SECTION 6. EXPENDITURES THAT

ARE NOT INVESTMENTS IN THE UNITED STATES PURSUANT TO SECTION 965(b)(4)

.01 In General

The expenditures described in this section 6 are not permitted investments by the taxpayer in the United States within the meaning of section 965(b)(4). Section 965(b)(4) explicitly provides that executive compensation is not a permitted investment. The other non-permitted investments listed in this section are not reasonably expected to maintain or add to the value of the taxpayer as a going concern. Because this list of non-permitted investments is not an exclusive list, other expenditures may also be non-permitted investments.

.02 Executive Compensation

Executive compensation is not a permitted investment. Executive compensation is defined as compensation paid, directly or indirectly, by or on behalf of, the taxpayer, to any employee or former employee, in exchange for services (past,

present, or future) performed for the taxpayer, if: (a) the individual is an employee who is subject to the requirements of section 16(a) of the Securities Exchange Act of 1934 with respect to the taxpayer; (b) the individual is an employee who would be subject to such requirements if the taxpayer were an issuer of equity securities referred to in such section; or (c) the individual is a former employee who was described in clauses (a) or (b) of this section 6.02 at the time of his or her severance from employment. A taxpayer may treat the ten employees who received the highest wages in the most recently ended calendar year as being the individuals described in clause (b) of this section 6.02.

.03 Intercompany Distributions, Obligations, and Transactions

For purposes of section 965, all U.S. shareholders that are members of an affiliated group filing a consolidated return under section 1501 are treated as one U.S. shareholder. Section 965(c)(5). Therefore, intercompany distributions, intercompany obligations, and intercompany transactions (all as defined in §1.1502–13) between corporations that are members of the same consolidated group are disregarded for purposes of section 965 and cannot be permitted investments under section 5 of this notice. However, if a consolidated group member initially receives a cash dividend from its CFC, an investment of an amount equal to such dividend amount made by another consolidated group member may be a permitted investment under section 5 of this notice.

.04 Dividends and Other Distributions With Respect to Stock

Dividends and other distributions made by the taxpayer to its shareholders with respect to its stock, without regard to how such distributions are treated under section 301, are not permitted investments because they do not constitute investments by the taxpayer for purposes of section 965.

Moreover, although intercompany distributions between members of a consolidated group are disregarded for purposes of section 965, a distribution with respect to the stock of a consolidated group member that is held by a person that is not a member of the same consolidated group is not a permitted investment.

2005–6 I.R.B. 480 February 7, 2005

.03 Safe Harbor

(a) In General . If a taxpayer meets the requirements under sections 8.03(b), 8.03(c), and 8.03(d) of this notice, then the taxpayer will have established to the satisfaction of the Commissioner that the amount of the dividend has been invested in the United States pursuant to the domestic reinvestment plan as required under section 965(b)(4). This safe harbor is not the exclusive method of satisfying the Commissioner. If the safe harbor is not met, the determination will be made under a facts and circumstances analysis described in section 8.04 of this notice.

(b) Substantive Requirements . Expenditures comprising at least 60 percent of the amount of total funds with respect to permitted investments to be made pursuant to the domestic reinvestment plan meet both of the following requirements:

(i) Such expenditures have been made, or are the subject of a binding contract or commitment entered into with persons unrelated to the taxpayer (within the meaning of section 267(b), other than section 267(b)(8)), by the end of the second taxable year following the taxable year for which the taxpayer elected to apply section 965; and (ii) Such expenditures constitute permitted investments listed in section 5 of this notice (other than investments described in section 5.05(c) of this notice).

(c) Annual Reporting . The taxpayer satisfies the reporting requirements of section 8.02(a) of this notice for the taxable year for which the taxpayer elected section 965 to apply and each of the two subsequent taxable years (unless all investments have been made pursuant to the domestic reinvestment plan prior to the beginning of either such taxable year) and includes in such reporting the representations set forth below, as applicable:

(i) In an annual report filed for a taxable year no later than the second taxable year following the taxable year to which the taxpayer elected to apply section 965, representations —

(A) that the requirements of section 8.03(b) of this notice have been met; and (B) that the taxpayer intends to make the remaining amount of investments, if any, pursuant to the domestic reinvestment plan no later than the end of the fourth taxable year following the taxable year to

for the taxable year to which the taxpayer intends to elect section 965 to apply prior to the issuance of Form 8895, the election must be made on a statement that is attached to its timely-filed tax return (including extensions) for such taxable year. See section 9.03 for a special transition rule for certain tax returns filed prior to January 13, 2005.