For Tax Professionals  
REG-209035-86 June 24, 1998

Foreign Liquidations & Reorganizations

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-209035-86] RIN 1545-AI32

TITLE: Foreign Liquidations and Reorganizations

AGENCY: Internal Revenue Service (IRS), Treasury

ACTION: Amendment to notice of proposed rulemaking.

SUMMARY: This document removes from an existing (1991) notice of
proposed rulemaking the special (August 26, 1991) effective date
rule for the definition of the all earnings and profits amount.

The IRS and the Treasury Department believe that issues regarding
the all earnings and profits amount should be studied; thus, when
final regulations under section 367(b) are issued with respect to
the all earnings and profits amount, such regulations will have a
prospective effective date. This modification may affect domestic
corporations in connection with an acquisition of a foreign
corporation in a liquidation described in section 332 or in an asset
acquisition described in section 368(a)(1)).

DATES: Written comments must be received by September 17, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-209035-86), Room
5228, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. In the alternative, submissions may be hand
delivered between the hours of 8 a.m. and 5 p.m. to:

CC:DOM:CORP:R (REG-209035-86), Courier's Desk, Internal Revenue
Service, 1111 Constitution Ave. NW., Washington, DC..2 FOR FURTHER
INFORMATION CONTACT: Philip L. Tretiak at (202) 622- 3860 (not a
toll-free call).

SUPPLEMENTARY INFORMATION:

Background

Section 367(b) was enacted in its current form by the Tax Reform Act
of 1976. On December 27, 1977, proposed and temporary regulations
7.367(b)-1 through 7.367(b)-12 were adopted (TD 7530, 1978-1 C.B.
92). Prior to the issuance of a notice of proposed rulemaking in
1991 (the 1991 proposed regulations), discussed below, the
regulations under section 367(b) were amended on several occasions.
The 1991 proposed regulations, which were published in the Federal
Register on August 26, 1991 (56 FR 41993), propose to completely
revise the regulations under section 367(b), as well as the rules
under section 367(a) with respect to certain transfers of stock or
securities by U.S.
persons to foreign corporations.

Section 1.367(b)-6(a) of the proposed regulations provides that the
rules contained in the section 367(b) proposed regulations will be
effective for exchanges that occur on or after the date that is 30
days after final regulations are published. However, an exception to
the general effective date provides that 1.367(b)-2(d) (relating to
the definition and computation of the "all earnings and profits
amount") is effective for exchanges that occur on or after August
26, 1991.

A package of final regulations, published elsewhere in this issue of
the Federal Register, contains final rules with respect.3 to the
section 367(a) portion of the 1991 proposed regulations (to the
extent that such rules were not previously finalized) and final
rules with respect to the section 367(b) portion of the 1991
proposed regulations, but generally only to the extent that a
particular transaction is subject to both sections 367(a) and (b).
The final regulations do not address the all earnings and profits
amount.

The IRS and the Treasury Department believe that issues regarding
the all earnings and profits amount should be studied before final
regulations are promulgated. Moreover, the IRS and the Treasury
Department believe that the final regulations concerning the all
earnings and profits amount should not be subject to a special
effective date. Thus, this notice of proposed rulemaking removes
from the 1991 proposed regulations the special (August 26, 1991)
effective date rule for the definition of the all earnings and
profits amount. When final regulations under section 367(b) are
issued with respect to the all earnings and profits amount, such
regulations will have a prospective effective date.

Special Analysis

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 this regulation does not have a
significant impact on small entities because this regulation, which
only contains a limited effective date rule, impacts only U.S.
corporations with investments in foreign corporations. Thus, the
Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply to
these regulations, and therefore, a Regulatory Flexibility Analysis
is not required. Pursuant to section 7805(f) of the Internal Revenue
Code, this notice of proposed rulemaking will be submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comment on its impact on small business.

Comments

Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed
original and eight (8) copies) that are submitted timely to the
Internal Revenue Service. All comments will be available for public
inspection and copying.

Drafting Information

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

List of Subjects in 26 CFR Part 1

Income tax, Reporting and recordkeeping requirements.

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. * * * 1.367(b)-6 [Amended]

Par. 2. Section 1.367(b)-6, as proposed to be added on Monday,
August 26, 1991 (56 FR 42015), is amended by removing the last
sentence of paragraph (a).

Michael P. Dolan
Deputy Commissioner of Internal Revenue


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