this Notice of Proposed Rulemaking will be reflected in the burden of Form 4868.

Background

The temporary regulations published in the Rules and Regulations section of this issue of the Federal Register

29 1996–23 I.R.B.

contain amendments to the Income Tax Regulations (26 CFR part 1) and the Regulations on Procedure and Administration (26 CFR part 301). The temporary regulations provide rules relating to obtaining an automatic 4-month extension of time to file an individual income tax return. The text of the temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains these proposed regulations.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It also has 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 rules, and therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, a copy of this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) that are submitted timely to the IRS. All comments will be available for public inspection and copying.

A public hearing has been scheduled for May 8, 1996, at 10:00 a.m., at the IRS Auditorium. Because of access restrictions, visitors will not be admitted beyond the building lobby more than 15 minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons who wish to present oral comments at the hearing must submit written comments by April 1, 1996, and submit an outline of the topics to be discussed and the time to be devoted to each topic (signed original and eight (8) copies) by April 1, 1996.

A period of 10 minutes will be allotted to each person for making comments.

An agenda showing the scheduling of the speakers will be prepared after the deadline for receiving comments has passed. Copies of the agenda will be available free of charge at the hearing.

Drafting Information

The principal author of these regulations is Margaret A. Owens, Office of the Assistant Chief Counsel (Income Tax & Accounting), IRS. However, other personnel from the IRS and Treasury Department participated in their development.

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Proposed Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as follows:

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805. * * * Par. 2. Section 1.6081-4 is amended by:

1. Revising paragraph (a).
2. Adding paragraph (d). The revised and added provisions read as follows:

§1.6081–4 Automatic extension of time for filing individual income tax returns .

[The text of proposed paragraphs (a) and (d) are the same as the text of §1.6081–4T(a) and (d) published elsewhere in this issue of the Federal Register].

PART 301—PROCEDURE AND ADMINISTRATION

Par. 3. The authority citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805. * * * Par. 4. In §301.6651–1, paragraph (c)(3) is revised to read as follows:

§301.6651–1 Failure to file tax return or to pay tax .

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(c)(3) [The text of this proposed paragraph (c)(3) is the same as the text of §301.6651–1T(c)(3) published elsewhere in this issue of the Federal Register].

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Margaret Milner Richardson, Commissioner of Internal Revenue.

(Filed by the Office of the Federal Register on

January 3, 1996, 8:45 a.m., and published in the issue of the Federal Register for January 4, 1996, 61 F.R. 338)

Supplemental Tables of Income Tax Rates and Exempt Personal Service Income Under New Income Tax Treaties and Protocols

Announcement 96–12

The United States recently exchanged instruments of ratification for new income tax treaties with France, Portugal, and Sweden. The United States also exchanged instruments of ratification for new protocols with Canada and Mexico. The effective dates are as follows:

Canada. The provisions for taxes withheld on interest, dividends, royalties, and pensions and annuities (other than social security benefits) are effective for amounts paid or credited after December 31, 1995. For other taxes, and for taxes withheld on social security benefits, the provisions are effective for tax years beginning after 1995. France. The provisions for taxes withheld on interest, dividends, and royalties are effective for amounts paid or credited after February 1, 1996. For other taxes, the provisions are effective for tax periods beginning on and after January 1, 1996.

Mexico. The provisions under the new protocol are effective October 26, 1995. Portugal. The provisions of the new treaty for taxes withheld at source are effective for amounts paid or credited on or after January 1, 1996. For other taxes, the new treaty is effective for taxable years beginning on or after January 1, 1996.

Sweden. The provisions of the new treaty for taxes withheld at source are effective for amounts paid or credited on or after January 1, 1996. For other taxes, the new treaty is effective for taxable years beginning on or after January 1, 1996.

The Internal Revenue Service prepared Tables 1 and 2 below, as an aid in determining the taxability of certain types of income. Table 1 lists tax rates for investment income such as divi

dends, interest, and royalties. Table 2 lists the different kinds of personal service income that may be fully or partially exempt from U.S. tax. Mexico is not included because the protocol does not change any income tax provisions.

These tables are similar in format to

Tables 1 and 2 in the 1995 editions of Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Corpo- rations, and Publication 901, U.S. Tax Treaties . Taxpayers and withholding agents may use these tables until the Service revises Publications 515 and 901.

Table 1. Tax Rates for 1996 on Income Other Than Personal Service Income Under Chapter 3, Internal Revenue Code, and Income Tax Treaties

a Under some treaties, the reduced rates of withholding may not apply to a foreign corporation unless a minimum percentage of its owners are citizens or residents of the United States or the treaty country.

b No U.S. tax is imposed on a percentage of any dividend paid by a U.S. corporation that received at least 80% of its gross income from an active foreign business for the 3-year period before the dividend is declared. (See sections 871(i)(2)(B) and 881(d) of the Internal Revenue Code.)

c Withholding at a different rate may be required on the disposition of a U.S. real property interest. See Publication 515.

d The exemption or reduction in rate does not apply if the recipient has a permanent establishment in the United States and the property giving rise to the income is effectively connected with this permanent establishment. The exemption or reduction in rate also does not apply if the property giving rise to the income is effectively connected with a fixed base in the United States from which the recipient performs independent personal services. Even with the treaty, if the income is not effectively connected with a trade or business in the United States, the recipient will be considered as not having a permanent establishment in the United States under section 894(b) of the Internal Revenue Code.

e The rate in column 6 applies to dividends paid by a regulated investment company (RIC) or real estate investment trust (REIT). However, the reduced rate applies to dividends paid by a REIT only if the beneficial owner of the dividends is an individual holding less than a 10% interest (25% in the case of Portugal) in the REIT.

f A U.S. government pension paid to an individual who is a resident and a national of France and who is not a U.S. national is exempt from tax.

g Exemption does not apply to gains from the sale of U.S. real property. For the withholding tax rate on the sale of U.S. real property, see Publication 515.

h Exemption does not apply to U.S. government (federal, state, or local) pensions and annuities; a 30% rate applies to these pensions and annuities. A U.S. government pension paid to an individual who is either (a) a resident and national of Portugal, or (b) a resident and citizen of Sweden is exempt from tax.

i Includes alimony.

j Exemption or reduced rate does not apply to an excess inclusion for a residual interest in a real estate mortgage investment conduit (REMIC).

k Generally, if the property was owned by the Canadian resident on September 26, 1980, not as part of the business property of a permanent establishment or fixed base in the U.S., the taxable gain is limited to the appreciation after 1984. Capital gains on personal property not belonging to a permanent establishment or fixed base of the taxpayer in the U.S. are exempt.

l Applies to 85% of the social security payments received from the U.S. government. The effective rate on the total social security payments received is 85% of the rate shown in the table. These rates also apply to the social security equivalent portion of tier 1 railroad retirement benefits (income code 22) received from the U.S. The remainder of tier 1, all of tier 2, dual, and supplemental railroad retirement benefits (income code 23) are taxed as shown in column 14 of this table.

31 1996–23 I.R.B.

Table 2. Compensation for Personal Services Performed in United States Exempt from Withholding and U.S. Income Tax Under Income Tax Treaties

1 Refers to income codes described in Publication 515 and to be reported on Forms 1042–S.

2 Exemption does not apply to the extent income is attributable to the recipient’s fixed U.S. base.

3 For public entertainers, the exemption does not apply if the gross receipts, including reimbursement, are more than $15,000 for the calendar year.

4 Exemption does not apply if gross receipts (including reimbursements) exceed this amount during any 12-month period.

5 Exemption does not apply if the employee’s compensation is borne by a permanent establishment or a fixed base that the employer has in the United States.

6 Does not apply to compensation for research work primarily for private benefit.

7 Grant must be from a nonprofit organization.

8 Exemption does not apply if gross receipts (or compensation for Portugal), including reimbursements, exceed this amount. Income is

fully exempt if visit to the United States is substantially supported by public funds of the treaty country or its political subdivisions or local authorities.

9 Does not apply to fees of a foreign director of a U.S. corporation.

10 Applies only if training or experience is received from a person other than alien’s employer.

11 Does not apply to payments from the National Institutes of Health (NIH) under its Visiting Associate Program and Visiting Scientist Program.

12 The combined period of benefits under Articles 20 and 21(1) cannot exceed 5 years.

13 Exemption does not apply if the individual previously claimed the benefit of this Article.

14 Exemption does not apply if the individual either (a) previously claimed the benefit of this Article, or (b) during the immediately preceding period, claimed the benefit of Article 23. The benefits under Articles 22 and 23 cannot be claimed at the same time.

15 Applies only to full-time student or trainee.

1996–23 I.R.B. 32