SECTION 1. OVERVIEW

This notice is the third in a series of items of published guidance regarding new section 965 of the Internal Revenue Code (Code). This notice supplements the guidance set forth in Notice 2005–10, 2005–6 I.R.B. 474, which primarily addressed the requirements for a domestic reinvestment plan described in section 965(b)(4), and Notice 2005–38, 2005–22 I.R.B. 1100, which primarily addressed the limitations described in section 965(b)(1), (2), and (3) on the amount of dividends eligible for the dividends received deduction under section 965(a), including the effects of certain acquisitions, dispositions, and similar transactions on those limitations. This notice sets forth guidance on various issues arising under section 965, including issues relating to the foreign tax credit and minimum tax credit, expense allocation and apportionment, and currency translation. The Treasury Department and the Internal Revenue Service (IRS) expect to issue regulations that incorporate the guidance provided in Notice 2005–10, Notice 2005–38, this notice, and any subsequent guidance that may be issued addressing section 965.

The remainder of this notice is divided into 14 sections. Section 2 provides background with respect to the issues discussed in this notice. Section 3 provides guidance on the identification of cash dividends and qualifying dividends and foreign currency translation rules for certain cash dividends. Section 4 provides guidance on the disallowance of a credit or deduction under section 965(d)(1) for foreign taxes paid or accrued with respect to the deductible portion of section 965 dividends and related issues arising under section 78. Section 5 provides guidance on the disallowance of deductions for certain expenses under section 965(d)(2). Section 6 provides rules for the treatment of deductions related to sec

tion 904(d) separate categories containing qualifying dividends. Section 7 then provides guidance on the limitation under section 965(e)(2) that prevents the reduction of taxable income below the amount of nondeductible CFC dividends. Section 8 addresses the application of the overall foreign loss and separate limitation loss allocation and recapture rules of section 904(f) to taxpayers with nondeductible CFC dividends. Section 9 provides rules for implementing the restrictions under section 965(e)(1) on the use of credits to offset U.S. tax on nondeductible CFC dividends, in part through the application of an additional foreign tax credit limitation that is applied after expenses and losses are allocated and the regular section 904(d) limitation is calculated, and provides rules relating to the computation of alternative minimum tax and the credit for prior year minimum tax in the election year. Section 10 then addresses other issues arising under section 965, including the treatment of dividends paid to certain intermediary pass-through entities for purposes of determining base period inclusions under section 965(b)(2)(B)(i). Section 11 sets forth transition rules that apply to certain taxpayers that approved a domestic reinvestment plan or filed a tax return for a taxable year to which section 965 applies prior to the issuance of this notice. 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.