SECTION 1. BACKGROUND

A. Sections 1491–1494

Before its repeal, section 1491 imposed a 35 percent excise tax on a transfer of property (“section 1491 transfer”) by a U.S. person to a foreign partnership (unless section 1492 applied). The excise tax was 35 percent of the excess of the fair market value of the property transferred over its adjusted basis plus any gain recognized to the transferor upon the transfer.

In 1996, section 1494(c) was enacted, adding a penalty (even if no excise tax was due) for failure to file a return reporting a section 1491 transfer made after August 20, 1996. Sections 1491–1494 were repealed by the 1997 Act, effective August 5, 1997.

B. Notices 97–18 and 97–42

Notice 97–18, 1997–10 I.R.B. 35, issued after enactment of section 1494(c) and before its repeal, excluded certain section 1491 transfers from the reporting requirement and provided that no penalty would be imposed under section 1494(c) with respect to a section 1491 transfer if a Form 926 reporting such transfer was filed by the date specified in that notice.

Notice 97–42, 1997–29 I.R.B. 12, also issued after enactment of section 1494(c) and before its repeal, extended the due date for filing Form 926 to report section

1491 transfers made during the taxable year that included August 20, 1996, to the due date (including extensions) of the transferor’s timely-filed income tax return or information return for the first taxable year beginning on or after January 1, 1997.

C. Section 6038B as amended by the 1997 Act The 1997 Act amended section 6038B to require that certain transfers by U.S. persons to foreign partnerships be subject to reporting under section 6038B. These transfers are contributions described in section 721 (“section 721 contributions”) and any other contributions described in regulations. Under section 6038B(b)(1), this reporting is required only if: 1) the transferor holds (immediately after the transfer) directly or indirectly at least a 10 percent interest in the partnership, or 2) the fair market value of the property transferred (alone, or aggregated with certain other section 721 contributions) exceeds $100,000.