Temporary regulations in this issue of the Bulletin provide guidance regarding the determination of basis for property acquired in certain nonrecognition transactions that repatriate earnings and profits of a controlled foreign corporation but are structured with the intent to avoid an income inclusion by the United States shareholders of the controlled foreign corporation under section 951(a)(1)(B). This avoidance is achieved by the use of the basis rules under section 362(a) for the acquisition by the controlled foreign corporation of certain stock or obligations that constitute United States property within the meaning of section 956(c).

The text of those regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations and these proposed regulations.

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. Pursuant to the Regulatory Flexibility Act (RFA) (5 U.S.C. chapter 6), it is hereby certified that these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these regulations will affect primarily large multi-national United States corporations that own a significant interest in foreign corporations that acquire certain United States property in a transaction subject to the regulations. Accordingly, a regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the Code, this regulation has been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small entities.

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 continue to consider, outside the context of section 956, the appropriate basis of stock or obligations issued by a transferor in the hands of the transferee as determined under section 362. The IRS and the Treasury Department are also considering whether any additional rules are necessary or appropriate to coordinate the section 956 basis determinations under these regulations with basis determinations under other provisions of the Code or regulations. Comments are requested in this regard. 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 hearing will be published in the Federal Register.

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

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.956-1 is amended by adding a sentence to the end of paragraph (e)(1) and adding new paragraphs (e)(5), (e)(6) and (f) to read as follows: