Part I. Rulings — Internal Revenue Bulletin 2011-30

Section 72.—Annuities; Certain Proceeds of Endowment and Life Insurance Contracts

The revenue procedure modifies and supersedes the guidance provided in Rev. Proc. 2008–24, 2008–13 I.R.B. 684, concerning the treatment under sections 1035 and 72 of the partial exchange of an annuity contract. Specifically, the revenue procedure provides that the direct transfer of a portion of the cash surrender value of an existing annuity contract for a second annuity contract will be treated as a tax-free exchange under section 1035 if no amount, other than an amount received as an annuity for a period of 10 years or more or during one or more lives, is received during the 180 days beginning on the date of the transfer. A subsequent direct transfer of all or a portion of either contract involved in an exchange is not taken into account if the subsequent transfer qualifies (or is intended to qualify) as a tax-free exchange. Other transactions will be characterized consistent with their substance. Prior to this revenue procedure’s effective date, Rev. Proc. 2008–24 will be applied with the clarification that the conditions described in section 4.01(b) or Rev. Proc. 2008–24 will be treated as satisfied if the condition was satisfied on the date of the withdrawal or surrender. See Rev. Proc. 2011-38, page 66.

Section 803.—Life Insurance Gross Income

Life insurance gross income; original issue discount. This ruling concludes that the 1994 publication of regulations concerning original issue discount (OID) rendered obsolete Rev. Rul. 58–225, 1958–1 C.B. 258, which held that a life insurance company must include in taxable income the amount of interest collected in advance under policyholder loans. Rev. Rul. 58–225 obsoleted.

Rev. Rul. 2011–15

Rev. Rul. 58–225, 1958–1 C.B. 258, concluded that interest collected in advance by a life insurance company on policyholder loans (“prepaid interest”) constitutes taxable income in the year received. In general, under the final original issue discount (“OID”) regulations that were published in 1994 (T.D. 8517, 1994–1 C.B. 38 [59 FR 4799]), a payment of an amount designated as “prepaid interest” is not includible in the holder’s

taxable income in the year received. For example, see § 1.1273–2(g)(2) of the Income Tax Regulations (certain payments made at the inception of a loan reduce the issue price of the loan and, in effect, are includible in taxable income over the term of the loan). Consequently, the final OID regulations have made Rev. Rul. 58–225 obsolete.

EFFECT ON OTHER DOCUMENTS

Rev. Rul. 58–225 is obsolete.

DRAFTING INFORMATION

The principal author of this revenue ruling is Donald J. Drees, Jr. of the Office of the Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue ruling, contact Mr. Drees at (202) 622–3970 (not a toll-free call).

Section 1035.—Certain Exchanges of Insurance Policies

Section 6038A.—Infor- mation With Respect to Certain Foreign-Owned Corporations

26 CFR 1.6038A–1: General requirements and defi- nitions.

T.D. 9529

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Requirements for Taxpayers Filing Form 5472

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

SUMMARY: This document contains temporary regulations that remove the duplicate filing requirement for Form 5472, “ In- formation Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corpora- tion Engaged in a U.S. Trade or Business. ” The temporary regulations affect certain 25-percent foreign-owned domestic corporations and certain foreign corporations that are engaged in a trade or business in the United States that are required to file Form 5472. The text of the temporary regulations also serves as the text of the proposed regulations (REG-101352–11) set forth in this issue of the Bulletin.

DATES: Effective Date: These regulations are effective June 10, 2011.

Applicability Date: For dates of applicability, see §§1.6038A–1T(n) and 1.6038A–2(h).

FOR FURTHER INFORMATION CONTACT: Gregory A. Spring, (202) 435–5265 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Section 6038A of the Internal Revenue Code (Code) generally requires

2011–30 I.R.B. 57 July 25, 2011

in §1.6038A–2(d) is no longer necessary. Upon the effective date of these temporary regulations, the duplicate filing of Form 5472 will no longer be required regardless of whether the reporting corporation files a paper or an electronic income tax return. The temporary regulations implement this change by removing from §1.6038A–2(d), the duplicate filing requirement and the electronic filing provision.

As a conforming amendment, the temporary regulations also remove the duplicate filing requirement from the untimely filed return provision of §1.6038A–2(e). In addition, the temporary regulations remove the reference in §1.6038A–2(e) to “at the service center where the return is due” in order to avoid any implication that the untimely filed return provision can only be satisfied by filing a paper Form 5472. However, while the Treasury Department and the IRS intend that a timely filed electronic Form 5472 would be treated as satisfying the untimely filed return provision, there are currently no procedures for electronically filing Form 5472 independent of an electronically filed income tax return. Thus, a reporting corporation that does not timely file an income tax return must still timely file a paper Form 5472 in order to satisfy the untimely filed return provision. If the IRS institutes procedures for the separate electronic filing of Form 5472, reporting corporations will no longer be required to file a paper Form 5472 when filing the Form 5472 separate from an income tax return.

Lastly, the temporary regulations amend the effective date provisions of §1.6038A–1(n) to provide that the amendments to §1.6038A–2(d) and (e) apply for taxable years ending on or after June 10, 2011. The text of the temporary regulations also serves as the text of the proposed regulations set forth in this issue of the Bulletin.

Special Analysis

It has been determined that these temporary regulations are 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 U.S.C. chapter

information reporting by a 25-percent foreign-owned domestic corporation with respect to certain transactions between such corporation and certain related parties. Similarly, section 6038C generally requires a foreign corporation engaged in a trade or business within the United States at any time during the taxable year to report the information described in section 6038A with respect to certain transactions between such corporation and certain related parties.

On June 19, 1991, the Treasury Department and the IRS published in the Federal Register (56 FR 28056) final regulations (T.D. 8353, 1991–2 C.B. 402) under section 6038A (1991 final regulations). A correction to T.D. 8353 was published in the Federal Register (56 FR 41792) on August 23, 1991. The 1991 final regulations contained guidance under a number of provisions including §§1.6038A–1 and 1.6038A–2 regarding information reporting requirements under sections 6038A and 6038C. Section 1.6038A–1(c)(1) defines a reporting corporation as: (i) a domestic corporation that is 25-percent foreign-owned; (ii) a foreign corporation that is 25-percent foreign-owned and engaged in trade or business within the United States; or (iii) (after November 4, 1990) a foreign corporation engaged in a trade or business within the United States at any time during a taxable year. Section 1.6038A–2(a)(1) generally requires a reporting corporation to file a separate annual information return on Form 5472, “ Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business,” with respect to each related party with which the reporting corporation has had any reportable transaction during the taxable year. Section 1.6038A–2(d) requires a reporting corporation to file Form 5472 with its income tax return for the taxable year by the due date of that return. Section 1.6038A–2(d) also requires a reporting corporation to file a duplicate Form 5472 with the Internal Revenue Service Center in Philadelphia, PA (duplicate filing requirement). Section 1.6038A–2(e) provides that if a reporting corporation’s income tax return is not timely filed, Form 5472 nonetheless is required to be filed (with a duplicate to the Internal Revenue Service Center in Philadelphia, PA) at

the service center where the return is due (untimely filed return provision). When the income tax return is ultimately filed, a copy of Form 5472 must be attached to the return.

On February 9, 2004, the Treasury Department and the IRS published in the Federal Register (69 FR 5931) final regulations and temporary regulations (2004 temporary regulations) (T.D. 9113, 2004–1 C.B. 524) under section 6038A regarding the duplicate filing requirement. The text of the 2004 temporary regulations also served as the text of proposed regulations (REG–167217–03, 2004–1 C.B. 540) set forth in the proposed rules section of the same issue of the Federal Register (69 FR 5940–01) (2004 proposed regulations). The 2004 temporary regulations provided that the duplicate filing requirement of §1.6038A–2(d) is satisfied if Form 5472 is timely filed electronically (electronic filing provision). The 2004 temporary regulations did not add a conforming electronic filing provision to §1.6038A–2(e) (containing the untimely filed return provision) because the electronic filing of Form 5472 other than as an attachment to an electronically filed income tax return was not technically possible at the time the 2004 temporary regulations were published. However, the preamble to the 2004 temporary regulations states that the Treasury Department and the IRS intend that a Form 5472 that is timely and separately filed electronically, once technically possible, would be treated as satisfying the duplicate filing requirement of §1.6038A–2(e).

On September 15, 2004, the Treasury Department and the IRS published in the Federal Register (69 FR 55499–02) final regulations (T.D. 9161, 2004–2 C.B. 704) that adopted the 2004 proposed regulations without change (2004 final regulations). As part of the 2004 final regulations, §1.6038A–1(n)(2) (providing effective dates) was also amended to indicate that the electronic filing provision applies for taxable years ending on or after January 1, 2003. T.D. 9161 also removed the text of the 2004 temporary regulations.

Explanation of Provisions

As a result of advances in electronic processing and data collection in the IRS, the duplicate filing requirement contained

July 25, 2011 58 2011–30 I.R.B.

- - - Par. 5. Section 1.6038A–2T is added to read as follows:

§1.6038A–2T Requirement of return .

(a) through (c) [Reserved]. For further guidance, see §1.6038A–2(a) through (c).

(d) Time for filing returns . A Form 5472 required under this section must be filed with the reporting corporation’s income tax return for the taxable year by the due date (including extensions) of that return.

(e) Untimely filed return . If the reporting corporation’s income tax return is untimely filed, Form 5472 nonetheless must be timely filed. When the reporting corporation’s income tax return is ultimately filed, a copy of Form 5472 must be attached.

(f) through (h) [Reserved]. For further guidance, see §1.6038A–2(f) through (h).

(i) Expiration date . The applicability of this section expires on June 10, 2014.

Steven T. Miller, Deputy Commissioner for Services and Enforcement.

Approved May 2, 2011.

Emily S. McMahon, (Acting) Assistant Secretary for the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on June 9, 2011, 8:45 a.m., and published in the issue of the Federal Register for June 10, 2011, 76 F.R. 33997)

does not apply to these regulations. For the applicability of the Regulatory Flexibility Act (5 U.S.C chapter 6) refer to the Special Analyses section of the preamble of the cross-referenced notice of proposed rulemaking published in this issue of the Bulletin. 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.

Drafting Information

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

- - - -

Amendments to the Regulations

Accordingly, 26 CFR part 1 is 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 * * * Par. 2. Section 1.6038A–1 is amended by revising paragraph (n)(2) to read as follows:

§1.6038A–1 General requirements and definitions .

- - - (n) - - (2) [Reserved]. For further guidance, see §1.6038A–1T(n)(2).
- - - Par. 3. Section 1.6038A–1T is added to read as follows:

§1.6038A–1T General requirements and definitions .

(a) through (n)(1) [Reserved]. For further guidance, see §1.6038A–1(a) through (n)(1).

(2) Section 1.6038A–2 . Section 1.6038A–2 (relating to the requirement to file Form 5472) generally applies for taxable years beginning after July 10, 1989. However, §1.6038A–2 as it applies to reporting corporations whose sole trade or business in the United States is a banking, financing, or similar business as defined in §1.864–4(c)(5)(i) applies for taxable years beginning after December 10, 1990. Section 1.6038A–2(d) and (e) apply for taxable years ending on or after June 10, 2011. For taxable years ending prior to June 10, 2011, see §1.6038A–2(d) and (e) as contained in 26 CFR part 1 revised as of September 15, 2004.

(n)(3) through (n)(6) [Reserved]. For further guidance, see §1.6038A–1(n)(3) through (6).

(o) Expiration date . The applicability of this section expires on June 10, 2014.

Par. 4. Section 1.6038A–2 is amended by revising paragraphs (d) and (e) to read as follows:

§1.6038A–2 Requirement of return .

- - - (d) [Reserved]. For further guidance, see §1.6038A–2T(d).

(e) [Reserved]. For further guidance, see §1.6038A–2T(e).

2011–30 I.R.B. 59 July 25, 2011