Part IV. Items of General Interest

mation required in these sections will enable a foreign corporation to determine if it is eligible to exclude its income from the international operation of a ship or ships or aircraft from gross income on its U.S. Federal income tax return. The information required in these sections will also enable the IRS to monitor compliance with the provisions of the proposed regulations with respect to the stock ownership requirements of § 1.883–1(c)(2), and to make a preliminary determination of whether the foreign corporation is eligible to claim such an exemption and is accurately reporting income as required under section 6012.

The collection of information and responses to these collections of information are mandatory. The likely respondents are foreign corporations engaged in the international operation of a ship or ships or aircraft that wish to claim an exemption from U.S. tax under section 883, and certain of their shareholders owning (directly or indirectly) a majority of the value of the shares of such corporations.

Estimated total annual reporting/ recordkeeping burden on corporations: 1400 hours.

The estimated annual burden per respondent varies from 30 minutes to eight hours, depending on the circumstances of the foreign corporation, with an estimated average of one hour.

Estimated number of respondents: 1400. Estimated annual frequency of responses: Once.

Estimated total annual reporting/ recordkeeping burden on shareholders: 22,500 hours. The estimated annual burden per respondent varies from zero minutes to eight hours, depending on the circumstances of the shareholder or intermediary, with an estimated average of 90 minutes.

Estimated number of respondents: 15,000. Estimated annual frequency of responses: Zero if the shareholder falls within a special rule that permits the foreign corporation to use the address of record in the shareholder records.

Once every three years if there is no change in reported shareholder information.

Annually in years in which a change of information occurs.

Notice of Proposed Rulemaking; Withdrawal of Previously Proposed Rules; and Notice of Public Hearing

Exclusions From Gross Income of Foreign Corporations

REG–136311–01

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of previously proposed rules; notice of proposed rulemaking; and notice of public hearing.

SUMMARY: This document contains new proposed rules implementing the portions of sections 883(a) and (c) of the Internal Revenue Code of 1986, as amended, that relate to the exclusion from gross income available to corporations organized in foreign countries that grant equivalent exemptions to corporations organized in the United States for income derived from the international operation of ships or aircraft. This document also provides notice of a public hearing on the proposed rules and withdraws the notice of proposed rulemaking (REG–208280–86, 2000–1 C.B. 654 [65 FR 6065]) published on February 8, 2000.

DATES: Written or electronic comments, requests to speak, and outlines of topics to be discussed at the public hearing scheduled for November 12, 2002, at 10 a.m. must be received by October 22, 2002. The notice of proposed rulemaking published on February 8, 2000, is withdrawn as of August 2, 2002.

ADDRESSES: Send submissions to: CC: ITA:RU (REG–136311–01), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to: CC:ITA:RU (REG– 136311–01), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, comments may be transmitted electronically via the Internet by submitting comments di

rectly to the IRS Internet site at: www.irs.gov/regs. The public hearing will be held in room 4718, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed rules, Patricia A. Bray, (202) 622–3880; concerning submissions, the hearing, and/or to be placed on the building access list to attend the hearing, Guy Traynor, (202) 622– 7180 (not toll-free numbers).

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(d)). 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 IRS, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S, Washington, DC 20224. Comments on the collection of information should be received by October 1, 2002. Comments are specifically requested concerning:

Whether the proposed collection of information is necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed collection of information (see below);

How the quality, utility and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

The collection of information in this proposed regulation is in §§ 1.883–1, 1.883–2, 1.883–3, 1.883–4 and 1.883–5. The infor

2002–36 I.R.B. 485 September 9, 2002

qualified foreign corporation from its international operation of ships or aircraft is excluded from gross income and exempt from United States Federal income tax. Section 1.883–1 of both the 2000 proposed regulations and the reproposed regulations provide general operational rules and definitions to determine whether a foreign corporation is entitled to this exclusion and exemption, which are elaborated on in §§ 1.883–2 through 1.883–4. The preamble to the 2000 proposed regulations contains a detailed explanation of the provisions in the 2000 proposed regulations. That explanation is not repeated herein. Comments the IRS received on the 2000 proposed regulations and the consequent changes reflected in the reproposed regulations are described herein.

B. Comments relating to § 1.883–1: exclusions of income from the international operation of ships or aircraft

Section 1.883–1 of the 2000 proposed regulations provides, in accordance with section 883, that income derived from the international operation of ships or aircraft by a foreign corporation organized in a foreign country that grants a reciprocal exemption to U.S. corporations shall be exempt from U.S. Federal income tax. In response to comments the IRS received concerning the 2000 proposed regulations, the reproposed regulations modify the rules of the 2000 proposed regulations regarding the definition of international operation of ships and aircraft and the scope of income considered derived from such operation.

1. Operation of Ships or Aircraft

Section 1.883–1(e) of the 2000 proposed regulations provides generally that the term operation of ships or aircraft includes carriage of passengers or cargo for hire; time or voyage charter (full charter) of a ship, or wet lease of an aircraft; and bareboat charter of a ship, or dry lease of an aircraft. The 2000 proposed regulations also include within the term the active participation by a foreign corporation that is otherwise engaged in the operation of ships or aircraft in a pool, partnership, strategic alliance, joint operating agreement, codesharing arrangements or other joint venture, that is itself engaged in the operation of ships or aircraft.

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 assigned by the Office of Management and Budget.

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.

Background and Explanation of Provisions

I. Overview

On February 8, 2000, the IRS and Treasury published a notice of proposed rulemaking (REG–208280–86) in the Federal Register (65 FR 6065) under sections 883(a) and (c) (the 2000 proposed regulations). The 2000 proposed regulations, in accordance with section 883(a) and (c), generally provide that a foreign corporation organized in a qualified foreign country and engaged in the international operation of ships or aircraft shall exclude from its gross income for purposes of United States Federal income taxation qualified income it derives from its international operation of ships or aircraft, provided that the corporation satisfies certain ownership and related documentation and filing requirements. The 2000 proposed regulations explain how to determine whether a foreign country is a qualified foreign country, what income is considered qualified income, and what activities constitute international operation of ships or aircraft. They also specify how a foreign corporation satisfies the ownership and related documentation requirements.

The IRS and Treasury held a public hearing regarding the 2000 proposed regulations on June 8, 2000, and received numerous comments in connection with the hearing and otherwise. In consideration of the substantial number of comments received, and due to the significant impact the regulations have on large segments of the shipping and air transport industries, the IRS and Treasury believe it is appropriate to repropose the regulations in order to address those comments and to provide a further opportunity for comment both on the changes and more generally. Accordingly,

this document withdraws the 2000 proposed regulations and provides new proposed regulations, which are referred to herein as the reproposed regulations.