n-07-95.pdf

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Part III - Administrative, Procedural, and Miscellaneous

Effective Dates of Regulations under Section 901

Notice 2007-95

PURPOSE

The purpose of this Notice is to provide guidance relating to the effective dates of
final regulations to be issued under section 901.
BACKGROUND
On August 3, 2006, the Internal Revenue Service (IRS) and Treasury
Department issued proposed regulations that would provide guidance relating to the
determination of who is considered to pay a foreign tax for purposes of section 901 and
section 903. In particular, the proposed regulations would provide guidance under
section 1.901-2(f) relating to the person on whom foreign law imposes legal liability for
tax, including in the case of taxes imposed on the income of foreign consolidated
groups and entities that have different classifications for U.S. and foreign tax law
purposes. The proposed regulations provide that the final regulations will be effective
for foreign taxes paid or accrued during taxable years of the taxpayer beginning on or
after January 1, 2007. The IRS and Treasury Department have received written
comments on the proposed regulations and held a hearing on the proposed regulations
on October 13, 2006.
On March 29, 2007, the IRS and Treasury Department issued proposed

regulations that would provide guidance under section 1.901-2(e)(5) relating to the
amount of taxes paid for purposes of section 901. The proposed regulations would
revise section 1.901-2(e)(5) in two ways. First, for purposes of determining compliance
with section 1.901-2(e)(5), the proposed regulations would treat as a single taxpayer all
foreign entities in which the same U.S. person has a direct or indirect interest of 80
percent or more (a “U.S.-owned foreign group”). Second, the proposed regulations
would treat amounts paid to a foreign taxing authority as noncompulsory payments if
those amounts are attributable to certain structured passive investments. The proposed
regulations provide that the final regulations will be effective for foreign taxes paid or
accrued during taxable years of the taxpayer ending on or after the date on which the
regulations are finalized. The IRS and Treasury Department have received written
comments on the proposed regulations and held a hearing on the proposed regulations
on July 30, 2007.
DISCUSSION
The IRS and Treasury Department are considering the comments received on
the two proposed regulations.
The IRS and Treasury Department intended to finalize the proposed section
1.901-2(f) regulations in 2007. However, the IRS and Treasury Department are still in
the process of considering comments received on the proposed regulations and no
longer expect to finalize these proposed regulations in 2007. Because the proposed
regulations will not be finalized in 2007, the IRS and Treasury Department believe it is
appropriate to revise the effective date for the regulations. Accordingly, the final

regulations relating to the determination of who is considered to pay a foreign tax will be
effective for taxable years beginning after the final regulations are published in the
Federal Register.
In reviewing comments received, the IRS and Treasury Department have
determined that the proposed change to section 1.901-2(e)(5) relating to U.S.-owned
foreign groups may lead to inappropriate results in certain cases. The IRS and
Treasury Department have therefore decided to sever the proposed rule for U.S.-owned
foreign groups from the portion of the proposed section 1.901-2(e)(5) regulation
addressing the treatment of foreign payments attributable to certain structured passive
investment arrangements while continuing to study the appropriate treatment of U.S.-
owned foreign groups. The IRS and Treasury Department also believe it is appropriate
to revise the proposed effective date for the rules addressing the treatment of U.S.-
owned foreign groups. Therefore, final regulations addressing U.S.-owned foreign
groups will be effective for taxable years beginning after the final regulations are
published in the Federal Register. For taxable years ending on or after March 29, 2007,
and beginning on or before the date on which the final regulations are published,
taxpayers may rely on the portion of the proposed regulations addressing U.S.-owned
foreign groups. No inference is intended as to whether an amount paid by a foreign
entity that is not a member of a U.S.-owned foreign group is a compulsory payment
under existing section 1.901-2(e)(5).
The principal author of this notice is Bethany A. Ingwalson of the Office of
Associate Chief Counsel (International). For further information regarding this notice

contact Bethany A. Ingwalson at (202) 622-3850 (not a toll-free call).