The U.S. Treasury Department and IRS today released for publication in the Federal Register proposed regulations (REG-125135-15) regarding the attribution of ownership of stock or other interests for purposes of determining whether a person is a related person with respect to a controlled foreign corporation (CFC) under section 954(d)(3). The proposed regulations also provide rules for determining whether a CFC is considered to derive rents in the active conduct of a trade or business for purposes of computing foreign personal holding company income (FPHCI).
Read the proposed regulations [PDF 298 KB]
Comments or requests for a public hearing are due within 60 days of May 20, 2019 (the date when these proposed regulations will appear in the Federal Register).
The preamble to the proposed regulations explains that because of a lack of guidance in existing regulations, the proposed regulations would revise the existing regulations under section 954(d)(3) to provide some specific guidance on the application of principles similar to the constructive ownership rules in section 958(b).
The proposed regulations also would revise rules under section 954(c). FPHCI (defined in section 954(c)) generally includes rents. However, rents are excluded from FPHCI if they are received from a person other than a related person and derived in the active conduct of a trade or business within the meaning of section 954(c)(2)(A) and Reg. section 1.954-2(c) (the active rents exception). The preamble to today’s proposed regulations explains that the rules under section 954(c) would be revised to provide guidance on the treatment of amounts (including royalties) paid or incurred by a CFC in connection with the CFC’s rental income for purposes of the active rents exception.
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