Part IV. Items — Internal Revenue Bulletin 2006-23

Notice of Proposed Rulemaking by Cross-Reference to Temporary Regulations

Application of Separate Limitations to Dividends From Noncontrolled Section 902 Corporations

REG–144784–02

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations.

SUMMARY: In this issue of the Bulletin, the IRS is issuing temporary regulations (T.D. 9260) that provide guidance needed to comply with amendments enacted by the American Jobs Creation Act of 2004, Public Law 108–357, 118 Stat. 1418 (October 22, 2004) (AJCA) and the Gulf Opportunity Zone Act of 2005, Public Law 109–135, 119 Stat. 2577 (December 22, 2005) (GOZA), concerning the treatment of dividends from noncontrolled section 902 corporations. The AJCA modified the treatment under section 904(d)(4) of dividends from noncontrolled section 902 corporations effective for taxable years beginning after December 31, 2002. GOZA permits taxpayers to elect to defer the effective date of the AJCA amendments until taxable years beginning after December 31, 2004. The temporary regulations affect domestic corporations that own stock in foreign corporations and that claim foreign tax credits. The text of those temporary regulations published in this issue of the Bulletin also serves as the text of these proposed regulations.

DATES: Written and electronic comments and requests for a public hearing must be received by July 24, 2006.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG–144784–02), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,

Washington, DC 20044. Submissions may be hand-delivered between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–144784–02), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or sent electronically via the IRS Internet site at www.irs.gov/regs or via the Federal Rulemaking Portal at www.regulations.gov (IRS and REG–144784–02).

FOR FURTHER INFORMATION CONTACT: Concerning submission of comments, Kelly Banks (202) 622–7180; concerning the regulations, Ginny Y. Chung (202) 622–3850 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in this notice of proposed rulemaking have 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 collections 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 Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collections of information should be received by July 24, 2006. Comments are specifically requested concerning:

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

The accuracy of the estimated burdens associated with the proposed collections of information (see below);

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

How the burdens of complying with the proposed collections 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 collections of information in these proposed regulations are in §§1.904–7(f)(9) and 1.964–1(c)(3)(ii). This information is required to enable the IRS to verify that taxpayers that make certain elections (described in the Background section of this document) applied the appropriate separate foreign tax credit limitation rules to dividends from noncontrolled section 902 corporations, and, in the case of shareholders making certain tax elections on behalf of a controlled foreign corporation or noncontrolled section 902 corporation, the shareholders complied with the applicable regulations concerning such elections. The collections of information are mandatory. The respondents are domestic shareholders of noncontrolled section 902 corporations and controlled foreign corporations.

Estimated total annual reporting burden: 25 hours.

The estimated annual burden per respondent is a half hour.

Estimated number of respondents: 50. The estimated annual frequency of responses: on occasion.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it 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

Temporary regulations in this issue of the Bulletin provide rules concerning the application of separate foreign tax credit limitations to dividends received from noncontrolled section 902 corporations (10/50 corporations) under section 904(d)(4). Section 403 of the American Jobs Creation Act of 2004, Public Law

June 5, 2006 1036 2006–23 I.R.B.

Paragraph 1. The authority for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. In §1.861–9, paragraph (f) is revised to read as follows:

§1.861–9 Allocation and apportionment of interest expense.

- - - (f) [The text of proposed §1.861–9(f) is the same as the text of §1.861–9T(f) published elsewhere in this issue of the Bulletin.]
- - - Par. 3. In §1.861–12, paragraph (c) is revised to read as follows:

§1.861–12 Characterization rules and adjustments for certain assets.

- - - (c) [The text of proposed §1.861–12(c) is the same as the text of §1.861–12T(c) published elsewhere in this issue of the Bulletin.]
- - - Par. 4. In §1.902–1, paragraphs (a), (c), (d) and (g) are revised to read as follows:

§1.902–1 Credit for domestic corporate shareholder of a foreign corporation for foreign income taxes paid by the foreign corporation.

[The text of the proposed amendments to §1.902–1(a), (c), (d), and (g) are the same as the text of §1.902–1T(a), (c), (d), and (g) published elsewhere in this issue of the Bulletin.

- - - Par. 5. In §1.904–2, paragraph (a) is revised and paragraph (h) is added to read as follows:

§1.904–2 Carryback and carryover of unused foreign tax.

[The text of the proposed amendment to §1.904–2(a) and the text of proposed §1.904–2(h) are the same as the text of §1.904–2T(a) and (h) published elsewhere in this issue of the Bulletin.]

Par. 6. In §1.904–4, paragraph (c) is revised to read as follows:

108–357, 118 Stat. 1418 (October 22, 2004) (AJCA), modified the treatment of such dividends effective for taxable years beginning after December 31, 2002 (post-2002 taxable years). Section 403(l) of the Gulf Opportunity Zone Act of 2005, Public Law 109–135, 119 Stat. 2577 (December 22, 2005) (GOZA), permits taxpayers to elect to defer the effective date of the AJCA amendments until taxable years beginning after December 31, 2004 (post-2004 taxable years). The temporary regulations provide guidance needed to comply with these changes. The text of the temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations and these proposed regulations.

The collections of information in these proposed regulations are in §§1.904–7(f)(9) and 1.964–1(c)(3). Section 1.904–7(f)(9)(ii) provides that a taxpayer electing to defer the effective date of the AJCA amendments until post-2004 taxable years must attach a statement to its next tax return for which the due date (with extensions) is more than 90 days after April 20, 2006. This statement must indicate that the taxpayer elects not to apply the provisions of section 403 of the AJCA to taxable years of its noncontrolled section 902 corporations beginning in 2003 and 2004 and that the taxpayer has filed original returns or will file amended returns reflecting tax liabilities for all affected years that satisfy the requirements described in §1.904–7(f)(9)(ii).

Section 1.964–1(c)(2) and (3) provides that the controlling United States shareholders of a controlled foreign corporation, and the majority domestic corporate shareholders of a noncontrolled section 902 corporation, may make an election, or adopt or change a method of accounting or taxable year, on behalf of the foreign corporation. Section 1.964–1(c)(3)(ii) requires that a jointly executed statement evidencing the controlling shareholders’ consent to the election, or change in method of accounting or taxable year of the foreign corporation, be retained by one or more of the shareholders, and that each controlling shareholder file a separate statement with its tax return for the taxable year with or within which the foreign corporation’s taxable year ends.

Special Analyses

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6), does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, these proposed regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small businesses.

Comments and Request for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and Treasury Department request comments on the clarity of the proposed regulations and how they can be made easier to understand. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested in writing by a person who timely submits comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register .

Drafting Information

The principal author of these regulations is Ginny Chung, Office of Associate Chief Counsel (International). However, other personnel from the IRS and the Treasury Department participated in their development.

- - - -

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1 – INCOME TAXES

2006–23 I.R.B. 1037 June 5, 2006

§1.904–4 Separate application of section 904 with respect to certain categories of income.

- - - (c) [The text of the proposed amendments to §1.904–4(c) is the same as the text of §1.904–4T(c) published elsewhere in this issue of the Bulletin.]

Par. 7. In §1.904–5, paragraphs (a), (b), (c), (i), (m), (n), and (o) are revised to read as follows:

§1.904–5 Look-through rules as applied to controlled foreign corporations and other entities.

[The text of the proposed amendments to §1.904–5(a), (b), (c), (i), (m), (n), and (o) are the same as the text of §1.904–5T(a), (b), (c), (i), (m), (n), and (o) published elsewhere in this issue of the Bulletin.]

Par. 8. In §1.904–7, paragraph (f) is added as follows:

§1.904–7 Transition rules.

- - - (f) [The text of proposed §1.904–7(f) is the same as the text of §1.904–7T(f) published elsewhere in this issue of the Bulletin.]

Par. 9. In §1.904(f)–12, paragraph (g) is added as follows:

§1.904(f)–12 Transition rules.

- - - (g) [The text of proposed §1.904(f)–12(g) is the same as the text of §1.904(f)–12T(g) published elsewhere in this issue of the Bulletin.]

Par. 10. In §1.964–1, paragraph (c) is revised to read as follows:

§1.964–1 Determination of the earnings and profits of a foreign corporation.

- - - (c) [The text of proposed §1.964–1(c) is the same as the text of §1.964–1T(c) published elsewhere in this issue of the Bulletin.]

Mark E. Matthews, Deputy Commissioner for Services and Enforcement.

(Filed by the Office of the Federal Register on April 20, 2006, 3:51 p.m., and published in the issue of the Federal Register for April 25, 2006, 71 F.R. 24543)

Foundations Status of Certain Organizations

Announcement 2006–36

The following organizations have failed to establish or have been unable to maintain their status as public charities or as operating foundations. Accordingly, grantors and contributors may not, after this date, rely on previous rulings or designations in the Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices under section 508(b) of the Code. This listing does not indicate that the organizations have lost their status as organizations described in section 501(c)(3), eligible to receive deductible contributions.

Former Public Charities. The following organizations (which have been treated as organizations that are not private foundations described in section 509(a) of the Code) are now classified as private foundations:

Abilities Staffing, Inc., Atlanta, GA Academy for Individual Excellence

Scholarship Foundation, Inc., Louisville, KY Accord Institute, Memphis, TN Agape Resource, Secane, PA Ahead of the Game, Inc., New York, NY Antioch A M E Community Development

Corporation, Inc., Stone Mountain, GA Arthur Smoke Stack Hardy Fire Museum,

Inc., Baltimore, MD Brother’s Keeper Economic Development

Corporation, Missouri City, TX Buckhorn Association of Brooklyn, Inc.,

Brooklyn, NY Capital City Chamber of Commerce

Foundation, Inc., Austin, TX Central Coast Cultural Group, Inc.,

Santa Maria, CA Central New York Cage Bird Club,

Syracuse, NY Charles H. Owens, Sr. Memorial

Scholarship Fund, Inc., Columbia, MD Chickasha Community Foundation, Inc.,

Chickasha, OK C H I L D Initiative, Oak Lawn, IL Clayton Community Learning Center,

Inc., Dover, DE

Coachella Institute for Vocational

Independent Living, Coachella, CA Communities Against Substance Abuse

Foundation, El Cajon, CA Community & Business Resource

Development Corp., East Hazel, IL Congregation Ozer Dalim, Inc.,

Spring Valley, NY Costa Rica-Latin America School

Supplies, Inc., Palm Bay, FL Dayton Chamber Music Society,

Dayton, OH East 23rd Street PAC Neighborhood

Association, Kansas City, MO Faith Keepers, Inc., Chicago, IL Flavin Educational Foundation,

Houston, TX Freightliner Toys for Tots, Gastonia, NC Friends of Napa Airport, Inc., Napa, CA Garnered Grain, Elk Ridge, UT Global Christian Ambassadors, Inc.,

Fremont, CA Global Med Alliance, Inc.,

Lincolnton, NC Good Neighbor Community Development

Corporation, Brooklyn, NY Grasselli Community Development, Inc.,

Birmingham, AL Greater Acadiana Community

Housing Development Organization, Lafayette, LA Growth International Development

Corporation, Memphis, TN H & H Housing, Inc., Los Angeles, CA Healing the Environment, Inc.,

Palm Springs, CA Health Care for All-California Education

Fund, Inc., Berkeley, CA Heart of Gold Child Service Corporation,

Phoenix, AZ House of Peter, Inc., Prescott, AZ Human Service Information Technology

Applications, Arlington, TX Inland Valley Hockey Association,

Riverside, CA It’s Not Your Fault, Inc., Portland, OR Jastay Community Services, Inc.,

Bastrop, LA Jumpstart Pre-School, Los Angeles, CA Living Legacy Farm, Elk Ridge, UT Main Stay Community Network,

Upper Darby, PA Maranatha Corporation, Bakersfield, CA Mariachi Nuestro Orgullo, Henderson, NV Marti Nelson Medical Foundation,

Davis, CA Maui Center for Health Care Education,

Kahului, HI

June 5, 2006 1038 2006–23 I.R.B.

Mauldin Scholarship Fund Account,

N. Little Rock, AR Mayoral Fellows Foundation of

San Diego, Del Mar, CA Mission of Love Care Home, Inc.,

Valdosta, GA Mt. Moriah Community Ministry, Inc.,

Blytheville, AR Namaste International, Allentown, PA National Bicycle Greenway, Palo Alto, CA New York Raptors Special Hockey Club,

Inc., Larchmont, NY Olivias House of Love, Houston, TX One Class at a Time, Fremont, CA Open Hearth Foundation, Rockford, IL Organization for Africans With Diabetes,

Inc., Bronx, NY Our Kids Can Too, Inc.,

West Palm Beach, FL Playground Foundation, Gardonsville, VA Project 2000 - Community Center,

Moses Lake, WA PS & QS Character Education Through

Social Graces, Inc., East Pointe, GA Psalms One Hundred and Fifty

Instrumental Gospel Ensemble of, Stockton, CA Raj & Neelam Modi Charitable Trust,

Inc., Albertson, NY Randy Caldwell Ministries, Inc.,

League City, TX Resurrection Ministries, Texarkana, TX Scottsdale Airpark Rotary Foundation,

Scottsdale, AZ See Spot Fund, Inc., Garden Grove, CA Seniors Learning Together, Inc.,

Apple Valley, MN Serving Seniors, Inc., Dublin, OH Sisters Outreach Foundation, Gretna, LA Southwest Institute of Fitness and

Training, Phoenix, AZ Spay Fund, Inc., Society Hill, SC Students Tutorial Enrichment Program,

Inc., Bowie, MD

Teen Education and Mentoring,

Encinitas, CA United Hope Foundation,

Los Angeles, CA Walk in Love Outreach, Inc., Decatur, GA Western Brown Youth Football

Association, Williamsburg, OH Western US Falun Dafa Association,

San Jose, CA

If an organization listed above submits information that warrants the renewal of its classification as a public charity or as a private operating foundation, the Internal Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors and contributors may thereafter rely upon such ruling or determination letter as provided in section 1.509(a)–7 of the Income Tax Regulations. It is not the practice of the Service to announce such revised classification of foundation status in the Internal Revenue Bulletin.

Deletions From Cumulative List of Organizations Contributions to Which are Deductible Under Section 170 of the Code

Announcement 2006–37

The names of organizations that no longer qualify as organizations described in section 170(c)(2) of the Internal Revenue Code of 1986 are listed below.

Generally, the Service will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer

qualifies. However, the Service is not precluded from disallowing a deduction for any contributions made after an organization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on June 5, 2006, and would end on the date the court first determines that the organization is not described in section 170(c)(2) as more particularly set forth in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.

Budget and Credit Counseling

Services, Inc. New York, NY Felton Dean Minority and Disadvantaged

Youth Sports Foundation, Inc. Lawton, OK Guardian Angel Academy, Inc.

Front Royal, VA Northwest Passage Foundation

Salt Lake City, UT The Paul Revere Society

Mill Valley, CA

2006–23 I.R.B. 1039 June 5, 2006