SECTION 1. OVERVIEW

This notice is the second in a series of items of published guidance regarding new section 965 of the Internal Revenue Code (Code). It supplements guidance previously set forth in Notice 2005–10, 2005–6 I.R.B. 474, which primarily addressed requirements regarding a domestic reinvestment plan described in section 965(b)(4). This notice primarily addresses the limitations, described in section 965(b)(1), (2), and (3), on the amount of dividends that a corporation that is a U.S. shareholder of a controlled foreign corporation may treat as eligible for the dividends received deduction under section 965(a) (DRD or section 965(a) DRD), including the effects of certain transactions on such limitations.

The Treasury Department and the Internal Revenue Service (IRS) intend to issue additional guidance concerning section 965 to address certain issues arising with respect to a U.S. corporation’s computation of its tax liability, including the availability of foreign tax credits, when section 965 is applied. The Treasury Department and the IRS expect to issue regulations that incorporate the guidance provided in Notice 2005–10, this notice, and any subsequent guidance addressing section 965.

The remainder of this notice is divided into 14 sections. Section 2 provides background with respect to the issues addressed in this notice. Section 3 sets forth general principles that apply in determining the amount of cash dividends received by a U.S. shareholder that is considered extraordinary for purposes of section 965(b)(2). Section 4 sets forth general principles that apply in determining the maximum amount of dividends eligible under section 965(b)(1) to be taken into account under section 965(a). Section 5 addresses the taxable year to which sec

tion 965 applies. Section 6 then addresses the effects of certain transactions on the determination of a U.S. shareholder’s limitations determined under sections 3 and 4. Section 7 sets forth guidance and principles for determining under section 965(b)(3) the amount of related party indebtedness that reduces the amounts taken into account under section 965(a), including special adjustments made as a result of certain transactions. Section 8 provides guidance regarding the impact of certain transactions on domestic reinvestment plans. Section 9 addresses other issues arising under section 965, including the application of section 78, the expenses disallowed under section 965(d)(2), and the computation of the alternative minimum tax. Section 10 addresses reporting and other administrative requirements. Section 11 sets forth transition rules that apply to certain taxpayers that, prior to the issuance of this notice, either adopted a domestic reinvestment plan or filed a tax return for a taxable year to which section 965 applies. Section 12 describes the effect of this notice on other documents. Section 13 provides the effective date of this notice, and section 14 provides information required under the Paperwork Reduction Act of 1995. Finally, section 15 provides drafting information.