Part IV. Items — Internal Revenue Bulletin 2009-28

Withdrawal of Notice of Proposed Rulemaking and Notice of Proposed Rulemaking by Cross-Reference to Temporary Regulations

Guidance Under Section 7874 Regarding Surrogate Foreign Corporations

REG–112994–06

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of notice of proposed rulemaking and notice of proposed rulemaking by cross-reference to temporary regulations.

SUMMARY: In this issue of the Bulletin, the IRS and the Treasury Department are issuing temporary regulations (T.D. 9453) concerning the treatment of a foreign corporation as a surrogate foreign corporation under section 7874(a)(2)(B) of the Internal Revenue Code (Code). The temporary regulations primarily affect domestic corporations and partnerships (and certain parties related thereto), and certain foreign corporations that acquire substantially all of the properties of such domestic corporations or partnerships. The text of the temporary regulations serves as the text of these proposed regulations.

DATES: Written or electronic comments and requests for a public hearing must be received by September 10, 2009.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG–112994–06), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–112994–06), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20224, or sent electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS REG–112994–06).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, S. James Hawes at (202) 622–3860; concerning submissions of comments and a request for a public hearing, contact Funmi Taylor at (202) 622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

The temporary regulations in this issue of the Bulletin amend the Income Tax Regulations (26 CFR part 1) relating to section 7874 of the Code. The temporary regulations address certain issues relating to the treatment of a foreign corporation as a surrogate foreign corporation under section 7874(a)(2)(B). The text of the temporary regulations serves as the text of these proposed regulations, and the preamble to the temporary regulations explains these proposed regulations.

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 has also been determined that section 553(b) of the Administrative Procedure Act (5 USC Chapter 5) does not apply to these regulations. These regulations do not impose a collection of information. Pursuant to the Regulatory Flexibility Act (5 USC chapter 6), it is hereby certified that this regulation will not have a significant economic impact on a substantial number of small entities. The complexity and cost of a transaction to which section 7874 may apply make it unlikely that a substantial number of small entities will engage in such a transaction. In addition, any economic impact to entities affected by section 7874, large or small, is derived from the operation of the statute or its intended application, not the regulations in this notice of proposed rulemaking. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

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 the Treasury Department request comments on the clarity of the proposed rules 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 by any person who timely submits comments. If a public hearing is scheduled, notice of the date, time and place for the public hearing will be published in the Federal Register .

Drafting Information

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

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Withdrawal of Notice of Proposed Rulemaking

Accordingly, under the authority of 26 USC 7805, the notice of proposed rulemaking (E6–8698) that was published in the Federal Register on June 6, 2006 (71 FR 32495) is withdrawn.

Proposed Amendments to the Regulations

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

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * * Section 1.7874–2 is also issued under 26 U.S.C. 7874(c)(6) and (g). - * * Par. 2. Section 1.7874–1 is amended by revising paragraphs (e) and (g) to read as follows:

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network that possesses taxpayer data or sensitive authentication data.

If scan reports reveal vulnerabilities, action shall be taken to address the vulnerabilities in line with the scan report’s recommendations. Retain weekly scan reports for at least one year. The ASV and the host (if present) shall be located in the United States.

Information Privacy and Safeguard Policies

This standard applies to Authorized IRS e-file Providers participating in Online Filing of individual income tax returns that own or operate a Web site through which taxpayer information is collected, transmitted, processed or stored. These Providers shall have written information privacy and safeguard policy consistent with the applicable government and industry guidelines. In addition, Providers’ shall acquire, maintain, and display a license/accreditation seal from a consumer protection and privacy seal vendor acceptable to the IRS. The list of acceptable vendors will be made available on www.irs.gov .

Protection Against Bulk Filing of Fraudulent Income Tax Returns

This standard applies to Authorized IRS e-file Providers participating in Online Filing of individual income tax returns that own or operate a Web site through which taxpayer information is collected, transmitted, processed or stored. These Providers shall implement effective state-of-the-art technologies to protect their Web site against bulk filing of fraudulent income tax returns. Taxpayer information shall not be collected, transmitted, processed or stored otherwise.

Public Domain Name Registration

This standard applies to Authorized IRS e-file Providers participating in Online Filing of individual income tax returns that own or operate a Web site through which taxpayer information is collected, transmitted, processed or stored. These Providers shall have their Web site’s domain name registered with a domain name registrar that is located in the United States and accredited by the Internet Corporation for Assigned Names and Numbers

§1.7874–1 Disregard of affiliate-owned stock .

- - - (e) [The text of the proposed amendments to §1.7874–1(e) is the same as the text of §1.7874–1T(e) published elsewhere in this issue of the Bulletin].
- - - (g) [The text of the proposed amendment to §1.7874–1(g) is the same as the text of §1.7874–1T(g) published elsewhere in this issue of the Bulletin].

Par. 3. Section 1.7874–2 is added to read as follows:

§1.7874–2 Surrogate foreign corporation .

[The text of proposed §1.7874–2 is the same as the text of §1.7874–2T(a) through (o) published elsewhere in this issue of the Bulletin].

Linda E. Stiff, Deputy Commissioner for Services and Enforcement.

(Filed by the Office of the Federal Register on June 9, 2009, 11:15 a.m., and published in the issue of the Federal Register for June 12, 2009, 74 F.R. 27947)

Proposed Security, Privacy, and Business Standards for Authorized IRS e-file Providers participating in Online Filing of individual income tax returns

Announcement 2009–56

The IRS has developed six (6) new security, privacy, and business standards to better serve taxpayers and protect their information collected, processed and stored by Authorized IRS e-file Providers (Providers) participating in Online Filing of individual income tax returns.

These new standards are intended to supplement the Gramm-Leach-Bliley Act and the implementing rules and regulations promulgated by the Federal Trade Commission. These standards have previously been reviewed by our outside technical consultants, vetted internally, presented at two consecutive IRS Software Developers conferences, and posted on irs.gov for comments.

The security and privacy objectives of these standards are: setting minimum

encryption standards for transmission of taxpayer information over the internet and authentication of Web site owners/operators beyond that offered by standard version SSL certificates; periodic external vulnerability scan of the taxpayer data environment; protection against bulk-filing of fraudulent tax returns; and the ability to timely isolate and investigate potentially compromised taxpayer information. These standards also address certain customer service objectives such as instant access to Web site owner/operator’s contact information, and e-file Providers commitment to maintaining physical, electronic, and procedural safeguards that comply with applicable law and federal standards.

Extended Validation SSL Certificate

This standard applies to Authorized IRS e-file Providers participating in Online Filing of individual income tax returns that collect taxpayer information via the Internet. These Providers shall possess a valid and current Extended Validation Secure Socket Layer (SSL) certificate using SSL 3.0 / TLS 1.0 or later, and minimum 1024-bit RSA / 128-bit AES.

External Vulnerability Scan

This standard applies to Authorized IRS e-file Providers participating in Online Filing of individual income tax returns that collect, transmit, process, or store taxpayer information. These Providers shall contract with an independent third-party vendor to run weekly external network vulnerability scans of all their “system components” in accordance with the applicable requirements of the Payment Card Industry Data Security Standards (PCIDSS). All scans shall be performed by a scanning vendor certified by the Payment Card Industry Security Standards Council and listed on their current list of Approved Scanning Vendors (ASV). In addition, Providers whose systems are hosted shall ensure that their host complies with all applicable requirements of the PCIDSS.

For the purposes of this standard, “system components” is defined as any network component, server, or application that is included in or connected to the taxpayer data environment. The taxpayer data environment is that part of the

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Provider shall cease collecting taxpayer information via their Web site immediately upon detection of the incident and until the underlying causes of the incident are successfully resolved.

Comments may be submitted electronically to new.efile.requirements@irs.gov on or before September 15, 2009. Please include “Announcement 2009–56” in the subject line of any electronic communications.

(ICANN). The domain name shall be locked and not be private.

Reporting of Security Incidents

This standard applies to Authorized IRS e-file Providers participating in Online Filing of individual income tax returns that collect, transmit, process, or store taxpayer information. These Providers shall report security incidents to the IRS as soon as

possible but not later than the next business day after confirmation of the incident. For the purposes of this standard, an event that can result in an unauthorized disclosure, misuse, modification, or destruction of taxpayer information shall be considered a reportable security incident. Detail instructions for submitting incident reports will be made available on www.irs.gov

In addition, if the Provider’s Web site is the proximate cause of the incident, the

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