SECTION 4. PRE-2011 SPLITTER

ARRANGEMENTS

.01 Overview

This section provides an exclusive list of arrangements that will be treated as giving rise to foreign tax credit splitting events for purposes of applying section 909 to pre-2011 taxes and provides guidance on identifying the pre-2011 split taxes and related income with respect to each such arrangement. As noted previously, future guidance may identify additional transactions or arrangements to which section 909 applies (including, for example, additional arrangements involving group relief regimes), although any such guidance will apply only with respect to

to carry out the purposes of section 909, including guidance providing appropriate exceptions from the provisions of section 909 and for its proper application to hybrid instruments. The Joint Committee on Taxation’s technical explanation of the revenue provisions of EJMAA states that such guidance may address the proper application of section 909 in cases involving disregarded payments, group relief, or other arrangements having a similar effect. Staff of the Joint Committee on Taxation, Technical Explanation of the Revenue Provisions of the Senate Amendment to the House Amendment to the Senate Amendment to H.R. 1586, Scheduled For Consideration by the House of Representatives on August 10, 2010, at 6 (August 10, 2010) (the “JCT Explanation”). The JCT Explanation also states that such guidance may provide successor rules addressing circumstances such as when, with respect to a foreign tax credit splitting event, the person who pays or accrues the foreign income tax or any covered person is liquidated. Id.

.02 Effective date

Section 211(c)(1) of EJMAA provides that section 909 applies to foreign income taxes paid or accrued (including foreign income taxes paid or accrued by section 902 corporations) in post-2010 taxable years. Section 211(c)(2) of EJMAA provides that section 909 also applies to pre-2011 taxes, but only for purposes of applying sections 902 and 960 to periods after December 31, 2010. For this purpose, there is no increase to a section 902 corporation’s earnings and profits for the amount of any pre2011 taxes to which section 909 applies that were previously deducted in computing earnings and profits in a pre-2011 taxable year. EJMAA, section 211(c) (flush text).

The JCT Explanation clarifies that the section 902 effective date rule “applies for purposes of applying sections 902 and 960 to dividends paid, and inclusions under section 951(a) that occur, in taxable years beginning after December 31, 2010.” JCT Explanation at 6–7. Consistent with the JCT Explanation, the Treasury Department and IRS intend to issue regulations providing that section 909 does not apply in computing foreign taxes deemed paid under section 902 or 960 before the first

day of the section 902 corporation’s first post-2010 taxable year.

The regulations described in this notice will also provide guidance on the application of the section 909 effective date to situations involving partnerships. Specifically, in the case of a section 902 corporation that is a partner in a partnership, the section 902 corporation’s distributive share of foreign income taxes paid or accrued by the partnership in a pre-2011 taxable year of the partnership that is included in a post-2010 taxable year of the section 902 corporation will be treated as a tax paid or accrued by the section 902 corporation in a post-2010 taxable year. See §§1.702–1(a)(6), 1.706–1(a)(1).

.03 Section 901 Proposed Regulations Issued in 2006

Section 909 was enacted to address concerns about the inappropriate separation of foreign income taxes and related income. These concerns were also the basis for the issuance in 2006 of proposed regulations under section 901 (the “2006 proposed regulations”) concerning the determination of the person who paid a foreign income tax for foreign tax credit purposes. 71 F.R. 44240 (Aug. 4, 2006). The Treasury Department and IRS are evaluating the 2006 proposed regulations following the enactment of section 909. In this regard, the Treasury Department and IRS do not intend to finalize the portion of the 2006 proposed regulations relating to the determination of the person who paid a foreign income tax with respect to the income of a reverse hybrid. See Prop. Reg. §1.901–2(f)(2)(iii). Comments are solicited on whether other portions of the 2006 proposed regulations should be finalized or modified in light of the enactment of section 909.