The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collections of information should be sent to the Office of Management and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the collections of information should be received by July 24, 2006. Comments are specifically requested concerning:

Whether the proposed collections of information are necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility;

The accuracy of the estimated burdens associated with the proposed collections of information (see below);

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burdens of complying with the proposed collections of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

The collections of information in these proposed regulations are in §§1.904-7(f)(9) and 1.964-1(c)(3)(ii). This information is required to enable the IRS to verify that taxpayers that make certain elections (described in the Background section of this document) applied the appropriate separate foreign tax credit limitation rules to dividends from noncontrolled section 902 corporations, and, in the case of shareholders making certain tax elections on behalf of a controlled foreign corporation or noncontrolled section 902 corporation, the shareholders complied with the applicable regulations concerning such elections. The collections of information are mandatory. The respondents are domestic shareholders of noncontrolled section 902 corporations and controlled foreign corporations.

Estimated total annual reporting burden: 25 hours.

The estimated annual burden per respondent is a half hour.

Estimated number of respondents: 50.

The estimated annual frequency of responses: on occasion.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103.

Temporary regulations in this issue of the Bulletin provide rules concerning the application of separate foreign tax credit limitations to dividends received from noncontrolled section 902 corporations (10/50 corporations) under section 904(d)(4). Section 403 of the American Jobs Creation Act of 2004, Public Law 108-357, 118 Stat. 1418 (October 22, 2004) (AJCA), modified the treatment of such dividends effective for taxable years beginning after December 31, 2002 (post-2002 taxable years). Section 403(l) of the Gulf Opportunity Zone Act of 2005, Public Law 109-135, 119 Stat. 2577 (December 22, 2005) (GOZA), permits taxpayers to elect to defer the effective date of the AJCA amendments until taxable years beginning after December 31, 2004 (post-2004 taxable years). The temporary regulations provide guidance needed to comply with these changes. The text of the temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations and these proposed regulations.

The collections of information in these proposed regulations are in §§1.904-7(f)(9) and 1.964-1(c)(3). Section 1.904-7(f)(9)(ii) provides that a taxpayer electing to defer the effective date of the AJCA amendments until post-2004 taxable years must attach a statement to its next tax return for which the due date (with extensions) is more than 90 days after April 20, 2006. This statement must indicate that the taxpayer elects not to apply the provisions of section 403 of the AJCA to taxable years of its noncontrolled section 902 corporations beginning in 2003 and 2004 and that the taxpayer has filed original returns or will file amended returns reflecting tax liabilities for all affected years that satisfy the requirements described in §1.904-7(f)(9)(ii).

Section 1.964-1(c)(2) and (3) provides that the controlling United States shareholders of a controlled foreign corporation, and the majority domestic corporate shareholders of a noncontrolled section 902 corporation, may make an election, or adopt or change a method of accounting or taxable year, on behalf of the foreign corporation. Section 1.964-1(c)(3)(ii) requires that a jointly executed statement evidencing the controlling shareholders’ consent to the election, or change in method of accounting or taxable year of the foreign corporation, be retained by one or more of the shareholders, and that each controlling shareholder file a separate statement with its tax return for the taxable year with or within which the foreign corporation’s taxable year ends.

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 also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6), does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, these proposed regulations will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small businesses.

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 Treasury Department request comments on the clarity of the proposed regulations 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 in writing by a 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 for part 1 continues to read in part as follows:

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

Par. 2. In §1.861-9, paragraph (f) is revised to read as follows: