Part I. Rulings — Internal Revenue Bulletin 2000-52

Entity A did not distribute such amounts, Entity A would be taxed by Country X on such amounts. Entity A receives dividend income from the United States.

Country X has not announced by public notice that investment companies such as Entity A are not residents of Country X, and there is no competent authority agreement providing that such entities are not residents of Country X. Further, the U.S. competent authority has not issued a public notice indicating that treaty benefits to such entities are being denied because, and to the extent that, Country X will not grant treaty benefits to similar U.S. entities.

Situation 2

Entity B is an investment company organized in Country Y, which has an income tax treaty in effect with the United States that is identical to the 1996 U.S. Model. Under the laws of Country Y, corporations organized in Country Y are generally taxable on income from all sources at the entity level by reason of being incorporated in Country Y. A specific provision in Country Y law, however, exempts the income of investment companies such as Entity B from taxation. Under Country Y law, the character and source of distributions from Entity B to all its interest holders are determined based on the distributions themselves rather than on the character and source of Entity B’s underlying income. Further, Country Y imposes a withholding tax on distributions to its foreign interest holders regardless of the source of the underlying income. Entity B receives dividend income from the United States.

Country Y has not announced by public notice that investment companies such as Entity B are not residents of Country Y, and there is no competent authority agreement providing that such entities are not residents of Country Y. Further, the U.S. competent authority has not issued a public notice indicating that treaty benefits to such entities are being denied because, and to the extent that, Country Y will not grant treaty benefits to similar U.S. entities.

Situation 3

Entity C is a trust established and administered in Country Z, which has an in

Section 162.—Trade or Business Expenses

Under what circumstances may a taxpayer expense the costs of self-created computer software? See Rev. Proc. 2000–50, page 601.

Section 167.—Depreciation

How is the capitalized cost of computer software amortized? See Rev. Proc. 2000–50, page 601.

Section 197.—Amortization of Goodwill and Certain Other Intangibles

What is the proper tax treatment of the cost of computer software that is excluded from section 197? See Rev. Proc. 2000–50, page 601.

Section 446.—General Rule for Methods of Accounting

If a taxpayer changes to a method provided for in Rev. Proc. 2000–50, is this a change in method of accounting? See Rev. Proc. 2000–50, page 601.

Section 481.—Adjustments Required by Changes in Method of Accounting

Is a section 481(a) adjustment required for a change in the method of accounting under Rev. Proc. 2000–50 for the cost of computer software? See Rev. Proc. 2000–50, page 601.

Section 483.—Interest on Certain Deferred Payments

26 CFR 1.483–1: Computation of interest on certain deferred payments.

As defined by section 1274A, the definitions for both “qualified debt instruments” and “cash method debt instuments” have dollar ceilings on the stated principal amount. The limits to the stated principal amount are adjusted for inflation for sales or exchanges occurring in the 2001 calendar year. See Rev. Rul. 2000–55, page 595.

Section 894(a).—Income Affected by Treaty

26 CFR 1.894–1(a): Income affected by treaty. (Also sections 894(c); 1.894–1(d))

“Liable to Tax” treaty residence standard. Guidance is provided on the “liable to tax” standard for residence under U.S. income tax treaties.

Rev. Rul. 2000–59

This revenue ruling provides guidance on whether certain entities will be considered liable to tax under the laws of a foreign country for purposes of determining if such entities are residents within the meaning of the relevant Treaty. In order to obtain treaty benefits a person must be a resident of the applicable treaty jurisdiction and must meet all other applicable requirements for obtaining treaty benefits, including any applicable limitation on benefits provision and, in the case of an entity that is fiscally transparent under the laws of the United States or the entity’s jurisdiction, the requirement that the entity derive the item of income for which treaty benefits are sought within the meaning of Treas. Reg. § 1.894–1(d).

FACTS

Situation 1

Entity A is a business organization in Country X, which has an income tax treaty in effect with the United States that is identical to the 1996 United States Model Income Tax Treaty (1996 U.S. Model). Under the laws of Country X, Entity A is an investment company taxable on income from all sources at the entity level by reason of being incorporated in Country X. Similar to other domestic corporations, distributions from a Country X investment company are generally treated as dividends and do not retain the character or source of the underlying income. However, net capital gains and, in some cases, tax exempt interest, retain their character when they are distributed to the investment company’s interest holders. Further, a Country X investment company may deduct distributions of current income to its interest holders in computing taxable income. Entity A distributes its net income and capital gains on a current basis to its interest holders so that it will not actually bear a tax. Country X imposes a withholding tax on Entity A’s dividend distributions to its foreign interest holders regardless of the source of Entity A’s underlying income. If

2000–52 I.R.B. 593 December 26, 2000

come tax treaty with the United States identical to the 1981 U.S. Model Income Tax treaty (1981 U.S. Model). The trust exclusively provides pension benefits. Entity C’s trustee is a resident of Country Z. Under the laws of Country Z, because Entity C’s trustee is a resident of Country Z, Entity C is treated as a resident trust taxable at the entity level. However, because Entity C is established and operated exclusively to provide pension benefits, a provision of Country Z law exempts Entity C from Country Z income tax. Entity C receives dividend income from the United States.

Country Z has not announced by public notice that entities such as Entity C are not residents of Country Z, and there is no competent authority agreement providing that such entities are not residents of Country Z. Further, the U.S. competent authority has not issued a public notice indicating that treaty benefits to such entities are being denied because, and to the extent that, Country Z will not grant treaty benefits to similar U.S. entities.

LAW AND ANALYSIS