SECTION 2. BACKGROUND

Section 951(a)(1) requires that a United States shareholder of a controlled foreign corporation include in gross income for his taxable year in which or with which such taxable year of the corporation ends certain amounts including the amount determined under section 956 with respect to such shareholder for such year. Section 951(a)(1)(B). The amount determined under section 956 is generally the lesser of (i) the excess (if any) of the United States shareholder’s pro rata share of the average of the amounts of United States property held (directly or indirectly) by the controlled foreign corporation as of the close of each quarter of the controlled foreign corporation’s taxable year over the amount of earnings and profits described in section 959(c)(1)(A) with respect to such shareholder or (ii) the United States shareholder’s pro rata share of the applicable earnings (as defined in section 956(b)(1)) of such controlled foreign corporation. Section 956(a).

The term United States property includes an obligation of a United States person, excluding, however:

an obligation of a United States person to the extent the principal amount of the obligation does not exceed the fair market value of readily marketable securi- ties sold or purchased pursuant to a sale and repurchase agreement or otherwise posted or received as collateral for the obligation in the ordinary course of its business by a United States or foreign person which is a dealer in securities or commodities. Section 956(c)(2)(J) (emphasis added).

Current market conditions and liquidity constraints are creating some uncertainty regarding whether a security is “readily marketable” for purposes of section 956(c)(2)(J). For example, the market for certain securities that were readily marketable in the past has become severely curtailed. As a result, there is uncertainty whether many securities are readily marketable in the current economic environment even though they are of a type that are readily marketable under ordinary market conditions. In response to taxpayers’ concerns, this revenue procedure provides certainty to taxpayers by setting forth circumstances under which the Service will not challenge whether a security is “readily marketable” for purposes of section 956(c)(2)(J) to the extent that it is of a type that would be readily marketable under ordinary market conditions.