Internal Revenue Bulletin 2016-48 (PDF rendition): IRS Announcements

Preserve advance releases and the authoritative Internal Revenue Bulletin rendition; directory timestamps are file-publication metadata, not legal effective dates. HTML bulletins begin June 2003; earlier available issues require full PDF parsing. Whole bulletin rendition: numbered items are identified below; other legal material and publisher context remain included. This is not a new standalone advance release.

# INTERNAL REVENUE BULLETIN

IRS

## HIGHLIGHTS OF THIS ISSUE

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

## INCOME TAX

### REG-122387-16, page 779.

This document withdraws portions of a notice of proposed
rulemaking (INTL-49-86, subsequently converted to REG-
209001-86) published in the Federal Register (53 FR 22186)
on June 14, 1988, (the 1988 NPRM). The withdrawn portions
relate to stock redemptions through related corporations, the
application of section 956 to United States property indirectly
held by a controlled foreign corporation (CFC), and certain
related party factoring transactions, as well as the definition of
the term "obligation" for purposes of section 956.

### REG-114734-16, page 777.

This document contains proposed regulations that provide
rules regarding the determination of the amount of United
States property treated as held by a controlled foreign corpo-
ration (CFC) through a partnership. The proposed regulations
affect United States shareholders of CFCs.

### Notice 2016-65, page 772.

This notice updates the appendix to Notice 2013-1, which lists
the Indian tribes who have settled tribal trust cases against the
United States. Notice 2012-60 originally was published in IRB
2012-41 (October 9, 2012). Notice 2012-60 was super-
ceded by Notice 2013-1 IRB 2013-3, and the appendix to
Notice 2013-1 was superceded by Notice 2013-16 (IRB
2013-14), then Notice 2013-36, then Notice 2013-55, then
Notice 2014-22, Notice 2014-38, then Notice 2014-61,
and then Notice 2015-20. However, sixteen additional tribes
have settled cases against the United States since the publi-
cation of Notice 2016-41, so we are seeking to publish an
updated appendix to Notice 2013-1. This notice would super-
sede Notice 2016-41.

Bulletin No.

2016-48

November

28, 2016

### Notice 2016-68, page 774.

This notice sets forth updates on the corporate bond monthly
yield curve, the corresponding spot segment rates for Novem-
ber 2016 used under § 417(e)(3)(D), the 24-month average
segment rates applicable for November 2016, and the 30-year
Treasury rates. These rates reflect the application of
§ 430(h)(2)(C)(iv), which was added by the Moving Ahead for
Progress in the 21st Century Act, Public Law 112-141 (MAP-
21) and amended by section 2003 of the Highway and Trans-
portation Funding Act of 2014 (HATFA).

### T.D. 9792, page 751.

This document contains final regulations that provide rules
regarding the treatment as United States property of property
held by a controlled foreign corporation (CFC) in connection
with certain transactions involving partnerships. In addition, the
final regulations provide rules for determining whether a CFC is
considered to derive rents and royalties in the active conduct
of a trade or business for purposes of determining foreign
personal holding company income (FPHCI), as well as rules for
determining whether a CFC holds United States property as a
result of certain related party factoring transactions. The final
regulations affect United States shareholders of CFCs.

### T.D. 9793, page 768.

This document contains final regulations that remove the 36-
month non-payment testing rule from the list of identifiable
events that cause a deemed discharge that must be reported
to the IRS on a Form 1099-C.

## EXEMPT ORGANIZATIONS

Announcement 2016-41, page 780.

Revocation of IRC 501(c)(3) Organizations for failure to meet
the code section requirements. Contributions made to the
organizations by individual donors are no longer deductible
under IRC 170(b)(1)(A).

Finding Lists begin on page ii.

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## The IRS Mission

Provide America's taxpayers top-quality service by helping
them understand and meet their tax responsibilities and en-
force the law with integrity and fairness to all.

## Introduction

The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly.

It is the policy of the Service to publish in the Bulletin all
substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless other-
wise indicated. Procedures relating solely to matters of internal
management are not published; however, statements of inter-
nal practices and procedures that affect the rights and duties
of taxpayers are published.

Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings to
taxpayers or technical advice to Service field offices, identify-
ing details and information of a confidential nature are deleted
to prevent unwarranted invasions of privacy and to comply with
statutory requirements.

Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

### Part I .- 1986 Code.

This part includes rulings and decisions based on provisions of
the Internal Revenue Code of 1986.

### Part II .- Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A, Tax
Conventions and Other Related Items, and Subpart B, Legisla-
tion and Related Committee Reports.

Part III .- Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury's Office of the Assistant Sec-
retary (Enforcement).

### Part IV .- Items of General Interest.

This part includes notices of proposed rulemakings, disbar-
ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative index for
the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

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## Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

### Section 954 - Foreign Base Company Income

26 CFR 1.954-2 Foreign personal holding company
income.

T.D. 9792

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1

United States Property Held
by Controlled Foreign
Corporations in Transactions
Involving Partnerships; Rents
and Royalties Derived in the
Active Conduct of a Trade or
Business

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Final regulations and removal
of temporary regulations.

SUMMARY: This document contains fi-
nal regulations that provide rules regard-
ing the treatment as United States prop-
erty of property held by a controlled
foreign corporation (CFC) in connection
with certain transactions involving part-
nerships. In addition, the final regulations
provide rules for determining whether a
CFC is considered to derive rents and
royalties in the active conduct of a trade or
business for purposes of determining for-
eign personal holding company income
(FPHCI), as well as rules for determining
whether a CFC holds United States prop-
erty as a result of certain related party
factoring transactions. This document fi-
nalizes proposed regulations, and with-
draws temporary regulations, published
on September 2, 2015. It also finalizes
proposed regulations, and withdraws tem-
porary regulations, published on June 14,
1988. The final regulations affect United
States shareholders of CFCs.

DATES: Effective Date: These regula-
tions are effective on November 3, 2016.

Applicability Dates: For dates of appli-
cability, see §§ 1.954-2(i), 1.956-1(g),
1.956-2(h), 1.956-3(d), and 1.956-4(f).

FOR FURTHER INFORMATION CON-
TACT: Rose E. Jenkins, (202) 317-6934
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

#### Background

On September 2, 2015, the Department
of the Treasury (Treasury Department)
and the IRS published final and temporary
regulations under sections 954 and 956
(TD 9733) (the 2015 temporary regula-
tions) in the Federal Register (80 FR
52976, as corrected at 80 FR 66415 and
80 FR 66416). On the same date, the
Treasury Department and the IRS pub-
lished a notice of proposed rulemaking
(REG-155164-09) (the 2015 proposed
regulations) in the Federal Register (80
FR 53058, as corrected at 80 FR 66485)
cross-referencing the temporary regula-
tions and proposing additional regulations
under section 956 regarding the treatment
as United States property of property held
by a CFC in connection with certain trans-
actions involving partnerships. No public
hearing was requested or held. Formal
written comments were received with re-
spect to the 2015 proposed regulations
under section 956 and are available at
www.regulations.gov or upon request. No
comments were received with respect to
the 2015 proposed regulations under sec-
tion 954. This Treasury decision adopts
the 2015 proposed regulations, with the
changes described in the Summary of
Comments and Explanation of Revisions
section of this preamble, as final regula-
tions and removes the corresponding tem-
porary regulations. No changes are made
to the regulations under section 954.

Additionally, on June 14, 1988, the
Treasury Department and the IRS pub-
lished temporary regulations under sec-
tions 304, 864, and 956 (TD 8209) in the
Federal Register (53 FR 22163), which
included guidance under section 956(c)(3)
treating as United States property certain
trade or service receivables acquired by a

CFC from a related United States person
in certain factoring transactions (the 1988
temporary regulations). On the same date,
the Treasury Department and the IRS pub-
lished a notice of proposed rulemaking
(INTL-49-86, subsequently converted to
REG-209001-86) (the 1988 proposed
regulations) in the Federal Register (53
FR 22186) cross-referencing the 1988
temporary regulations. Although formal
written comments were received on the
1988 proposed regulations, none relate to
the specific issues addressed in these final
regulations. This Treasury decision adopts
§ 1.956-3 of the 1988 proposed regula-
tions without substantive change as a final
regulation (together with the 2015 pro-
posed regulations adopted as final regula-
tions, these final regulations) and removes
the corresponding temporary regulations.
This preamble does not discuss the formal
written comments concerning other rules
in the 1988 proposed regulations, which
are beyond the scope of these final regu-
lations. The other portions of the 1988
proposed regulations remain in proposed
form, except to the extent withdrawn in
the partial withdrawal of the notice of
proposed rulemaking published in the
Proposed Rules section of this issue of the
Bulletin (REG-122387-16).

The Treasury Department and the IRS
published Revenue Ruling 90-112 (1990-
2 CB 186) (see §601.601(d)(2)(ii)(b)), on
December 31, 1990, before promulgating
the rule in § 1.956-2(a)(3) that, prior to
modification by this document, addressed
the application of section 956 when a CFC
is a partner in a partnership that holds
property that would be United States
property if owned directly by the CFC.
This Treasury decision withdraws Reve-
nue Ruling 90-112.

## Summary of Comments and Explanation of Revisions

Section 956 determines the amount
that a United States shareholder (as de-
fined in section 951(b)) of a CFC must
include in gross income with respect to
the CFC under section 951(a)(1)(B). This
amount is determined, in part, based on
the average of the amounts of United

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States property held, directly or indirectly,
by the CFC at the close of each quarter
during its taxable year. For this purpose,
in general, the amount taken into account
with respect to any United States property
is the adjusted basis of the property, re-
duced by any liability to which the prop-
erty is subject. See section 956(a) and
§ 1.956-1(e). Section 956(e) grants the
Secretary authority to prescribe such reg-
ulations as may be necessary to carry out
the purposes of section 956, including reg-
ulations to prevent the avoidance of sec-
tion 956 through reorganizations or other-
wise.

These final regulations retain the basic
approach and structure of the 2015 pro-
posed regulations and the portion of the
1988 proposed regulations that relates to
§ 1.956-3, with certain revisions, as dis-
cussed in this Summary of Comments and
Explanation of Revisions.

1\. Changes to § 1.956-1 to Conform to
the Current Statute

These final regulations take into ac-
count certain statutory changes in section
13232(a) of the Revenue Reconciliation
Act of 1993 (Pub. L. 103-66, 107 Stat.
312) (the 1993 Act) regarding the meth-
odology for calculating the amount deter-
mined under section 956 with respect to a
United States shareholder of a CFC. As
enacted in section 12 of the Revenue Act
of 1962 (Pub. L. 87-834, 76 Stat. 960)
(the 1962 Act), and prior to the modifica-
tion made by the 1993 Act, section
951(a)(1)(B) required a United States
shareholder to include an amount in in-
come based on its pro rata share of the
CFC's "increase in earnings invested in
United States property" for the relevant
taxable year. Section 956 (as then in ef-
fect), in turn, defined the amount of earn-
ings of a CFC invested in United States
property at the close of a taxable year and
set forth rules for determining a United
States shareholder's pro rata share of the
CFC's increase in earnings for a taxable
year.

The 1993 Act revised the structure and
operating rules for determining amounts
included in income under sections
951(a)(1)(B) and 956. In general, as re-
vised in 1993, the amount determined un-
der section 956 is based on a United States

shareholder's pro rata share of the average
amount of United States property held by
the CFC as of the close of each quarter of
the relevant taxable year. The amend-
ments made by the 1993 Act are effective
for tax years of CFCs beginning after Sep-
tember 30, 1993, and for tax years of
United States shareholders in which or
with which such tax years of CFCs end.

On February 20, 1964, the Treasury
Department and the IRS published § 1.956-
1 (TD 6704 (29 FR 2599), which was
amended by TD 6795 (30 FR 933) in
1965, TD 7712 (45 FR 52373) in 1980,
and TD 8209 (53 FR 22163) in 1988)
when the section 956 amount was still
determined based on the increase of a
CFC's earnings invested in United States
property during the relevant tax year.
Amendments to § 1.956-1 made after
1993 (TD 9402 (73 FR 35580) and TD
9530 (76 FR 36993, corrected at 76 FR
43891)) did not revise the regulation to
reflect the changes to section 956(a) made
by the 1993 Act. The Treasury Depart-
ment and the IRS are aware that some
taxpayers have attempted to apply parts of
§ 1.956-1 to tax years for which those
parts were superseded by the 1993 Act. In
order to avoid confusion, these final reg-
ulations revise the section heading of
§ 1.956-1 (as well as the parallel heading
of § 1.956-1T), and the general rules in
§ 1.956-1(a), to reflect changes made in
the 1993 Act. In addition, these final reg-
ulations remove the text in paragraphs
(b)(1) through (3), (c), and (d) of
§ 1.956-1 in order to conform § 1.956-1
to the Code and reserve paragraphs (c)
and (d). As a result, proposed § 1.956-
1(b)(4) is redesignated as § 1.956-1(b) in
these final regulations.

### 2. Section 1.956-1(b) Anti-Avoidance Rule

Prior to the 2015 temporary regula-
tions, § 1.956-1T(b)(4) provided that a
CFC would be considered to hold indi-
rectly investments in United States prop-
erty acquired by any other foreign corpo-
ration that is controlled by the foreign
corporation if one of the principal pur-
poses for creating, organizing, or funding
(thorugh capital contributions or debt)
such other foreign corporation is to avoid
the application of section 956 with respect

to the CFC. The 2015 temporary regula-
tions modified the anti-avoidance rule in
§ 1.956-1T(b)(4) so that the rule can also
apply when a foreign corporation con-
trolled by a CFC is funded other than
through capital contributions or debt and
expanded the rule to apply to transactions
involving partnerships that are controlled
by a CFC.

### A. Definition of funding

In response to the additional guidance
on the term funding, a comment suggested
that the modification gives rise to uncer-
tainty concerning the application of the
anti-avoidance rule and requested that
the anti-avoidance rule be revised in these
final regulations in one of three alternative
ways in order to clarify the application of
the rule: (i) reverting to the language in
§ 1.956-1T(b)(4) in effect prior to the
2015 temporary regulations; (ii) defining
the term funding as either a related CFC
contributing capital to or holding debt of
the funded entity, or an unrelated person
contributing capital to or holding debt of
the funded entity, provided that the con-
tribution or loan would not have been
made or maintained on the same terms but
for the funding CFC contributing capital
to or holding debt of the unrelated person;
or (iii) clarifying the scope of the term
funding with examples that depict when
the rule applies and illustrating that com-
mon business transactions conducted on
arm's-length terms and certain other
transactions would not be considered a
funding for purposes of the rule.

The Treasury Department and the IRS
continue to be concerned about tax plan-
ning that is inconsistent with the policy
underlying section 956. The policy con-
cerns addressed by the anti-avoidance rule
are not limited to fundings by debt or
equity; rather, the anti-avoidance rule
should apply to all fundings with a prin-
cipal purpose of avoiding the purposes of
section 956, regardless of the form of the
funding. The Treasury Department and
the IRS have concluded that reverting to
the prior formulation of the rule, which
applied when there was a "funding
(through capital contributions or debt)," or
adopting the narrow definition of funding
proposed in the comment could allow tax-
payers to engage in planning that would

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inappropriately avoid the application of
section 956.

In addition, the Treasury Department
and the IRS disagree with the view ex-
pressed in the comment that the expanded
scope of fundings could result in common
business transactions being subject to the
anti-avoidance rule. Whether a transaction
is a "funding" does not alone determine
whether the transaction is subject to the
anti-avoidance rule because the rule ap-
plies only when a principal purpose of the
funding is to avoid section 956 with re-
spect to the funding CFC. Thus, although
the 2015 temporary regulations broaden
the funding standard, the "avoidance" re-
quirement ensures that ordinary course
transactions are not subject to the anti-
avoidance rule.

The Treasury Department and the IRS
agree, however, that examples illustrating
that the anti-avoidance rule should not
apply to certain common transactions
would be helpful. Accordingly, these final
regulations add new examples that ad-
dress common transactions highlighted by
the comment to further illustrate the dis-
tinction between funding transactions that
are subject to the anti-avoidance rule and
common business transactions to which
the anti-avoidance rule does not apply.
See Example 4 through Example 6 of
§ 1.956-1(b)(4). For example, Example 5
and Example 6 illustrate a sale of property
for cash in the ordinary course of business
and a repayment of a loan, respectively, to
which the anti-avoidance rule does not
apply. However, Example 4 illustrates
that, consistent with the holding in situa-
tion 3 in Revenue Ruling 87-89 (1987-2
CB 195), a CFC may be treated as holding
United States property as a result of a
deposit with an unrelated bank if the un-
related bank would not have made a loan
to another person on the same terms ab-
sent the CFC's deposit.

B. Application to Acquisitions of
Property by a Partnership Controlled by
a CFC

Section 1.956-1(b)(4) of the 2015 pro-
posed regulations expands the anti-
avoidance rule to include transactions in-
volving partnerships that are controlled by
a CFC that provides funding to the part-
nership. Proposed § 1.956-1(b)(4)(iii)

contains a coordination rule that provides
that this new partnership rule applies only
to the extent that the amount of United
States property that a CFC would be
treated as holding under the rule exceeds
the amount that it would be treated as
holding under proposed § 1.956-4(b).
The coordination rule prevents a CFC
from being treated as holding duplicative
amounts of United States property as a
result of a single partnership interest pur-
suant to the application of proposed
§§ 1.956-1(b)(4) and 1.956-4(b). This
rule is illustrated by Example 4 in pro-
posed § 1.956-1(b)(4)(iv), which is in-
cluded as Example 7 in § 1.956-1(b)(4) of
these final regulations.

A comment recommended that the
anti-avoidance rule should not apply in
the case of a partnership in which the
funding CFC is a partner, as in Example 4
in proposed § 1.956-1(b)(4)(iv). Noting
that proposed § 1.956-4(b) would treat a
funding CFC that is a partner in the
funded partnership as owning a share of
any United States property acquired by
the partnership using the funding, the
comment asserted that the inclusion re-
sulting from proposed § 1.956-4(b) is
sufficient and there is no need for the
anti-avoidance rule to apply to create a
disproportionate inclusion that would de-
ter taxpayers from entering into transac-
tions in order to avoid the application of
section 956. The Treasury Department
and the IRS, however, do not agree with
the premise of this comment that the anti-
avoidance rule results in a disproportion-
ate inclusion in this case. Rather, the Trea-
sury Department and the IRS consider
that, in the circumstances in which the
anti-avoidance rule would apply, the
funded entity, which is controlled by
the CFC, essentially serves as a surrogate
for the funding CFC with respect to the
investment in United States property. Ac-
cordingly, the Treasury Department and
the IRS have determined that, when a
partnership acts as a surrogate for a CFC
partner's investment in United States
property, the CFC partner's interest in the
United States property should not be lim-
ited to the CFC's attributable share of the
property as determined under § 1.956-
4(b). For these reasons, the comment is
not adopted.

With respect to the coordination rule in
proposed § 1.956-1(b)(4)(iii), another
comment noted that a CFC also could be
treated as holding duplicative amounts of
United States property as a result of a
single partnership obligation pursuant to
the application of proposed §§ 1.956-1
(b)(4) and 1.956-4(c). For example, sup-
pose a domestic corporation (P) wholly
owns two controlled foreign corporations
(FS1 and FS2), and P is a 40% partner in
a foreign partnership (FPRS), while FS1 is
a 60% partner. Suppose further that FS2
loans $100x to FPRS, which FPRS uses to
acquire $100x of United States property.
In these circumstances, FS2 would be
treated as holding $40x of United States
property under proposed § 1.956-4(c)
and existing § 1.956-2(a) (and would not
be treated as holding any United States
property under proposed § 1.956-4(b))
and could be treated under proposed
§ 1.956-1(b)(4) and existing § 1.956-2(a)
as holding the $100x of United States
property acquired by the partnership with
its funding. The Treasury Department and
the IRS have determined that it is appro-
priate to limit the amount of United States
property that FS2 is treated as holding in
the example to $100x, consistent with the
result that would apply if FS2 had not
funded FPRS's acquisition of United
States property and instead had acquired
the United States property itself. (Note
that, in a case where proposed § 1.956-
1(b)(4) would apply, FPRS should not be
treated as holding the United States prop-
erty that would be treated under that rule
as held by FS2, and accordingly, FS1
should not be treated as holding United
States property under proposed § 1.956-
4(b) in this example.) Accordingly, the
coordination rule in proposed § 1.956-
1(b)(4)(iii) is expanded in final § 1.956-
1(b)(3) to prevent a CFC from being
treated as holding duplicative amounts of
United States property under the anti-
avoidance rule as a result of a partnership
obligation, and an additional example is
added to illustrate this rule. See § 1.956-
1(b)(4), Example 8.

Further, as noted in the preamble to the
2015 proposed regulations, the references
to § 1.956-2(a)(3) in proposed § 1.956-
1(b)(4)(iii) and in the examples in pro-
posed § 1.956-1(b)(4)(iv) that illustrate
the application of proposed § 1.956-1(b)

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(4)(i)(C) are supplanted in these final
regulations with references to § 1.956-
4(b), which replaces § 1.956-2(a)(3) in
these final regulations as the applicable
rule concerning United States property
held indirectly by a controlled foreign cor-
poration through a partnership.

#### 3. Factoring Rules

As noted in the Background section of
this preamble, in 1988, the Treasury De-
partment and the IRS proposed § 1.956-3
to address the application of section 956
to property acquired by a CFC in certain
related party factoring transactions. No
comments were received on these pro-
posed rules. The 2015 proposed regula-
tions proposed revisions to these proposed
rules in § 1.956-3(b)(2)(ii) with respect to
the application of section 956 to acquisi-
tions of receivables indirectly through a
nominee, pass-through entity, or related
foreign corporation, and no comments
were received on these proposed revi-
sions. These final regulations adopt these
portions of the 2015 proposed regulations
without change, and also adopt the
remainder of the rules in proposed
§ 1.956-3 that were proposed in the 1988
proposed regulations, with minor revi-
sions to improve clarity and conform to
existing regulations.

#### 4. Partnership Property Indirectly Held by a CFC Partner

Under proposed § 1.956-4(b)(1), a
CFC partner in a partnership is treated as
holding its attributable share of property
held by the partnership. In addition, pro-
posed § 1.956-4(b)(1) provides that, for
purposes of section 956, a partner's ad-
justed basis in the property of the partner-
ship equals the partner's attributable share
of the partnership's adjusted basis in the
property.

Under proposed § 1.956-4(b)(2), a
CFC partner's attributable share of part-
nership property is determined in accor-
dance with the CFC partner's liquidation
value percentage with respect to the part-
nership, unless the partnership agreement
contains a special allocation of income
(or, where appropriate, gain) with respect
to a particular item or items of partnership
property that differs from the partner's

liquidation value percentage in a particu-
lar taxable year. In that case, the partner's
attributable share of the property is deter-
mined solely by reference to the partner's
special allocation with respect to the prop-
erty, provided the special allocation does
not have a principal purpose of avoiding
the purposes of section 956.

#### A. Revenue Ruling 90-112's outside basis limitation

As noted in the Background section of
this Preamble, in 1990, the Treasury De-
partment and the IRS published Revenue
Ruling 90-112, which addressed the
treatment under section 956 of United
States property held by a CFC indirectly
through a partnership. The holding in the
revenue ruling generally is consistent with
§ 1.956-2(a)(3) (added by TD 9008, 67
FR 58020, in 2002), as well as proposed
§ 1.956-4(b), in that a CFC that is a
partner in a partnership is treated as indi-
rectly holding property held by the part-
nership when the property would be
United States property if the CFC held it
directly. However, the revenue ruling in-
cludes a limitation on the measurement of
United States property that is not included
in the final or proposed regulations. Spe-
cifically, the revenue ruling provides that
the amount of United States property
taken into account for purposes of section
956 when a CFC partner indirectly owns
property through a partnership is limited
by the CFC's adjusted basis in the
partnership.

The outside basis limitation in Reve-
nue Ruling 90-112 has resulted in a lack
of clarity concerning the determination of
the amount of United States property held
by a CFC partner through a partnership
because neither § 1.956-2(a)(3) nor pro-
posed § 1.956-4(b) include the limitation.
A comment requested that proposed
§ 1.956-4(b)(1) be revised to add the out-
side basis limitation because the limitation
is reflective of the underlying economics
and consistent with the policy underlying
section 956.

After consideration of the comment,
the Treasury Department and the IRS
have concluded that the outside basis lim-
itation is not warranted. The rule in pro-
posed § 1.956-4(b)(1) is based on an
aggregate approach to partnerships and

measures the amount of United States
property indirectly held by a CFC partner
on a property-by-property basis. An over-
all limitation on the amount of United
States property a CFC partner is consid-
ered to indirectly hold through a partner-
ship is inconsistent with this property-by-
property aggregate approach to United
States property held by the partnership.
Additionally, a limitation determined by
reference to a CFC partner's basis in its
partnership interest is less consistent with
section 956(a), which provides that the
amount of United States property directly
or indirectly held by a CFC is determined
by reference to the adjusted basis of the
United States property itself. Moreover,
the Treasury Department and the IRS are
concerned that, under the rules of sub-
chapter K, adjustments may be made to
outside basis through the allocation of li-
abilities pursuant to the regulations under
section 752 that are inconsistent with the
policy of section 956. Accordingly, the
Treasury Department and the IRS have
determined that an outside basis limitation
should not be incorporated into the rule in
proposed § 1.956-4(b)(1). Because pro-
posed § 1.956-4(b)(1) indicates that, for
purposes of section 956, a partner's ad-
justed basis in the property of the partner-
ship equals the partners' attributable share
of the partnership's adjusted basis in the
property, no revision to the rule is neces-
sary to clarify that there is no outside basis
limitation.

Revenue Ruling 90-112 is obsoleted
in the Effect on Other Documents section
of this preamble. For tax years ending
prior to the obsolescence of the revenue
ruling, taxpayers may rely on the outside
basis limitation provided in the revenue
ruling.

B. Consistent use of liquidation value
percentage method for purposes of both
§ 1.956-4(b) and (c)

In contrast to the rule provided in pro-
posed § 1.956-4(b) providing that a CFC
partner's attributable share of partnership
property is determined in accordance with
the CFC partner's liquidation value per-
centage, proposed § 1.956-4(c) provided
that a partner's share of a partnership ob-
ligation is determined in accordance with
the partner's interest in partnership profits.

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The preamble to the 2015 proposed regu-
lations requested comments as to whether
a single method should be used as the
general rule for determining both a part-
ner's share of partnership assets under
proposed § 1.956-4(b) and a partner's
share of a partnership obligation under
proposed § 1.956-4(c), and, if so,
whether the appropriate measure would be
a partner's interest in partnership profits,
liquidation value percentage, or an alter-
native measure. Comments suggested that
a liquidation value percentage method
should be used for purposes of both sets of
rules. In accordance with these comments,
these final regulations retain the liquida-
tion value percentage method set forth in
proposed § 1.956-4(b), and, as discussed
in Part 5.B of this Summary of Comments
and Explanation of Revisions, revise the
general rule in proposed § 1.956-4(c) to
implement the liquidation value percent-
age method.

#### C. Time for determining the liquidation value percentage

A comment recommended that the liq-
uidation value percentage of partners in a
partnership should be determined on an
annual basis, rather than upon formation
and upon the occurrence of events de-
scribed in § 1.704-1(b)(2)(iv)(f)(5) or
§ 1.704-1(b)(2)(iv)(s)(1) (revaluation events)
as provided in proposed § 1.956-4(b)(2)
(i). The comment noted that partnerships
do not necessarily book up (or adjust)
partnership capital accounts in connection
with revaluation events and suggested that
requiring a redetermination of liquidation
value percentage regardless of whether a
book-up occurs would impose a burden on
such partnerships. The comment also
noted that partners' relative economic in-
terests in the partnership may change for
reasons unrelated to revaluation events,
such as when a partnership agreement
provides for different profit sharing per-
centages that apply based on different
hurdles.

The Treasury Department and the IRS
continue to consider it appropriate for liq-
uidation value percentage to be redeter-
mined upon a revaluation event, which
may result in a significant change in the
partners' relative economic interests in a
partnership. Accordingly, upon a revalua-

tion event, a partnership is required to
determine the partnership's capital ac-
counts resulting from a hypothetical book
up at such point in time even if the part-
nership did not actually book up capital
accounts in connection with such an
event. However, in light of the comment's
observation that partners' relative eco-
nomic interests in the partnership may
change significantly as a result of alloca-
tions of income or other items under the
partnership agreement even in the absence
of a revaluation event, § 1.956-4(b)(2)(i)
of these final regulations provides that a
partner's liquidation value percentage
must be redetermined in certain additional
circumstances. Specifically, if the liquida-
tion value percentage determined for any
partner on the first day of the partnership's
taxable year would differ from the most
recently determined liquidation value per-
centage of that partner by more than 10
percentage points, then the liquidation
value percentage must be redetermined on
that day even in the absence of a revalu-
ation event. For example, if the liquida-
tion value percentage of a partner was
determined upon a revaluation event to be
40 percent and, on the first day of a sub-
sequent year before the occurrence of an-
other revaluation event, would be less
than 30 percent or more than 50 percent if
redetermined on that day, then the liqui-
dation value percentage must be redeter-
mined on that day.

### D. Special allocations

Proposed § 1.956-4(b)(2)(ii) defines a
special allocation as an allocation of in-
come (or, where appropriate, gain) from
partnership property to a partner under a
partnership agreement that differs from
the partner's liquidation value percentage
in a particular taxable year. In this regard,
questions have arisen as to whether allo-
cations pursuant to section 704(c) and the
regulations thereunder constitute special
allocations. Although a partnership agree-
ment may reference section 704(c) or pro-
vide for the adoption of a particular sec-
tion 704(c) method, allocations under
section 704(c) are tax allocations required
by operation of the Code and regulations.
In response to these questions, the Trea-
sury Department and the IRS have revised
the definition of special allocations in final

§ 1.956-4(b)(2)(ii) to clarify that a spe-
cial allocation is an allocation of book
income or gain, rather than a tax alloca-
tion such as the allocations required under
section 704(c).

Questions also have arisen as to
whether certain allocations of income
with respect to all of the property of a
partnership, as opposed to allocations of
income from a specific item or subset of
partnership property, constitute special al-
locations described in proposed § 1.956-
4(b)(2)(i). These final regulations clarify
that, for purposes of these regulations, a
special allocation means only an alloca-
tion of income (or, where appropriate,
gain) from a subset of the property of the
partnership to a partner other than in ac-
cordance with the partner's liquidation
value percentage in a particular taxable
year.

As noted in this Part 4 of this Summary
of Comments and Explanation of Revi-
sions, proposed § 1.956-4(b)(2)(ii) states
that a partner's attributable share of an
item of partnership property is not deter-
mined by reference to a special allocation
with respect to the property if the special
allocation has a principal purpose of
avoiding the purposes of section 956. A
comment requested that these final regu-
lations provide guidance on the circum-
stances in which special allocations are
treated as having a principal purpose of
avoiding section 956. Specifically, the
comment suggested that proposed
§ 1.956-4(b) be revised to include a pre-
sumption that a transaction does not have
a principal purpose of avoiding section
956 when the allocation is respected under
section 704(b) and is reasonable taking
into account the facts and circumstances
relating to the economic arrangement of
the partners and the characteristics of the
property at issue.

The determination of whether a special
allocation has a principal purpose of
avoiding the purposes of section 956 must
take into account all of the relevant facts
and circumstances, which include the fac-
tors set forth in the comment. However,
an allocation adopted with a principal pur-
pose of avoiding the purposes of section
956 could nonetheless be respected under
section 704(b), which is not based on, and
does not take into account, section 956
policy considerations. In addition, it is not

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clear what additional clarity would be
added by the reasonableness requirement,
which itself is necessarily a facts-and-
circumstances determination. After con-
sideration of the comment, the Treasury
Department and the IRS have determined
that the presumption requested by the
comment is not appropriate, and the com-
ment is not adopted.

A comment noted that determining a
partner's attributable share of an item of
property by reference to a special alloca-
tion of income or gain with respect to that
property could produce results that are
inconsistent with the liquidation value
percentage approach because of the
forward-looking nature of special alloca-
tions. The comment described, but did not
explicitly recommend, an alternative ap-
proach that would limit the effect of a
special allocation to the portion of the
liquidation value that represents actual ap-
preciation, as opposed to initial book
value. The Treasury Department and the
IRS recognize the conceptual issue high-
lighted by the comment but have deter-
mined that the alternative approach de-
scribed by the comment would entail
substantial administrative complexity.
Additionally, the Treasury Department
and the IRS continue to consider it appro-
priate, in cases in which special alloca-
tions are economically meaningful, to de-
termine a partner's attributable share of
property in accordance with such special
allocations, since such allocations repli-
cate the effect of owning, outside of the
partnership, an interest in the property that
is proportional to the special allocation.

However, the Treasury Department
and the IRS have determined that special
allocations with respect to a partnership
controlled by a U.S. multinational group
(a controlled partnership) and its CFCs are
unlikely to have economic significance for
the group as a whole and can facilitate
inappropriate tax planning. Accordingly,
the Treasury Department and the IRS are
proposing a new rule in a notice of pro-
posed rulemaking in the Proposed Rules
section of this issue of the Bulletin
(REG-114734-16) under which a part-
ner's attributable share of property of a
controlled partnership is determined
solely in accordance with the partner's
liquidation value percentage, without re-
gard to any special allocations.

5\. Obligations of Foreign Partnerships

A. Use of an aggregate approach as the
general rule

Pursuant to section 956(c), United
States property includes an obligation of a
United States person. In addition, under
section 956(d) and § 1.956-2(c), a CFC is
treated as holding an obligation of a
United States person if the CFC is a pled-
gor or guarantor of the obligation. There-
fore, if a CFC makes or guarantees a loan
to a United States person, an income in-
clusion may be required with respect to
the CFC under sections 951(a)(1)(B) and
956. Under the general rule in proposed
§ 1.956-4(c)(1), an obligation of a for-
eign partnership would be treated as an
obligation of its partners in proportion to
the partners' interest in partnership profits,
unless the exception in proposed § 1.956-
4(c)(2) (for obligations of partnerships in
which neither the lending CFC nor any
person related to the lending CFC is a
partner) or the special rule in proposed
§ 1.956-4(c)(3) (regarding certain part-
nership distributions) applies. Thus, the
general rule adopts an aggregate approach
that would treat an obligation of a foreign
partnership as an obligation of its partners.

A comment asserted that taking the
aggregate approach to a foreign partner-
ship for this purpose is overly broad and
inconsistent with the policy underlying
section 956. The comment states that a
CFC loan to a foreign partnership results
in a repatriation of CFC earnings to the
United States partners in the partnership
only when the loan proceeds either are
used to acquire United States property or
are distributed to the partners, which, ac-
cording to the comment, are adequately
addressed in § 1.956-1T(b)(4) and (5).
Accordingly, the comment requested that
the rules in § 1.956-1T(b)(4) and (5) be
finalized, but that the general rule in
§ 1.956-4(c)(1) be removed. Thus, the
comment generally advocates for the
treatment of a foreign partnership as an
entity, with anti-abuse rules to address
certain situations. In contrast, another
comment indicated that the concerns iden-
tified in the preamble to the 2015 pro-
posed regulations "constitute an appropri-
ate basis for the general aggregate
approach of [proposed § 1.956-4(c)(1)]".

After consideration of the comments,
the Treasury Department and the IRS
have concluded that it is appropriate to
retain the aggregate approach of the gen-
eral rule in proposed § 1.956-4(c). The
Treasury Department and the IRS dis-
agree with the assertion that the aggregate
approach is not supported by the policy of
section 956. As discussed in the preamble
to the 2015 proposed regulations, failing
to treat an obligation of a foreign partner-
ship as an obligation of its partners could
allow for the deferral of U.S. taxation of
CFC earnings and profits in a manner that
is inconsistent with the purpose of section
956. As discussed in that preamble, the
legislative history provides that Congress
intended section 956 to apply when de-
ferred CFC earnings are made available to
a United States shareholder, which occurs
when a United States shareholder con-
ducts operations through a foreign part-
nership that are funded by deferred CFC
earnings, without regard to whether there
is any distribution from the partnership to
the United States shareholder. In addition,
as described in Section C of this Part 5 of
this Summary of Comments and Explana-
tion of Revisions, there are exceptions
from the treatment of obligations as
United States property under § 1.956-
4(c) that the Treasury Department and the
IRS have determined mitigate some of the
concerns about the breadth of the general
rule raised by the comment. Accordingly,
the final regulations do not adopt the rec-
ommendation to abandon the aggregate
approach.

### B. Liquidation value percentage method

The preamble to the 2015 proposed
regulations requested comments on
whether the liquidation value percentage
method or another method would be a
more appropriate basis for determining a
partner's share of a foreign partnership's
obligation. In addition, as noted in Part
4.B of this Summary of Comments and
Explanation of Revisions, the 2015 pro-
posed regulations solicited comments on
whether a single method should be used
for determining both a partner's share of
partnership assets under proposed § 1.956-
4(b) and a partner's share of partnership
obligations under proposed § 1.956-4(c).

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Comments highlighted a number of is-
sues related to applying a rule based on a
partner's interest in partnership profits and
noted the lack of guidance in the 2015
proposed regulations for applying this
standard for purposes of proposed
§ 1.956-4(c). The comments stated that a
partner's interest in partnership profits
would be a difficult standard to apply for
partnerships other than simple partner-
ships, because a partner's interest in part-
nership profits can fluctuate significantly
from year to year, as well as during a
taxable year. The comments noted that the
proposed rule did not address whether the
determination would be made based
solely on the partnership's profits in the
current year or whether the determination
would take into account the expected
profits over the term of the partnership.
Moreover, under section 956(a), the
amount of United States property held by
a CFC as a result of being treated as
holding an obligation of a related United
States person under proposed § 1.956-
4(c) would be the average of the amounts
held by the CFC at the close of each
quarter of its taxable year. Thus, under
proposed § 1.956-4(c), taxpayers would
need to determine a CFC partner's interest
in partnership profits on a quarterly basis
when a relevant partnership obligation is
outstanding throughout a taxable year. As
a result, calculating the amount of United
States property held by a CFC in a taxable
year could be complicated when a part-
ner's interest in partnership profits is not
known until the end of the taxable year
(such as when there are one or more tiers
of allocations of partnership profits based
on various internal rate of return hurdles).
Furthermore, the requirement to deter-
mine a CFC's interest in United States
property on a quarterly basis could result
in the calculation of a section 956 amount
that is inconsistent with the annual profit
allocated to the partner from the partner-
ship for that year.

After consideration of these comments,
the Treasury Department and the IRS
have determined that the liquidation value
percentage method should be used to de-
termine a partner's share of a foreign part-
nership's obligation because of the poten-
tial for complexity in calculating a
partner's interest in partnership profits for
purposes of proposed § 1.956-4(c) as

well as the uncertainty inherent in the
method. The liquidation value percentage
method is a sound indicator of a partner's
interest in a partnership. Moreover, the
objective rules provided in proposed
§ 1.956-4(b) for determining the liquida-
tion value percentage provide more cer-
tainty than the rule in proposed § 1.956-
4(c). In addition, using the same standard
for determining a partner's share of part-
nership property and a partner's share of
partnership obligations reduces complex-
ity for taxpayers that must apply both sets
of rules for purposes of section 956 with
respect to a single partnership. Accord-
ingly, these final regulations provide that
an obligation of a foreign partnership is
treated as an obligation of its partners in
proportion to the partners' liquidation
value percentage with respect to the part-
nership. As described in Part 4.C of this
Summary of Comments and Explanation
of Revisions, a partner's liquidation value
percentage must be determined upon for-
mation of a partnership and any revalua-
tion events and in certain other circum-
stances in which redetermination of the
liquidation value percentage would result
in a significant change from the previ-
ously determined liquidation value per-
centage.

### C. Exceptions from general rule of aggregate treatment

Proposed § 1.956-4(c)(2) provides an
exception from the aggregate treatment of
proposed § 1.956-4(c)(1) that applies if
neither the CFC that holds the obligation
(or is treated as holding the obligation)
nor any person related to the CFC (within
the meaning of section 954(d)(3)) is a
partner in the partnership on the CFC's
quarterly measuring date on which the
treatment of the obligation as United
States property is being determined. A
comment suggested an additional excep-
tion from the general rule in proposed
§ 1.956-4(c)(1) providing for aggregate
treatment of partnership obligations. The
comment requested that an obligation of a
foreign partnership not be treated as an
obligation of its partners to the extent that
the obligation arises from a routine, ordi-
nary course transaction between the lend-
ing CFC and the foreign partnership.

The comment highlighted a fact pattern
involving an obligation arising from a de-
posit by a CFC with a foreign partnership
that acts as a coordination center for a
taxpayer's cash pooling system. In this
case, the comment asserted that any
United States partners in the partnership
should not be considered to have accessed
the deferred earnings of the CFC depos-
ited with the partnership and that, accord-
ingly, the aggregate approach to partner-
ship obligations should not apply to treat
the CFC as holding an obligation of the
United States partners for purposes of sec-
tion 956. Regarding this fact pattern, the
Treasury Department and the IRS observe
that the short-term obligation exception in
§ 1.956-2T(d)(2)(iv), which applies when
a CFC holds obligations of a United States
person for a limited period of time during
a taxable year, generally would prevent an
inclusion under section 956 in the fact
pattern described in the comment if the
CFC had a net deposit with the partner-
ship only for the limited period of time
described in that exception. The Treasury
Department and the IRS have concluded
that there is no reason to provide a more
expansive exception from United States
property treatment for obligations of a for-
eign partnership with certain United
States persons as partners than would ap-
ply with respect to obligations incurred
directly by those same United States per-
sons.

Another comment recommended add-
ing a new de minimis exception that
would provide that an obligation of a for-
eign partnership is not treated as an obli-
gation of a United States person that is a
partner if the United States person and its
related persons own less than a specified
percentage, 10% or 20%, of the profits
and capital interests in the foreign partner-
ship. The comment noted that a U.S. part-
ner with a relatively small interest in a
partnership may lack the ability to cause
the partnership to make a distribution to
the U.S. partner.

Although a U.S. partner with a rela-
tively small partnership interest may not
be able to compel a distribution from the
partnership, the potential to directly ac-
cess partnership assets is not, as the com-
ment acknowledges, the sole or overriding
consideration motivating the aggregate
approach to partnerships under the pro-

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posed regulations and these final regula-
tions. Even if the other partners in a part-
nership in which a United States
shareholder of a CFC is a minority partner
are unrelated to the United States share-
holder, the United States shareholder
would still benefit from the funding of the
partnership's business with deferred earn-
ings of the CFC to the extent of its interest
in the partnership. Additionally, as noted
in the preamble to the 2015 proposed reg-
ulations, a standard based on whether the
funding CFC or a related person is a part-
ner in the partnership, rather than whether
such persons own a certain minimum in-
terest in the partnership, is consistent with
the relevant exception adopted by Con-
gress in section 956(c)(2)(L).

Accordingly, the Treasury Department
and the IRS have determined that the ad-
ditional exceptions to aggregate treatment
suggested in the comments are not war-
ranted.

### D. Special obligor rule in the case of certain distributions

The 2015 proposed regulations include
a special funded distribution rule that in-
creases the amount of a foreign partner-
ship obligation that is treated as United
States property when the following re-
quirements are satisfied: (i) a CFC lends
funds (or is a pledgor or guarantor with
respect to a loan) to a foreign partnership
whose obligation is, in whole or in part,
United States property with respect to the
CFC pursuant to proposed § 1.956-4(c)
(1) and existing § 1.956-2(a); (ii) the
partnership distributes an amount of
money or property to a partner that is
related to the CFC (within the meaning of
section 954(d)(3)) and whose obligation
would be United States property if held
(or treated as held) by the CFC; (iii) the
foreign partnership would not have made
the distribution but for a funding of the
partnership through an obligation held (or
treated as held) by the CFC; and (iv) the
distribution exceeds the partner's share of
the partnership obligation as determined
in accordance with the partner's interest in
partnership profits. When these require-
ments are satisfied, proposed § 1.956-
4(c)(3) provided that the amount of the
partnership obligation that is treated as an
obligation of the distributee partner (and

thus as United States property held by the
CFC) is the lesser of the amount of the
distribution that would not have been
made but for the funding of the partner-
ship and the amount of the partnership
obligation.

Comments suggested that taxpayers
might take the position that the "but for"
requirement in proposed § 1.956-4(c)(3)
is not satisfied in certain situations in
which CFC earnings are effectively repa-
triated to a partner that is a related United
States person. For example, taxpayers
might take the position that a partnership
distribution could have been made with-
out the funding by the CFC merely by
establishing that a third party would have
loaned the funds needed for the partner-
ship to make the distribution. The Trea-
sury Department and the IRS have deter-
mined that this position is inconsistent
with the purposes of this rule. Accord-
ingly, these final regulations clarify the
funded distribution rule by providing with
respect to the "but for" requirement in
proposed § 1.956-4(c)(3) that a foreign
partnership will be treated as if it would
not have made a distribution of liquid
assets but for a funding of the partnership
through obligations held (or treated as
held) by a CFC to the extent the foreign
partnership did not have sufficient liquid
assets to make the distribution immedi-
ately prior to the distribution, without tak-
ing into account the obligations. When a
CFC holds (or is treated as holding) mul-
tiple obligations of the foreign partnership
to which this rule could potentially apply,
its applicability is determined first with
respect to the obligation acquired (or
treated as acquired) closest in time to the
distribution, and then successively to
other obligations further in time from the
distribution until the distribution is fully
accounted for.

### 6. Comments Concerning Multiple Inclusions

Comments were received in response
to the request for comments included in
the preamble to the 2015 proposed regu-
lations concerning whether the Treasury
Department and the IRS should exercise
the authority granted under section 956(e)
to prescribe regulations concerning situa-
tions in which multiple CFCs serve, or are

treated, as pledgors or guarantors of a
single obligation for purposes of section
956(d) in order to limit the aggregate in-
clusions of a United States shareholder
with respect to a CFC under sections
951(a)(1)(B) and 956 to the unpaid prin-
cipal amount of the obligation. The Trea-
sury Department and the IRS continue to
study the comments concerning multiple
inclusions under section 956(d), which do
not impact any of the proposed regula-
tions adopted by this Treasury decision.

## Effective/Applicability Dates

The rules in § 1.954-2(c)(1)(i) and
(d)(1)(i) (regarding the active develop-
ment test) apply to rents or royalties, as
applicable, received or accrued during
taxable years of CFCs ending on or after
September 1, 2015, and to taxable years of
United States shareholders in which or
with which such taxable years end, but
only with respect to property manufac-
tured, produced, developed, or created, or,
in the case of acquired property, property
to which substantial value has been added,
on or after September 1, 2015. The rules
in § 1.954-2(c)(1)(iv), (c)(2)(ii), (d)(1)(ii),
and (d)(2)(ii) (regarding the active mar-
keting test), as well as the rules in
§ 1.954-2(c)(2)(iii)(E),(c)(2)(viii), (d)(2)
(iii)(E), and (d)(2)(v) (regarding cost-
sharing arrangements), apply to rents or
royalties, as applicable, received or ac-
crued during taxable years of CFCs end-
ing on or after September 1, 2015, and to
taxable years of United States sharehold-
ers in which or with which such taxable
years end, to the extent that such rents or
royalties are received or accrued on or
after September 1, 2015. The section 956
anti-avoidance rules in § 1.956-1(b) ap-
ply to taxable years of CFCs ending on or
after September 1, 2015, and to taxable
years of United States shareholders in
which or with which such taxable years
end, with respect to property acquired,
including property treated as acquired as
the result of a deemed exchange of prop-
erty pursuant to section 1001, on or after
September 1, 2015. The rules regarding
factoring transactions in § 1.956-3 (other
than § 1.956-3(b)(2)(ii)) apply to trade or
service receivables acquired (directly or
indirectly) after March 1, 1984.

The remaining rules in these final reg-
ulations apply to taxable years of CFCs

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ending on or after November 3, 2016, and
taxable years of United States sharehold-
ers in which or with which such taxable
years end. In general, these remaining
rules apply to property acquired, or
pledges or guarantees entered into, on or
after September 1, 2015, including prop-
erty considered acquired, and pledges and
guarantees considered entered into, on or
after September 1, 2015, as a result of a
deemed exchange pursuant to section
1001. See § 1.956-4(c) (dealing with ob-
ligations of foreign partnerships); §§ 1.956-
2(c), 1.956-4(d), and 1.956-1(e)(2) (deal-
ing with pledges and guarantees, includ-
ing pledges and guarantees by a partner-
ship and with respect to obligations of a
foreign partnership); and § 1.956-3(b)
(2)(ii) (dealing with trade and service re-
ceivables acquired from related United
States persons indirectly through nomi-
nees, pass-through entities, or related for-
eign corporations). Two rules, however,
apply to all obligations held on or after
November 3, 2016. See §§ 1.956-2(a)(3)
and 1.956-4(e) (dealing with obligations
of disregarded entities and domestic part-
nerships, respectively). Finally, § 1.956-
4(b) (dealing with partnership property in-
directly held by a CFC) applies to
property acquired on or after November 3,
2016. No inference is intended as to the
application of the provisions amended by
these final regulations under prior law,
including in transactions involving obliga-
tions of foreign partnerships. The IRS
may, where appropriate, challenge trans-
actions under the Code, regulatory provi-
sions under prior law, or judicial doc-
trines.

## Effect on Other Documents

Rev. Rul. 90-112 (1990-2 CB 186) is
obsolete as of November 3, 2016.

## Special Analyses

Certain IRS regulations, including
these regulations, are exempt from the
requirements of Executive Order 12866,
as supplemented and reaffirmed by Exec-
utive Order 13563. Therefore, a regula-
tory assessment is not required. It has also
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
Chapter 5) does not apply to these regu-
lations, 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), the notice of
proposed rulemaking preceding these reg-
ulations was submitted to the Chief Coun-
sel of Advocacy of the Small Business
Administration for comment on its impact
on small business.

## Drafting Information

The principal author of these regula-
tions is Rose E. Jenkins of the Office of
Associate Chief Counsel (International).
However, other personnel from the Trea-
sury Department and the IRS participated
in their development.

*****

## Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended
as follows:

### PART 1-INCOME TAXES

Paragraph 1. The authority citation for
part 1 is amended by adding entries in
numerical order to read in part as follows:

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

Section 1.956-1 also issued under 26
U.S.C. 956(d) and 956(e).

Section 1.956-2 also issued under 26
U.S.C. 956(d) and 956(e).

Section 1.956-3 also issued under 26
U.S.C. 864(d)(8) and 956(e).

Section 1.956-4 also issued under 26
U.S.C. 956(d) and 956(e).

* * * * *

Par. 2. Section 1.954-2 is amended by:

1\. Revising paragraphs (c)(1)(i), (c)(1)
(iv), and (c)(2)(ii).

2\. Removing the word "and" at the end
of paragraph (c)(2)(iii)(C).

3\. Removing the period at the end of
paragraph (c)(2)(iii)(D) and adding in its
place a semicolon and the word "and".

4\. Revising paragraphs (c)(2)(iii)(E)
and (c)(2)(viii).

5\. Revising paragraphs (d)(1)(i), (d)(1)
(ii), and (d)(2)(ii).

6\. Removing the word "and" at the end
of paragraph (d)(2)(iii)(C).

7\. Removing the period at the end of
paragraph (d)(2)(iii)(D), and adding in its
place a semicolon and the word "and".

8\. Revising paragraphs (d)(2)(iii)(E)
and (d)(2)(v).

9\. Revising paragraph (i).

The revisions and additions read as fol-
lows:

### § 1.954-2 Foreign personal holding company income.

* * * * *

(c) * * *

(1) * * *

(i) Property that the lessor, through its
own officers or staff of employees, has
manufactured or produced, or property
that the lessor has acquired and, through
its own officers or staff of employees,
added substantial value to, but only if the
lessor, through its officers or staff of em-
ployees, is regularly engaged in the man-
ufacture or production of, or in the acqui-
sition and addition of substantial value to,
property of such kind;

* * * * *

(iv) Property that is leased as a result of
the performance of marketing functions
by such lessor through its own officers or
staff of employees located in a foreign
country or countries, if the lessor, through
its officers or staff of employees, main-
tains and operates an organization either
in such country or in such countries (col-
lectively), as applicable, that is regularly
engaged in the business of marketing, or
of marketing and servicing, the leased
property and that is substantial in relation
to the amount of rents derived from the
leasing of such property.

(2) * * *

(ii) Substantiality of foreign organiza-
tion. For purposes of paragraph (c)(1)(iv)
of this section, whether an organization
either in a foreign country or in foreign
countries (collectively) is substantial in
relation to the amount of rents is deter-
mined based on all the facts and circum-
stances. However, such an organization
will be considered substantial in relation
to the amount of rents if active leasing
expenses, as defined in paragraph (c)
(2)(iii) of this section, equal or exceed 25
percent of the adjusted leasing profit, as
defined in paragraph (c)(2)(iv) of this sec-
tion. In addition, for purposes of aircraft

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or vessels leased in foreign commerce, an
organization will be considered substan-
tial if active leasing expenses, as defined
in paragraph (c)(2)(iii) of this section,
equal or exceed 10 percent of the adjusted
leasing profit, as defined in paragraph
(c)(2)(iv) of this section. For purposes of
paragraphs (c)(1)(iv) and (c)(2) of this
section and § 1.956-2(b)(1)(vi), the term
aircraft or vessels includes component
parts, such as engines that are leased sepa-
rately from an aircraft or vessel.

(iii) * * *

(E) Deductions for CST Payments or
PCT Payments (as defined in § 1.482-
7(b)).

* * * * *

(viii) Cost sharing arrangements
(CSAs). For purposes of paragraphs
(c)(1)(i) and (iv) of this section, CST Pay-
ments or PCT Payments (as defined in
§ 1.482-7(b)(1)) made by the lessor to
another controlled participant (as defined
in § 1.482-7(j)(1)(i)) pursuant to a CSA
(as defined in § 1.482-7(a)) do not cause
the activities undertaken by that other
controlled participant to be considered to
be undertaken by the lessor's own officers
or staff of employees.

* * * * *

(d) * * *

(1) * * *

(i) Property that the licensor, through
its own officers or staff of employees, has
developed, created, or produced, or prop-
erty that the licensor has acquired and,
through its own officers or staff of em-
ployees, added substantial value to, but
only so long as the licensor, through its
officers or staff of employees, is regularly
engaged in the development, creation, or
production of, or in the acquisition and
addition of substantial value to, property
of such kind; or

(ii) Property that is licensed as a result
of the performance of marketing functions
by such licensor through its own officers
or staff of employees located in a foreign
country or countries, if the licensor,
through its officers or staff of employees,
maintains and operates an organization ei-
ther in such foreign country or in such
foreign countries (collectively), as appli-
cable, that is regularly engaged in the
business of marketing, or of marketing
and servicing, the licensed property and
that is substantial in relation to the amount

of royalties derived from the licensing of
such property.

(2) * * *

(ii) Substantiality of foreign organiza-
tion. For purposes of paragraph (d)(1)(ii)
of this section, whether an organization
either in a foreign country or in foreign
countries (collectively) is substantial in
relation to the amount of royalties is de-
termined based on all of the facts and
circumstances. However, such an organi-
zation will be considered substantial in
relation to the amount of royalties if active
licensing expenses, as defined in para-
graph (d)(2)(iii) of this section, equal or
exceed 25 percent of the adjusted licens-
ing profit, as defined in paragraph
(d)(2)(iv) of this section.

(iii) * * *

(E) Deductions for CST Payments or
PCT Payments (as defined in § 1.482-
7(b)).

* * * * *

(v) Cost sharing arrangements (CSAs).
For purposes of paragraphs (d)(1)(i) and
(ii) of this section, CST Payments or PCT
Payments (as defined in § 1.482-7(b)(1))
made by the licensor to another controlled
participant (as defined in § 1.482-
7(j)(1)(i)) pursuant to a CSA (as defined
in § 1.482-7(a)) do not cause the activities
undertaken by that other controlled partic-
ipant to be considered to be undertaken by
the licensor's own officers or staff of em-
ployees.

* * * * *

(i) Effective/applicability dates-(1)
Paragraphs (c)(2)(v) through (vii). Para-
graphs (c)(2)(v) through (vii) of this sec-
tion and Example 6 of paragraph (c)(3) of
this section apply to taxable years of con-
trolled foreign corporations beginning on
or after May 2, 2006, and for taxable years
of United States shareholders with or
within which such taxable years of the
controlled foreign corporations end. Tax-
payers may elect to apply paragraphs
(c)(2)(v) through (vii) to taxable years of
controlled foreign corporations beginning
after December 31, 2004, and for taxable
years of United States shareholders with
or within which such taxable years of the
controlled foreign corporations end. If an
election is made to apply § 1.956-
2(b)(1)(vi) to taxable years beginning af-
ter December 31, 2004, then the election

must also be made for paragraphs
(c)(2)(v) through (vii) of this section.

(2) Other paragraphs. Paragraphs (c)
(1)(i) and (d)(1)(i) of this section apply to
rents or royalties, as applicable, received
or accrued during taxable years of con-
trolled foreign corporations ending on or
after September 1, 2015, and to taxable
years of United States shareholders in
which or with which such taxable years
end, but only with respect to property
manufactured, produced, developed, or
created, or in the case of acquired prop-
erty, property to which substantial value
has been added, on or after September 1,
2015. Paragraphs (c)(1)(iv), (c)(2)(ii), (c)(2)
(iii)(E), (c)(2)(viii), (d)(1)(ii), (d)(2)(ii),
(d)(2)(iii)(E), and (d)(2)(v) of this section
apply to rents or royalties, as applicable,
received or accrued during taxable years
of controlled foreign corporations ending
on or after September 1, 2015, and to
taxable years of United States sharehold-
ers in which or with which such taxable
years end, to the extent that such rents or
royalties are received or accrued on or
after September 1, 2015. See § 1.954-
2(c)(1)(i), (c)(1)(iv), (c)(2)(ii), (c)(2)(iii),
(d)(1)(i), (d)(1)(ii), (d)(2)(ii), and (d)(2)
(iii), as contained in 26 CFR part 1 revised
as of April 1, 2015, for rules applicable to
rents or royalties, as applicable, received
or accrued before September 1, 2015.
* * * * *

#### § 1.954-2T [Removed]

Par. 3. Section 1.954-2T is removed.

Par. 4. Section 1.956-1 is amended by:

1\. Revising the section heading and
paragraphs (a) and (b).

2\. Removing and reserving paragraphs
(c) and (d).

3\. Revising paragraphs (e)(2) and (g).
The revisions read as follows:

§ 1.956-1 Shareholder's pro rata share
of the average of the amounts of United
States property held by a controlled
foreign corporation.

(a) In general. Subject to the provi-
sions of section 951(a) and the regulations
thereunder, a United States shareholder of
a controlled foreign corporation is re-
quired to include in gross income the
amount determined under section 956
with respect to the shareholder for the

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taxable year but only to the extent not
excluded from gross income under section
959(a)(2) and the regulations thereunder.

(b) Amount of United States property
held indirectly by a controlled foreign
corporation-(1) General rule. For pur-
poses of section 956, United States prop-
erty held indirectly by a controlled foreign
corporation includes-

(i) United States property held on be-
half of the controlled foreign corporation
by a trustee or a nominee;

(ii) United States property acquired by
any other foreign corporation that is con-
trolled by the controlled foreign corpora-
tion if a principal purpose of creating,
organizing, or funding by any means (in-
cluding through capital contributions or
debt) the other foreign corporation is to
avoid the application of section 956 with
respect to the controlled foreign corpora-
tion; and

(iii) Property acquired by a partnership
that is controlled by the controlled foreign
corporation if the property would be
United States property if held directly by
the controlled foreign corporation, and a
principal purpose of creating, organizing,
or funding by any means (including
through capital contributions or debt) the
partnership is to avoid the application of
section 956 with respect to the controlled
foreign corporation.

(2) Control. For purposes of para-
graphs (b)(1)(ii) and (iii) of this section, a
controlled foreign corporation controls a
foreign corporation or partnership if the
controlled foreign corporation and the
other foreign corporation or partnership
are related within the meaning of section
267(b) or section 707(b). For this purpose,
in determining whether two corporations
are members of the same controlled group
under section 267(b)(3), a person is con-
sidered to own stock owned directly by
such person, stock owned for the purposes
of section 1563(e)(1), and stock owned
with the application of section 267(c).

(3) Coordination rule. Paragraph (b)(1)
(iii) of this section applies only to the
extent that the amount of United States
property that is treated under that para-
graph as held indirectly by a controlled
foreign corporation through the partner-
ship exceeds the sum of-

(i) The amount of United States prop-
erty described in paragraph (b)(1)(iii) of

this section that is treated as held by the
controlled foreign corporation as a result
of the application of § 1.956-4(b) with
respect to the partnership; and

(ii) The amount of United States prop-
erty that is treated as held by the con-
trolled foreign corporation as a result of
the application of § 1.956-4(c) with re-
spect to any portion of an obligation at-
tributable to the funding described in
paragraph (b)(1)(iii) of this section of the
partnership by the controlled foreign cor-
poration.

(4) Examples. The following examples
illustrate the rules of this paragraph (b). In
each example, P is a domestic corporation
that wholly owns two controlled foreign
corporations, FS1 and FS2.

Example 1. (i) Facts. FS1 sells inventory to FS2
in exchange for trade receivables due in 60 days.
Avoiding the application of section 956 with respect
to FS1 was not a principal purpose of establishing
the trade receivables. FS2 has no earnings and prof-
its, and FS1 has substantial accumulated earnings
and profits. FS2 makes a loan to P equal to the
amount it owes FS1 under the trade receivables. FS2
pays the trade receivables according to their terms.

(ii) Result. FS1 will not be considered to indi-
rectly hold United States property under this para-
graph (b) because the funding of FS2 through the
sale of inventory in exchange for the establishment
of trade receivables was not undertaken with a prin-
cipal purpose of avoiding the application of section
956 with respect to FS1.

Example 2. (i) Facts. The facts are the same as in
Example 1 of this paragraph (b)(4), except that, with
a principal purpose of avoiding the application of
section 956 with respect to FS1, FS1 and FS2 agree
to defer FS2's payment obligation, and FS2 does not
timely pay the receivables.

(ii) Result. FS1 is considered to hold indirectly
United States property under this paragraph (b) and
§ 1.956-2(a) because there was a funding of FS2, a
principal purpose of which was to avoid the appli-
cation of section 956 with respect to FS1.

Example 3. (i) Facts. FS1 has $100x of post-
1986 undistributed earnings and profits and $100x
post-1986 foreign income taxes, but does not have
any cash. FS2 has earnings and profits of at least
$100x, no post-1986 foreign income taxes, and sub-
stantial cash. Neither FS1 nor FS2 has earnings and
profits described in section 959(c)(1) or section
959(c)(2). FS2 loans $100x to FS1. FS1 then loans
$100x to P. An income inclusion by P of $100x
under sections 951(a)(1)(B) and 956 with respect to
FS1 would result in foreign income taxes deemed
paid by P under section 960. A principal purpose of
funding FS1 through the loan from FS2 is to avoid
the application of section 956 with respect to FS2.

(ii) Result. Under paragraph (b)(1)(ii) of this
section, FS2 is considered to indirectly hold the
$100x obligation of P that is held by FS1. As a
result, P has an income inclusion of $100x under
sections 951(a)(1)(B) and 956 with respect to FS2,
and the foreign income taxes deemed paid by P

under section 960 is $0. P does not have an income
inclusion under sections 951(a)(1)(B) and 956 with
respect to FS1 related to the $100x loan from FS1
to P.

Example 4. (i) Facts. FS1 deposits $100x with
BK, an unrelated foreign financial institution. FS2
subsequently borrows $100x from BK. BK would
not have loaned the $100x to FS2 on the same terms
absent FS1's deposit. FS2 loans the $100x borrowed
from BK to P. FS2 has no earnings and profits, and
FS1 has substantial accumulated earnings and prof-
its. A principal purpose for the transactions is to
avoid the application of section 956 with respect to
FS1.

(ii) Result. FS1 is considered to hold indirectly
United States property under this paragraph (b) and
§ 1.956-2(a) because FS1's deposit with BK, which
facilitates BK's loan to FS2, is considered a funding
by FS1 of FS2, a principal purpose of which was to
avoid the application of section 956 with respect to
FS1.

Example 5. (i) Facts. FS1 sells inventory to FS2
in exchange for $100x. The sale occurred in the
ordinary course of FS1's trade or business and FS2's
trade or business, and the terms of the sale are
consistent with terms that would be observed among
parties dealing at arm's length. FS1 makes a $100x
loan to P. FS2 has no earnings and profits, and FS1
has substantial accumulated earnings and profits.

(ii) Result. FS2 will not be considered to indi-
rectly hold United States property under this para-
graph (b) because a sale in the ordinary course of
business for cash on terms that are consistent with
those that would be observed among parties dealing
at arm's length does not constitute a funding.

Example 6. (i) Facts. In Year 1, FS2 loans $100x
to FS1 to finance FS1's trade or business. The terms
of the loan are consistent with those that would be
observed among parties dealing at arm's length. In
Year 2, FS1 repays the loan in accordance with the
terms of the loan. Immediately after the repayment
by FS1, FS2 loans $100x to P. FS2 has no earnings
and profits, and FS1 has substantial accumulated
earnings and profits.

(ii) Result. FS1 will not be considered to indi-
rectly hold United States property under this para-
graph (b) because a repayment of a loan that has
terms that are consistent with those that would be
observed among parties dealing at arm's length and
that is repaid consistent with those terms does not
constitute a funding.

Example 7. (i) Facts. FS1 has substantial earn-
ings and profits. P and FS1 are the only partners in
FPRS, a foreign partnership. FS1 contributes $600x
cash to FPRS in exchange for a 60% interest in the
partnership, and P contributes real estate located
outside the United States ($400x value) to FPRS in
exchange for a 40% interest in the partnership. There
are no special allocations in the FPRS partnership
agreement. FPRS lends $100x to P. Under § 1.956-
4(b) and § 1.956-2(a), FS1 is treated as holding
United States property of $60x (60% x $100x) as a
result of the FPRS loan to P. A principal purpose of
creating, organizing, or funding FPRS is to avoid the
application of section 956 with respect to FS1.

(ii) Result. Before taking into account paragraph
(b)(3) of this section, because FS1 controls FPRS
and a principal purpose of creating, organizing, or

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funding FPRS was to avoid the application of section
956 with respect to FS1, FS1 is considered under
paragraph (b)(1)(iii) of this section to indirectly hold
the $100x obligation of P that would be United
States property if held directly by FS1. However,
under paragraph (b)(3) of this section, FS1 is treated
as holding United States property under paragraph
(b)(1)(iii) only to the extent the amount held indi-
rectly under paragraph (b)(1)(iii) of this section ex-
ceeds the sum of the amount of the United States
property that FS1 is treated as holding as a result of
the application of § 1.956-4(b) with respect to
FPRS. The amount of United States property that
FS1 is treated as indirectly holding under paragraph
(b)(1)(iii) of this section and § 1.956-2(a) ($100x)
exceeds the amount determined under § 1.956-4(b)
($60x) by $40x. Thus, FS1 is considered to hold
United States property within the meaning of section
956(c) in the amount of $100x ($60x under § 1.956-
4(b) and $40x under paragraphs (b)(1)(iii) and (b)(3)
of this section).

Example 8. (i) Facts. FS1 and FS2 have substan-
tial earnings and profits. P and FS1 are the only
partners in FPRS, a foreign partnership. There are no
special allocations in the FPRS partnership agree-
ment. P's liquidation value percentage with respect
to FPRS is 40%, and FS1's liquidation value per-
centage with respect to FPRS is 60%. FS2 lends
$100x to FPRS, and FPRS lends $100x to P. Under
§ 1.956-4(c) and § 1.956-2(a), FS2 is treated as
holding United States property of $40x (40% x
$100x) as a result of its loan to FPRS. A principal
purpose of funding FPRS is to avoid the application
of section 956 with respect to FS2.

(ii) Result. Before taking into account paragraph
(b)(3) of this section, because FS2 controls FPRS
and a principal purpose of funding FPRS was to
avoid the application of section 956 with respect to
FS2, FS2 is considered under paragraph (b)(1)(iii) of
this section to indirectly hold the $100x obligation of
P that would be United States property if held di-
rectly by FS2. However, under paragraph (b)(3) of
this section, FS2 is treated as holding United States
property under paragraph (b)(1)(iii) only to the ex-
tent the amount held indirectly under paragraph
(b)(1)(iii) of this section exceeds the amount of
United States property that FS2 is treated as holding
as a result of the application of § 1.956-4(c) with
respect to the obligation with which FS2 funds
FPRS. The amount of United States property that
FS2 is treated as indirectly holding under paragraph
(b)(1)(iii) of this section and § 1.956-2(a) ($100x)
exceeds the amount determined under § 1.956-4(c)
($40x) by $60x. Thus, FS2 is considered to hold
United States property within the meaning of section
956(c) in the amount of $100x ($40x under § 1.956-
4(c) and $60x under paragraphs (b)(1)(iii) and (b)(3)
of this section). P does not have an income inclusion
under sections 951(a)(1)(B) and 956 with respect to
FS1 related to the P obligation held by FPRS.

(c) - (d) [Reserved]

(e) * * *

(2) Rule for pledges and guarantees.
For purposes of this section, the amount of
an obligation treated as held (before ap-
plication of § 1.956-4(b)) as a result of a
pledge or guarantee described in § 1.956-

2(c) is the unpaid principal amount of the
obligation on the applicable determination
date.

* * * * *

(g) Effective/applicability date. (1)
Paragraph (a) of this section applies to
taxable years of controlled foreign corpo-
rations ending on or after November 3,
2016, and to taxable years of United
States shareholders in which or with
which such taxable years end.

(2) Paragraph (b) of this section applies
to taxable years of controlled foreign cor-
porations ending on or after September 1,
2015, and to taxable years of United
States shareholders in which or with
which such taxable years end, with respect
to property acquired on or after September
1, 2015. See paragraph (b)(4) of § 1.956-
1T, as contained in 26 CFR part 1 revised
as of April 1, 2015, for the rules applica-
ble to taxable years of controlled foreign
corporations ending before September 1,
2015, and property acquired before Sep-
tember 1, 2015. For purposes of this para-
graph (g)(2), a deemed exchange of prop-
erty pursuant to section 1001 on or after
September 1, 2015 constitutes an acquisi-
tion of the property on or after that date.

(3) Paragraph (e)(2) of this section ap-
plies to taxable years of controlled foreign
corporations ending on or after November
3, 2016, and taxable years of United
States shareholders in which or with
which such taxable years end, with respect
to pledges or guarantees entered into on or
after September 1, 2015. For purposes of
this paragraph (g)(3), a pledgor or guar-
antor is treated as entering into a pledge or
guarantee when there is a significant mod-
ification, within the meaning of § 1.1001-
3(e), of an obligation with respect to
which it is a pledgor or guarantor on or
after September 1, 2015.

* * * * *

Par. 5. Section 1.956-1T is revised to
read as follows:

§ 1.956-1T Shareholder's pro rata
share of the average of the amounts of
United States property held by a
controlled foreign corporation.

(a) through (e)(4) [Reserved]

(5) Exclusion for certain recourse ob-
ligations. For purposes of § 1.956-1(e)(1)
of the regulations, in the case of an invest-

ment in United States property consisting
of an obligation of a related person, as
defined in section 954(d)(3) and para-
graph (f) of § 1.954-1, a liability will not
be recognized as a specific charge if the
liability representing the charge is with
recourse with respect to the general credit
or other assets of the investing controlled
foreign corporation.

(e)(6) [Reserved]. For further guid-
ance, see § 1.956-1(e)(6).

(f) Effective/applicability date. Para-
graph (e)(5) of this section applies to in-
vestments made on or after June 14, 1988.

(g) - (h) [Reserved]

Par. 6. Section 1.956-2 is amended by:

1\. Revising paragraphs (a)(3), (c)(1),
and (c)(2).

2\. Adding Example 4 to paragraph
(c)(3).
3\. Adding paragraph (h).

The revisions and addition read as fol-
lows:

§ 1.956-2 Definition of United States
property.

(a) * * *

(3) Treatment of disregarded entities.
For purposes of section 956, an obligation
of a business entity (as defined in
§ 301.7701-2(a) of this chapter) that is
disregarded as an entity separate from its
owner for federal tax purposes under
§§ 301.7701-1 through 301.7701-3 of
this chapter is treated as an obligation of
its owner.

* * * * *

(c) Treatment of pledges and guaran-
tees-(1) General rule. Except as pro-
vided in paragraph (c)(4) of this section,
for purposes of section 956, any obliga-
tion of a United States person with respect
to which a controlled foreign corporation
or a partnership is a pledgor or guarantor
will be considered to be held by the con-
trolled foreign corporation or the partner-
ship, as the case may be. See § 1.956-
1(e)(2) for rules that determine the
amount of the obligation treated as held
by a pledgor or guarantor under this para-
graph (c). For rules that treat an obligation
of a foreign partnership as an obligation of
the partners in the foreign partnership for
purposes of section 956, see § 1.956-
4(c).

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(2) Indirect pledge or guarantee. If the
assets of a controlled foreign corporation
or a partnership serve at any time, even
though indirectly, as security for the per-
formance of an obligation of a United
States person, then, for purposes of para-
graph (c)(1) of this section, the controlled
foreign corporation or partnership will be
considered a pledgor or guarantor of that
obligation. If a partnership is considered a
pledgor or guarantor of an obligation, a
controlled foreign corporation that is
a partner in the partnership will not also
be treated as a pledgor or guarantor of the
obligation solely as a result of its owner-
ship of an interest in the partnership. For
purposes of this paragraph, a pledge of
stock of a controlled foreign corporation
representing at least 66 2/3 percent of the
total combined voting power of all classes
of voting stock of such corporation will be
considered an indirect pledge of the assets
of the controlled foreign corporation if the
pledge is accompanied by one or more
negative covenants or similar restrictions
on the shareholder effectively limiting the
corporation's discretion to dispose of as-
sets and/or incur liabilities other than in
the ordinary course of business. See
§ 1.956-4(d) for guidance on the treat-
ment of indirect pledges or guarantees of
an obligation of a partnership attributed to
its partners under § 1.956-4(c).

##### (3) * * *

Example 4. (i) Facts. USP, a domestic corpora-
tion, owns 70% of the stock of FS, a controlled
foreign corporation, and a 90% interest in FPRS, a
foreign partnership. X, an unrelated foreign person,
owns 30% of the stock of FS. Y, an unrelated foreign
person, owns a 10% interest in FPRS. There are no
special allocations in the FPRS partnership agree-
ment. FPRS borrows $100x from Z, an unrelated
person. FS pledges its assets as security for FPRS's
performance of its obligation to repay the $100x
loan. USP's share of the $100x FPRS obligation,
determined in accordance with its liquidation value
percentage, is $90x. Under § 1.956-4(c), $90x of
the FPRS obligation is treated as an obligation of
USP for purposes of section 956.

(ii) Result. For purposes of section 956, under
paragraph (c)(1) of this section, FS is considered to
hold an obligation of USP in the amount of $90x,
and thus is treated as holding United States property
in the amount of $90x.

** * * *

(h) Effective/applicability date. (1)
Paragraph (a)(3) of this section applies to
taxable years of controlled foreign corpo-
rations ending on or after November 3,
2016, and taxable years of United States

shareholders in which or with which such
taxable years end, with respect to obliga-
tions held on or after November 3, 2016.

(2) Paragraphs (c)(1), (c)(2), and Ex-
ample 4 of paragraph (c)(3) of this section
apply to taxable years of controlled for-
eign corporations ending on or after No-
vember 3, 2016, and taxable years of
United States shareholders in which or
with which such taxable years end, with
respect to pledges and guarantees entered
into on or after September 1, 2015. For
purposes of this paragraph (h)(2), a pled-
gor or guarantor is treated as entering into
a pledge or guarantee when there is a
significant modification, within the mean-
ing of § 1.1001-3(e), of an obligation with
respect to which it is a pledgor or guaran-
tor on or after September 1, 2015.

* * * * *

Par. 7. Section § 1.956-3 is added to
read as follows:

§ 1.956-3 Certain trade or service
receivables acquired from United States
persons.

(a) In general. For purposes of section
956(a) and § 1.956-1, the term "United
States property" also includes any trade or
service receivable if the trade or service
receivable is acquired (directly or indi-
rectly) from a related person who is a
United States person (as defined in section
7701(a)(30)) (a related United States per-
son) and the obligor under the receivable
is a United States person. A trade or ser-
vice receivable described in this para-
graph is considered to be United States
property notwithstanding the exceptions
(other than subparagraph (H)) contained
in section 956(c)(2). The terms "trade or
service receivable" and "related person"
have the respective meanings given to the
terms by section 864(d) and the regula-
tions thereunder, including § 1.864-
8T(b). For purposes of this section, the
exception in § 1.956-2T(d)(2)(ii) does
not apply to trade or service receivables
described in this paragraph.

(b) Acquisition of a trade or service
receivable-(1) General rule. The rules of
§ 1.864-8T(c)(1) apply to determine
whether a controlled foreign corporation
has acquired a trade or service receivable.

(2) Indirect acquisitions-(i) Acquisi-
tion through unrelated person. A trade or

service receivable is considered acquired
from a related person when it is acquired
from an unrelated person who acquired
(directly or indirectly) the receivable from
a person who is a related person to the
acquiring person.

(ii) Acquisition by nominee, pass-
through entity, or related foreign corpo-
ration. A controlled foreign corporation is
treated as holding a trade or service re-
ceivable that is held by a nominee on its
behalf, or by a simple trust or other pass-
through entity (other than a partnership) to
the extent of its direct or indirect owner-
ship or beneficial interest in such simple
trust or other pass-through entity. See
§§ 1.956-1(b) and 1.956-4(b) for rules
that may treat a controlled foreign corpo-
ration as indirectly holding a trade or ser-
vice receivable held by a foreign corpora-
tion or partnership. A controlled foreign
corporation that is treated as holding a
trade or service receivable held by another
person (the direct holder) (or that would
be treated as holding the receivable if the
receivable were United States property or
would be United States property if held
directly by the controlled foreign corpora-
tion) is considered to have acquired the
receivable from the person from whom
the direct holder acquired the receivable.
This paragraph (b)(2)(ii) does not limit the
application of paragraph (b)(2)(iii) of this
section. The following examples illustrate
the application of this paragraph (b)(2)(ii):

Example 1. (i) Facts. A domestic corporation, P,
wholly owns a controlled foreign corporation, FS,
with substantial earnings and profits. FS contributes
$200x of cash to a partnership, PRS, in exchange for
an 80% partnership interest. An unrelated foreign
person contributes real estate located in a foreign
country with a fair market value of $50x to PRS for
the remaining 20% partnership interest. There are no
special allocations in the PRS partnership agreement.
PRS uses the $200x of cash received from FS to
purchase trade receivables from P. The obligors with
respect to the trade receivables are United States
persons that are not related to any partner in PRS.
The liquidation value percentage, as determined un-
der § 1.956-4(b), for FS with respect to PRS is 80%.
A principal purpose of funding PRS (through FS's
cash contribution) is to avoid the application of sec-
tion 956 with respect to FS.

(ii) Result. Under § 1.956-4(b)(1), FS is treated
as holding 80% of the trade receivables acquired by
PRS from P, with a basis equal to $160x (80% x
$200x, PRS's basis in the trade receivables). How-
ever, because FS controls PRS and a principal pur-
pose of FS funding PRS was to avoid the application
of section 956 with respect to FS, under § 1.956-
1(b), if the trade receivables would be United States

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property if held directly by FS, FS additionally
would be treated as holding the trade receivables to
the extent that they exceed the amount of the receiv-
ables it holds under § 1.956-4(b), which is $40x
($200x - $160x). Accordingly, under this paragraph
(b)(2)(ii), FS is treated as having acquired from P, a
related United States person, the trade receivables
that it is treated as holding with a basis equal to
$200x ($160x + $40x). Thus, FS is treated as hold-
ing United States property with a basis of $200x
under paragraph (a) of this section.

Example 2. (i) Facts. A domestic corporation, P,
wholly owns a controlled foreign corporation, FS1,
that has earnings and profits of at least $300x. FS1
organizes a foreign corporation, FS2, with a $200x
cash contribution. FS2 uses the cash contribution to
purchase trade receivables from P. The obligors with
respect to the trade receivables are unrelated United
States persons. A principal purpose of funding FS2
(through FS1's cash contribution) is to avoid the
application of section 956 with respect to FS1.

(ii) Result. Under § 1.956-1(b), if the trade re-
ceivables held by FS2 were United States property,
FS1 would be treated as holding the trade receiv-
ables held by FS2 because FS1 controls FS2 and a
principal purpose of FS1 funding FS2 was to avoid
the application of section 956 with respect to FS1.
Accordingly, under this paragraph (b)(2)(ii), FS1 is
treated as having acquired from P, a related United
States person, the trade receivables that it would be
treated as holding with a basis equal to $200x. Thus,
FS1 is treated as holding United States property with
a basis of $200x under paragraph (a) of this section.

(iii) Swap or pooling arrangements. A
trade or service receivable of a United
States person is considered to be a trade or
service receivable acquired from a related
United States person and subject to the
rules of this section when it is acquired in
accordance with an arrangement that in-
volves two or more groups of related per-
sons, if the groups are unrelated to each
other and the effect of the arrangement is
that one or more persons in each group
acquire (directly or indirectly) trade or
service receivables from one or more un-
related United States persons who are also
parties to the arrangement in exchange for
reciprocal purchases of receivables from
related United States persons. The follow-
ing example illustrates the application of
this paragraph (b)(2)(iii):

Example. (i) Facts. Controlled foreign corpora-
tions A, B, C, and D are wholly-owned subsidiaries
of domestic corporations M, N, O, and P, respec-
tively. M, N, O, and P are not related persons.
According to a prearranged plan, A, B, C, and D
each acquire trade or service receivables from M, N,
O, and/or P. The obligors under some or all of the
receivables acquired by each of A, B, C, and D are
United States persons.

(ii) Result. The effect of the prearranged plan is
that each of A, B, C, and D acquires trade or service
receivables of United States persons from one or
more unrelated United States persons who are also

parties to the arrangement, in exchange for recipro-
cal purchases of receivables from a related United
States person. Accordingly, each of A, B, C, and D
is treated as holding a trade or service receivable
acquired from a related United States person and is
subject to the rules of this section. As a result, each
of A, B, C, and D is treated as holding an amount of
United States property equal to its adjusted basis in
the receivables acquired pursuant to the arrangement
with respect to which the obligors are United States
persons.

(iv) Financing arrangements. If a con-
trolled foreign corporation participates
(directly or indirectly) in a lending trans-
action that results in a loan to a United
States person who purchases property de-
scribed in section 1221(a)(1) (inventory
property) or services from a related
United States person, or to any person
who purchases from a related United
States person trade or service receivables
under which the obligor is a United States
person, or to a person who is a related
person with respect to the purchaser, and
if the loan would not have been made or
maintained on the same terms but for the
corresponding purchase, then the con-
trolled foreign corporation is considered
to have indirectly acquired a trade or ser-
vice receivable described in paragraph (a)
of this section. For purposes of this para-
graph (b)(2)(iv), it is immaterial that the
sums lent are not, in fact, the sums used to
finance the purchase of the inventory
property or services or trade or service
receivables from a related United States
person. The amount to be taken into ac-
count with respect to the United States
property treated as held by a controlled
foreign corporation as a result of the ap-
plication of this paragraph (b)(2)(iv) is the
lesser of the amount lent pursuant to a
lending transaction described in this para-
graph (b)(2)(iv) and the purchase price of
the inventory property, services, or trade
or service receivables. The following ex-
amples illustrate the application of this
paragraph (b)(2)(iv):

Example 1. (i) Facts. P, a domestic corporation,
owns all of the outstanding stock of FS1, a controlled
foreign corporation. P sells inventory property for
$200x to X, an unrelated United States person. FS1
makes a $100x short-term loan to X, which loan
would not have been made or maintained on the
same terms but for X's purchase of P's inventory
property.

(ii) Result. FS1 directly participates in a lending
transaction described in this paragraph (b)(2)(iv).
Thus, FS1 is considered to have acquired a trade or
service receivable described in paragraph (a) of this
section. That is, FS1 is considered to have acquired

a trade or service receivable of a United States per-
son from a related United States person. As a result,
FS1 is treated as holding United States property in
the amount of $100x.

Example 2. (i) Facts. The facts are the same as in
Example 1 of this paragraph (b)(2)(iv), except that
instead of loaning money to X directly, FS1 deposits
$300x with an unrelated financial institution that
loans $200x to X in order for X to purchase P's
inventory property. The loan would not have been
made or maintained on the same terms but for the
corresponding deposit.

(ii) Result. FS1 is considered to have acquired a
trade or service receivable described in paragraph (a)
of this section because FS1 indirectly participates in
a lending transaction described in this paragraph
(b)(2)(iv). See Rev. Rul. 87-89, 1987-2 CB 195.
That is, FS1 is considered to have acquired a trade or
service receivable of a United States person from a
related United States person. Thus, FS1 is treated as
holding United States property in the amount of
$200x.

Example 3. (i) Facts. P, a domestic corporation,
owns all of the outstanding stock of FS1, a controlled
foreign corporation. FS1 makes a $300x loan to U,
an unrelated foreign corporation, in connection with
U's purchase from P of receivables from the sale of
inventory property by P to United States obligors for
$200x.

(ii) Result. FS1 is considered to have acquired a
trade or service receivable described in paragraph (a)
of this section because FS1 directly participates in a
lending transaction described in this paragraph
(b)(2)(iv). That is, FS1 is considered to have ac-
quired a trade or service receivable of a United
States person from a related United States person.
Thus, FS1 is treated as holding United States prop-
erty in the amount of $200x.

(c) Substitution of obligor. For pur-
poses of this section, the substitution of
another person for a United States obligor
is disregarded, unless it can be demon-
strated by the parties to the transaction
that the primary purpose for the arrange-
ment was not the avoidance of section
956. The following example illustrates the
application of this paragraph (c):

Example. (i) Facts. P, a domestic corporation,
owns all of the outstanding stock of FS1, a controlled
foreign corporation with substantial accumulated
earnings and profits. P sells inventory property to X,
a domestic corporation unrelated to P. To pay for the
inventory property, X arranges for a foreign financ-
ing entity to issue a note to P. P then sells the note to
FS1. P and X cannot demonstrate that the primary
purpose for X's assignment of the payment obliga-
tion to the foreign financing entity was not the avoid-
ance of section 956.

(ii) Result. The substitution of the foreign financ-
ing entity for X is disregarded, and FS1 is treated as
holding an obligation of a United States person ac-
quired from a related United States person. Thus,
FS1 is treated as holding United States property in
the amount of the purchase price of the note.

(d) Effective/applicability date-(1)
Except as provided in paragraph (d)(2) of

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this section, this section applies to trade or
service receivables acquired (directly or
indirectly) after March 1, 1984.

(2) Paragraph (b)(2)(ii) of this section
applies to taxable years of controlled for-
eign corporations ending on or after No-
vember 3, 2016, and taxable years of
United States shareholders in which or
with which such taxable years end, with
respect to trade or service receivables ac-
quired on or after September 1, 2015. For
purposes of this paragraph (d), a signifi-
cant modification, within the meaning of
§ 1.1001-3(e), of a trade or service receiv-
able on or after September 1, 2015, con-
stitutes an acquisition of the trade or ser-
vice receivable on or after that date.

##### § 1.956-3T [Removed]

Par. 8. Section 1.956-3T is removed.
Par. 9. Section 1.956-4 is added to
read as follows:

§ 1.956-4 Certain rules applicable to
partnerships.

(a) Overview. This section provides
rules concerning the application of section
956 to certain obligations of and property
held by a partnership. Paragraph (b) of
this section provides rules concerning
United States property held indirectly by a
controlled foreign corporation through a
partnership. Paragraph (c) of this section
provides rules that generally treat obliga-
tions of a foreign partnership as obliga-
tions of the partners in the foreign part-
nership, as well as a special rule that treats
a partner that is a United States person as
owing additional amounts of a partnership
obligation in certain circumstances. Para-
graph (d) of this section sets forth a rule
concerning the application of the indirect
pledge or guarantee rule to obligations of
partnerships. Paragraph (e) of this section
provides that obligations of a domestic
partnership are obligations of a United
States person. Paragraph (f) of this section
provides effective and applicability dates.
See §§ 1.956-1(b) and 1.956-2(c) for ad-
ditional rules applicable to partnerships.

(b) Property held indirectly through a
partnership-(1) General rule. For pur-
poses of section 956, a partner in a part-
nership is treated as holding its attribut-
able share of any property held by the
partnership (including an obligation that

the partnership is treated as holding as a
result of the application of § 1.956-2(c)).
A partner's attributable share of partner-
ship property is determined under the
rules set forth in paragraph (b)(2) of this
section. An upper-tier partnership's attrib-
utable share of the property of a lower-tier
partnership is treated as property of the
upper-tier partnership for purposes of ap-
plying this paragraph (b)(1) to the partners
of the upper-tier partnership. For purposes
of section 956, a partner's adjusted basis
in the property of the partnership equals
the partner's attributable share of the part-
nership's adjusted basis in the property, as
determined under the rules set forth in
paragraph (b)(2) of this section, taking
into account any adjustments to basis un-
der section 743(b) (with respect to the
partner) or section 734(b) or any similar
adjustments to basis. The rules in
§ 1.956-1(e)(2) apply to determine the
amount of an obligation treated as held by
a partnership as a result of the application
of § 1.956-2(c). See § 1.956-1(b) for
special rules that may treat a controlled
foreign corporation as holding a greater
amount of United States property held by
a partnership than the amount determined
under this section.

(2) Methodology-(i) Liquidation value
percentage-(A) Calculation. Except as
otherwise provided in paragraph (b)(2)(ii)
of this section, for purposes of paragraph
(b)(1) of this section, a partner's attribut-
able share of partnership property is de-
termined in accordance with the partner's
liquidation value percentage. For pur-
poses of this paragraph (b)(2)(i) and para-
graph (c)(1) of this section, the liquidation
value of a partner's interest in a partner-
ship is the amount of cash the partner
would receive with respect to the interest
if, on the applicable determination date, as
provided in paragraph (b)(2)(i)(B) of this
section, the partnership sold all of its as-
sets for cash equal to the fair market value
of such assets (taking into account section
7701(g)), satisfied all of its liabilities
(other than those described in § 1.752-7),
paid an unrelated third party to assume all
of its § 1.752-7 liabilities in a fully tax-
able transaction, and then liquidated. A
partner's liquidation value percentage is
the ratio (expressed as a percentage) of the
liquidation value of the partner's interest
in the partnership divided by the aggre-

gate liquidation value of all of the part-
ners' interests in the partnership.

(B) Determination date. The determi-
nation date with respect to a partnership is
the most recent of-

(1) The formation of the partnership;

(2) An event described in § 1.704-
1(b)(2)(iv)(f)(5) or § 1.704-1(b)(2)(iv)
(s)(1) (a revaluation event), irrespective of
whether the capital accounts of the part-
ners are adjusted in accordance with
§ 1.704-1(b)(2)(iv)(f); or

(3) The first day of the partnership's
taxable year, as determined under section
706, provided the liquidation value per-
centage determined for any partner on that
day would differ from the most recently
determined liquidation value percentage
of that partner by more than 10 percentage
points.

(ii) Special allocations. For purposes
of paragraph (b)(1) of this section, if a
partnership agreement provides for the al-
location of book income (or, where appro-
priate, book gain) from a subset of the
property of the partnership to a partner
other than in accordance with the part-
ner's liquidation value percentage in a
particular taxable year (a special alloca-
tion), then the partner's attributable share
of that property is determined solely by
reference to the partner's special alloca-
tion with respect to the property, provided
the special allocation does not have a prin-
cipal purpose of avoiding the purposes of
section 956.

(3) Examples. The following examples
illustrate the rule of this paragraph (b):

Example 1. (i) Facts. USP, a domestic corpora-
tion, wholly owns FS, a controlled foreign corpora-
tion, which, in turn, owns an interest in FPRS, a
foreign partnership. The remaining interest in FPRS
is owned by an unrelated foreign person. FPRS holds
non-depreciable property with an adjusted basis of
$100x (the "FPRS property") that would be United
States property if held by FS directly. At the close of
quarter 1 of year 1, the liquidation value percentage,
as determined under paragraph (b)(2) of this section,
for FS with respect to FPRS is 25%. There are no
special allocations in the FPRS partnership agree-
ment.

(ii) Result. Under paragraph (b)(1) of this sec-
tion, for purposes of section 956, FS is treated as
holding its attributable share of the property held by
FPRS with an adjusted basis equal to its attributable
share of FPRS's adjusted basis in such property.
Under paragraph (b)(2) of this section, FS's attrib-
utable share of property held by FPRS is determined
in accordance with FS's liquidation value percent-
age, which is 25%. Thus, FS's attributable share of
the FPRS property is 25%, and its attributable share

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of FPRS's basis in the FPRS property is $25x. Ac-
cordingly, for purposes of determining the amount of
United States property held by FS as of the close of
quarter 1 of year 1, FS is treated as holding United
States property with an adjusted basis of $25x.

Example 2. (i) Facts. The facts are the same as in
Example 1 of this paragraph (b)(3), except that the
FPRS partnership agreement, which satisfies the re-
quirements of section 704(b), specially allocates
80% of the income with respect to the FPRS prop-
erty to FS. The special allocation does not have a
principal purpose of avoiding the purposes of section
956.

(ii) Result. Under paragraph (b)(1) of this sec-
tion, for purposes of section 956, FS is treated as
holding its attributable share of property held by
FPRS with an adjusted basis equal to its attributable
share of FPRS's adjusted basis in such property. In
general, FS's attributable share of property held by
FPRS is determined in accordance with FS's liqui-
dation value percentage. However, because the spe-
cial allocation does not have a principal purpose of
avoiding the purposes of section 956, under para-
graph (b)(2)(ii) of this section, FS's attributable
share of the FPRS property is determined by refer-
ence to its special allocation. FS's special allocation
percentage for the FPRS property is 80%, and thus
FS's attributable share of the FPRS property is 80%
and its attributable share of FPRS's basis in the
FPRS property is $80x. Accordingly, for purposes of
determining the amount of United States property
held by FS as of the close of quarter 1 of year 1, FS
is treated as holding United States property with an
adjusted basis of $80x.

Example 3. (i) Facts. USP, a domestic corpora-
tion, wholly owns FS, a controlled foreign corpora-
tion, which, in turn, owns an interest in FPRS, a
foreign partnership. USP owns the remaining interest
in FPRS. FPRS holds property (the "FPRS prop-
erty") that would be United States property if held by
FS directly. The FPRS property has an adjusted basis
of $100x and is anticipated to appreciate in value but
generate relatively little income. The FPRS partner-
ship agreement, which satisfies the requirements of
section 704(b), specially allocates 80% of the in-
come with respect to the FPRS property to USP and
80% of the gain with respect to the disposition of
FPRS property to FS. The special allocation does not
have a principal purpose of avoiding the purposes of
section 956.

(ii) Result. Because the special allocation does
not have a principal purpose of avoiding the pur-
poses of section 956, under paragraph (b)(2)(ii) of
this section, FS's attributable share of the FPRS
property is determined by reference to a special
allocation with respect to the FPRS property. Given
the income and gain anticipated with respect to the
FPRS property, it is appropriate to determine FS's
attributable share of the property in accordance with
the special allocation of gain. Accordingly, for pur-
poses of determining the amount of United States
property held by FS in each year that FPRS holds the
FPRS property, FS's attributable share of the FPRS
property is 80% and its attributable share of FPRS's
basis in the FPRS property is $80x. Thus, FS is
treated as holding United States property with an
adjusted basis of $80x.

(c) Obligations of a foreign partner-
ship-(1) In general. Except as provided
in paragraphs (c)(2) and (c)(3) of this sec-
tion, for purposes of section 956, an obli-
gation of a foreign partnership is treated
as a separate obligation of each of the
partners in the partnership to the extent of
each partner's share of the obligation. A
partner's share of the partnership's obli-
gation is determined in accordance with
the partner's liquidation value percentage,
as determined under the rules set forth in
paragraph (b)(2)(i) of this section, without
regard to the rules set forth in paragraph
(b)(2)(ii) of this section. An upper-tier
partnership's share of an obligation of a
lower-tier partnership is treated as an ob-
ligation of the upper-tier partnership for
purposes of applying this paragraph (c)(1)
to the partners of the upper-tier partner-
ship.

(2) Exception for obligations of part-
nerships in which neither the lending con-
trolled foreign corporation nor any per-
son related to the lending controlled
foreign corporation is a partner. For pur-
poses of applying section 956 with respect
to a controlled foreign corporation, an ob-
ligation of a foreign partnership is treated
as an obligation of a foreign partnership,
and not as an obligation of its partners, if
neither the controlled foreign corporation
nor any person related to the controlled
foreign corporation within the meaning of
section 954(d)(3) is a partner in the part-
nership. For purposes of section 956, an
obligation treated as an obligation of a
foreign partnership pursuant to this para-
graph (c)(2) is not an obligation of a
United States person.

(3) Special obligor rule in the case
of certain partnership distributions-(i)
General rule. For purposes of determining
a partner's share of a foreign partnership's
obligation under section 956, if the for-
eign partnership distributes an amount of
money or property to a partner that is
related to a controlled foreign corporation
within the meaning of section 954(d)(3)
and whose obligation would be United
States property if held (or if treated as
held) by the controlled foreign corpora-
tion, and the foreign partnership would
not have made the distribution but for a
funding of the partnership through an ob-
ligation held (or treated as held) by a
controlled foreign corporation, notwith-

standing § 1.956-1(e), the partner's share
of the partnership obligation is the greater
of-

(A) The partner's share of the partner-
ship obligation as determined under para-
graph (c)(1) of this section; and

(B) The lesser of the amount of the
distribution to the partner that would not
have been made but for the funding of the
partnership and the amount of the obliga-
tion (as determined under § 1.956-1(e)).

(ii) Deemed treatment-(A) For pur-
poses of applying paragraph (c)(3)(i) of
this section, in the case of a distribution of
liquid assets by a foreign partnership to a
partner, the foreign partnership is treated
as if it would not have made the distribu-
tion of liquid assets to the partner but for
the funding of the partnership through an
obligation or obligations held (or treated
as held) by the controlled foreign corpo-
ration to the extent the foreign partnership
does not have sufficient liquid assets to
make the distribution immediately prior to
the distribution, without taking into ac-
count the obligation or obligations.

(B) If the controlled foreign corpora-
tion holds (or is treated as holding) mul-
tiple obligations of the foreign partner-
ship, paragraph (c)(3)(ii)(A) of this
section applies to the obligations in re-
verse chronological order starting with the
obligation that was acquired (or the obli-
gation with respect to which a pledge or
guarantee was entered into) closest in time
to the distribution. Paragraph (c)(3)(ii)(A)
of this section applies to an obligation
only to the extent that the full amount of
the distribution is not otherwise treated,
pursuant to paragraph (c)(3)(ii)(A) of this
section, as if it would not have been made
but for the funding of the partnership
through one or more other obligations.

(C) For purposes of paragraph (c)(3)
(ii) of this section, a significant modifica-
tion, within the meaning of § 1.1001-3(e),
of an obligation constitutes an acquisition
of the obligation on or after that date, and
a pledgor or guarantor is treated as enter-
ing into a pledge or guarantee when there
is a significant modification, within the
meaning of § 1.1001-3(e), of an obliga-
tion with respect to which it is a pledgor
or guarantor.

(D) For purposes of paragraph (c)(3)
(ii) of this section, liquid assets means
cash or cash equivalents, marketable se-

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curities within the meaning of section
453(f)(2), or an obligation owed by a re-
lated person (within the meaning of sec-
tion 954(d)(3)).

(4) Examples. The following examples
illustrate the rules of this paragraph (c):

Example 1. (i) Facts. USP, a domestic corpora-
tion, wholly owns FS, a controlled foreign corpora-
tion, and owns an interest in FPRS, a foreign part-
nership. At the close of quarter 1 of year 1, the
liquidation value percentage, as determined under
paragraph (b)(2)(i) of this section, for USP with
respect to FPRS is 90%. X, a foreign person that is
unrelated to USP or FS, owns the remaining interest
in FPRS. FPRS borrows $100x from FS. FS's basis
in the FPRS obligation is $100x.

(ii) Result. Under paragraph (c)(1) of this sec-
tion, for purposes of section 956, the obligation of
FPRS is treated as obligations of its partners (USP
and X) in proportion to each partner's liquidation
value percentage with respect to FPRS. Because
USP, a partner in FPRS, is related to FS within the
meaning of section 954(d)(3), the exception in para-
graph (c)(2) of this section does not apply. Based on
its liquidation value percentage, USP's share of the
FPRS obligation is $90x. Accordingly, for purposes
of section 956, $90x of the FPRS obligation held by
FS is treated as an obligation of USP and is United
States property within the meaning of section 956(c).
Therefore, on the date the loan is made, FS is treated
as holding United States property of $90x.

Example 2. (i) Facts. The facts are the same as in
Example 1 of this paragraph (c)(4), except that USP
owns 40% of the stock of FS and is not a related
person (as defined in section 954(d)(3)) with respect
to FS. Y, a United States person that is unrelated to
USP or X, owns the remaining 60% of the stock of
FS.

(ii) Result. Because neither FS nor any person
related to FS within the meaning of section 954(d)(3)
is a partner in FPRS, the exception in paragraph
(c)(2) of this section applies to treat the FPRS obli-
gation as an obligation of a foreign partnership and
not an obligation of a United States person. There-
fore, paragraph (c)(1) of this section does not apply,
and FS is not treated as holding United States prop-
erty.

Example 3. (i) Facts. USP, a domestic corpora-
tion, wholly owns FS, a controlled foreign corpora-
tion. USP and FS own interests in FPRS, a foreign
partnership. USP's liquidation value percentage with
respect to FPRS is 60%, and FS's liquidation value
percentage with respect to FPRS is 30%. USC, a
domestic corporation that is unrelated to USP and
FS, also owns an interest in FPRS; its liquidation
value percentage is 10%. FPRS borrows $100x from
an unrelated person. FS guarantees the FPRS obli-
gation.

(ii) Result. Under paragraph (c)(1) of this sec-
tion, for purposes of section 956, the obligation of
FPRS is treated as obligations of its partners (USP,
FS, and USC) in proportion to each partner's liqui-
dation value percentage. Because USP, a partner in
FPRS, is related to FS within the meaning of section
954(d)(3), and because FS is a partner in FPRS, the
exception in paragraph (c)(2) of this section does not
apply. Based on their liquidation value percentages,

USP's share of the FPRS obligation is $60x, and
USC's share of the FPRS obligation is $10x. For
purposes of section 956, $60x of the FPRS obliga-
tion is treated as an obligation of USP, and $10x of
the FPRS obligation is treated as an obligation of
USC. Under § 1.956-2(c)(1), FS is treated as hold-
ing the obligations of USP and USC that FS guar-
anteed. All of the exceptions to the definition of
United States property contained in section 956 and
§ 1.956-2 must be considered to determine whether
the obligations of USP and USC that are treated as
held by FS constitute United States property. Ac-
cordingly, the obligation of USC is not United States
property under section 956(c)(2)(F) and § 1.956-
2(b)(1)(viii). The obligation of USP, however, is
United States property within the meaning of section
956(c). Therefore, on the date the guarantee is made,
FS is treated as holding United States property of
$60x.

Example 4. (i) Facts. USP, a domestic corpora-
tion, wholly owns FS, a controlled foreign corpora-
tion. USP owns an interest in FPRS, a foreign part-
nership; its liquidation value percentage with respect
to FPRS is 70%. A domestic corporation that is
unrelated to USP and FS owns the remaining interest
in FPRS; its liquidation value percentage is 30%.
FPRS borrows $100x from FS and makes a distri-
bution of $80x to USP. FPRS would not have made
the distribution to USP but for the funding of FPRS
by FS.

(ii) Result. Because USP, a partner in FPRS, is
related to FS within the meaning of section
954(d)(3), the exception in paragraph (c)(2) of this
section does not apply. Moreover, an obligation of
USP held by FS would be United States property.
USP's share of the FPRS obligation as determined
under paragraph (c)(1) of this section in accordance
with USP's liquidation value percentage is $70x.
Under paragraph (c)(3) of this section, USP's share
of the FPRS obligation is the greater of (i) USP's
attributable share of the obligation, $70x, or (ii) the
lesser of the amount of the distribution, $80x, or the
amount of the obligation, $100x. For purposes of
section 956, therefore, $80x of the FPRS obligation
is treated as an obligation of USP and is United
States property within the meaning of section 956(c).
Thus, on the date the loan is made, FS is treated as
holding United States property of $80x.

(d) Limitation on a partner's indirect
pledge or guarantee. For purposes of sec-
tion 956 and § 1.956-2(c), a controlled
foreign corporation that is a partner in a
partnership is not considered a pledgor or
guarantor of the portion of an obligation
of the partnership attributed to its partners
that are United States persons under para-
graph (c) of this section solely as a result
of the attribution of a portion of the part-
nership's assets to the controlled foreign
corporation under paragraph (b) of this
section.

(e) Obligations of a domestic partner-
ship. For purposes of section 956, an ob-
ligation of a domestic partnership is an
obligation of a United States person. See

section 956(c)(2)(L) for an exception
from the treatment of such an obligation
as United States property.

(f) Effective/applicability dates. (1)
Paragraph (b) of this section applies to
taxable years of controlled foreign corpo-
rations ending on or after November 3,
2016, and taxable years of United States
shareholders in which or with which such
taxable years end, with respect to property
acquired on or after November 3, 2016.
For purposes of this paragraph (f)(1), a
deemed exchange of property pursuant to
section 1001 on or after November 3,
2016, constitutes an acquisition of the
property on or after that date. See
§ 1.956-2(a)(3), as contained in 26 CFR
part 1 revised as of April 1, 2016, for the
rules applicable to taxable years of a con-
trolled foreign corporation beginning on
or after July 23, 2002, and ending before
November 3, 2016, and with respect to
property acquired before November 3,
2016, to taxable years of a controlled for-
eign corporation beginning on or after
July 23, 2002.

(2) Except as otherwise provided in
this paragraph (f)(2), paragraph (c) of this
section applies to taxable years of con-
trolled foreign corporations ending on or
after November 3, 2016, and taxable years
of United States shareholders in which or
with which such taxable years end, with
respect to obligations acquired, or pledges
or guarantees entered into, on or after
September 1, 2015, and, for purposes of
paragraph (c)(3) of this section, in the case
of distributions made on or after Septem-
ber 1, 2015. Paragraph (c)(3)(ii) of this
section applies to taxable years of con-
trolled foreign corporations ending on or
after November 3, 2016, and taxable years
of United States shareholders in which or
with which such taxable years end, with
respect to obligations acquired, or pledges
or guarantees entered into, on or after
September 1, 2015, and distributions
made on or after November 3, 2016. For
purposes of this paragraph (f)(2), a signif-
icant modification, within the meaning of
§ 1.1001-3(e), of an obligation on or after
September 1, 2015 constitutes an acquisi-
tion of the obligation on or after that date.
Furthermore, for purposes of this para-
graph (f)(2), a pledgor or guarantor is
treated as entering into a pledge or guar-
antee when there is a significant modifi-

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cation, within the meaning of § 1.1001-
3(e), of an obligation with respect to
which it is a pledgor or guarantor on or
after September 1, 2015. See § 1.956-
1T(b)(5), as contained in 26 CFR part 1
revised as of April 1, 2016, for rules ap-
plicable to taxable years of controlled for-
eign corporations ending on or after Sep-
tember 1, 2015, and before November 3,
2016, and to taxable years of United
States shareholders in which or with
which such taxable years end, in the case
of distributions made on or after Septem-
ber 1, 2015.

(3) Paragraph (d) of this section applies
to taxable years of controlled foreign cor-
porations ending on or after November 3,
2016, and taxable years of United States
shareholders in which or with which such
taxable years end, with respect to pledges
or guarantees entered into on or after Sep-
tember 1, 2015. For purposes of this para-
graph (f)(3), a pledgor or guarantor is
treated as entering into a pledge or guar-
antee when there is a significant modifi-
cation, within the meaning of § 1.1001-
3(e), of an obligation with respect to
which it is a pledgor or guarantor on or
after September 1, 2015.

(4) Paragraph (e) of this section applies
to taxable years of controlled foreign cor-
porations ending on or after November 3,
2016, and to taxable years of United
States shareholders in which or with
which such taxable years end, with respect
to obligations held on or after November
3, 2016.

John Dalrymple,
Deputy Commissioner
for Services and Enforcement.

Approved October 17, 2016

Mark J. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).

(Filed by the Office of the Federal Register on November 2,
2016, 8:45 a.m., and published in the issue of the Federal
Register for November 03, 2016, 81 F.R. 76497)

## Section 6050 .- Repealed

26 CFR 1.6050P-1: Information reporting for dis-
charges of indebtedness by certain entities.

### T.D. 9793

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1

#### Removal of the 36-month Non-payment Testing Period Rule

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Final regulation.

SUMMARY: This document contains fi-
nal regulations that remove the rule that a
deemed discharge of indebtedness for
which a Form 1099-C, "Cancellation of
Debt," must be filed occurs at the expira-
tion of a 36-month non-payment testing
period. The Treasury Department and the
IRS are concerned that the rule creates
confusion for taxpayers and does not in-
crease tax compliance by debtors or pro-
vide the IRS with valuable third-party in-
formation that may be used to ensure
taxpayer compliance. The final regula-
tions affect certain financial institutions
and governmental entities.

DATES: Effective Date: These regula-
tions are effective on November 10, 2016.
Applicability Date: For dates of applica-
bility, see § 1.6050P-1(h).

FOR FURTHER INFORMATION CON-
TACT: Eliezer Mishory at (202) 317-
6844 (not a toll-free call).

SUPPLEMENTARY INFORMATION:
Background

This document contains amendments
to the Income Tax Regulations (26 CFR
part 1) under section 6050P of the Internal
Revenue Code (Code), relating to the rule
in § 1.6050P-1(b)(2)(iv) that the 36-
month non-payment testing period is an
identifiable event triggering an informa-
tion reporting obligation on Form 1099-C
for discharge of indebtedness by certain
entities. On October 15, 2014, a notice of

proposed rulemaking (REG-136676-13)
was published in the Federal Register
(79 FR 61791). The notice of proposed
rulemaking proposed to remove the 36-
month non-payment testing period. Writ-
ten comments responding to the proposed
regulations were received. The comments
have been considered in connection with
these final regulations and are available
for public inspection at www.regulations.
gov or on request. No public hearing was
requested or held. After consideration of
all the comments, the proposed regula-
tions are adopted as final regulations with-
out significant modification by this Trea-
sury decision.

##### Statutory Provisions

Section 61(a)(12) provides that income
from discharge of indebtedness is includ-
ible in gross income. Section 6050P was
added to the Code by section 13252 of the
Omnibus Budget Reconciliation Act of
1993, Public Law 103-66 (107 Stat. 312,
531-532 (1993)). Section 6050P was en-
acted in part "to encourage taxpayer com-
pliance with respect to discharged indebt-
edness" and to "enhance the ability of the
IRS to enforce the discharge of indebted-
ness rules." H.R. Rep. No. 103-111, at
758 (1993). As originally enacted, section
6050P generally required applicable fi-
nancial entities (generally financial insti-
tutions, credit unions, and federal execu-
tive agencies) that discharge (in whole or
in part) indebtedness of $600 or more
during a calendar year to file information
returns with the IRS and to furnish infor-
mation statements to the persons whose
indebtedness was discharged. In addition
to other information prescribed by regula-
tions, an applicable financial entity is re-
quired to include on the information
return the debtor's name, taxpayer identi-
fication number, the date of the discharge,
and the amount discharged. See 26 U.S.C.
6050P(a) (1994).

The Debt Collection Improvement Act
of 1996 (1996 Act), Public Law 104-134
(110 Stat. 1321, 1321-368 through 1321-
369 (1996)) was enacted on April 26,
1996. Section 31001(m)(2)(B)(i) and (ii)
of the 1996 Act amended section 6050P to
expand the reporting requirement to cover
"applicable entities," which includes any
executive, judicial, or legislative agency,

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not just federal executive agencies, and
any previously covered applicable finan-
cial entity. Effective for discharges of in-
debtedness occurring after December 31,
1999, section 533(a) of the Ticket to Work
and Work Incentives Improvement Act of
1999 (1999 Act), Public Law 106-170
(113 Stat. 1860, 1931 (1999)), added sub-
paragraph (c)(2)(D) to section 6050P, to
further expand entities covered by the re-
porting requirements to include any orga-
nization the "significant trade or business
of which is the lending of money."

On April 4, 2000, the IRS released
Notice 2000-22 (2000-1 CB 902) to pro-
vide penalty relief to organizations that
were newly made subject to section 6050P
by the 1999 Act (organizations with a
significant trade or business of lending
money). The relief applied to penalties for
failure to file information returns or fur-
nish payee statements for discharges of
indebtedness occurring before January 1,
2001. On December 26, 2000, the IRS
released Notice 2001-8 (2001-1 CB 374)
to extend the penalty relief for organiza-
tions described in Notice 2000-22 for dis-
charges of indebtedness that occurred
prior to the first calendar year beginning at
least two months after the date that appro-
priate guidance is issued.

##### Regulatory History

On December 27, 1993, temporary reg-
ulations under section 6050P relating to
the reporting of discharge of indebtedness
by applicable financial entities were pub-
lished in the Federal Register (TD 8506;
58 FR 68301). The temporary regulations
provided that an applicable financial en-
tity must report a discharge of indebted-
ness upon the occurrence of an identifi-
able event that, considering all the facts
and circumstances, indicated the debt
would never have to be repaid. The tem-
porary regulations provided a non-
exhaustive list of three identifiable events
that would give rise to the reporting re-
quirement under section 6050P: (1) a dis-
charge of indebtedness under title 11 of
the United States Code (Bankruptcy
Code); (2) an agreement between the ap-
plicable financial entity and the debtor to
discharge the indebtedness, provided that
the last event to effectuate the agreement
has occurred; and (3) a cancellation or

extinguishment of the indebtedness by op-
eration of law. These regulations were
effective for discharges of indebtedness
occurring after December 31, 1993.

A concurrently published notice of
proposed rulemaking (IA-63-93; 58 FR
68337) proposed to adopt those and other
rules in the temporary regulations. Written
comments were received in response to
the notice of proposed rulemaking, and
testimony was given at a public hearing
held on March 30, 1994. In response to
the comments and testimony, the IRS pro-
vided, in Notice 94-73 (1994-2 CB 553),
interim relief from penalties for failure to
comply with certain of the reporting re-
quirements of the temporary regulations
for discharges of indebtedness occurring
before the later of January 1, 1995, or the
effective date of final regulations under
section 6050P.

On January 4, 1996, prior to the
amendments made by the 1996 Act, final
regulations relating to the information re-
porting requirements of applicable finan-
cial entities for discharges of indebtedness
were published in the Federal Register
(TD 8654; 61 FR 262) (the 1996 final
regulations). The 1996 final regulations
were generally effective for discharges of
indebtedness occurring after December
21, 1996, although applicable financial
entities at their discretion could apply the
1996 final regulations to any discharge of
indebtedness occurring on or after January
1, 1996, and before December 22, 1996.
Finally, the preamble to these regulations
provided that the temporary regulations
and the interim relief provided in Notice
94-73 remained in effect until December
21, 1996.

In response to objections by comment-
ers, the 1996 final regulations did not
adopt the facts and circumstances test to
determine whether a discharge of indebt-
edness had occurred and information re-
porting was required. Instead, the 1996
final regulations provided that a person's
indebtedness is deemed to be discharged
for information reporting purposes only
upon the occurrence of an identifiable
event specified in an exhaustive list under
§ 1.6050P-1(b)(2), whether or not an ac-
tual discharge has occurred on or before
the date of the identifiable event. See
§ 1.6050P-1(a)(1).

Section 1.6050P-1(b)(2) of the 1996
final regulations listed eight identifiable
events that trigger information reporting
obligations on the part of an applicable
financial entity: (1) a discharge of indebt-
edness under the Bankruptcy Code; (2) a
cancellation or extinguishment of an in-
debtedness that renders the debt unen-
forceable in a receivership, foreclosure, or
similar proceeding in a federal or state
court, as described in section 368(a)(3)
(A)(ii) (other than a discharge under the
Bankruptcy Code); (3) a cancellation or
extinguishment of an indebtedness upon
the expiration of the statute of limitations
for collection (but only if, and only when,
the debtor's statute of limitations affirma-
tive defense has been upheld in a final
judgment or decision in a judicial pro-
ceeding, and the period for appealing it
has expired) or upon the expiration of a
statutory period for filing a claim or com-
mencing a deficiency judgment proceed-
ing; (4) a cancellation or extinguishment
of an indebtedness pursuant to an election
of foreclosure remedies by a creditor that
statutorily extinguishes or bars the credi-
tor's right to pursue collection of the in-
debtedness; (5) a cancellation or extin-
guishment of an indebtedness that renders
a debt unenforceable pursuant to a probate
or similar proceeding; (6) a discharge of
indebtedness pursuant to an agreement be-
tween an applicable entity and a debtor to
discharge indebtedness at less than full
consideration; (7) a discharge of indebt-
edness pursuant to a decision by the cred-
itor, or the application of a defined policy
of the creditor, to discontinue collection
activity and discharge debt; and (8) the
expiration of a 36-month non-payment
testing period.

The first seven identifiable events are
specific occurrences that typically result
from an actual discharge of indebtedness.
The eighth identifiable event, the expira-
tion of a 36-month non-payment testing
period, may not result from an actual dis-
charge of indebtedness. The 36-month
non-payment testing period was added to
the 1996 final regulations as an additional
identifiable event in response to concerns
of creditors that the facts and circum-
stances approach taken in the temporary
and proposed regulations was unclear re-
garding the effect of continuing collection
activity. Creditors proposed (among other

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things) that the final regulations require
reporting after a fixed time period during
which there had been no collection efforts.

Section 1.6050P-1(b)(2)(iv) of the
1996 regulations sets forth the 36-month
non-payment testing period rule (the 36-
month rule). Under that rule, a rebuttable
presumption arises that an identifiable
event has occurred if a creditor does not
receive a payment within a 36-month test-
ing period. The creditor may rebut the
presumption if the creditor engaged in sig-
nificant bona fide collection activity at any
time within the 12-month period ending
at the close of the calendar year or if the
facts and circumstances existing as of Jan-
uary 31 of the calendar year following the
expiration of the non-payment testing pe-
riod indicate that the indebtedness has not
been discharged. A creditor's decision not
to rebut the presumption that an identifi-
able event has occurred pursuant to the
36-month rule is not an indication that it
has discharged the debt, but the creditor is
nonetheless required, for information re-
porting purposes, to report amounts on a
Form 1099-C to the debtor taxpayer.
Taxpayers receiving Forms 1099-C may
conclude that the debts have, in fact, been
discharged, causing the taxpayers to erro-
neously include in income the amounts
reported on Forms 1099-C even though
creditors may continue to attempt to col-
lect the debt after issuing a Form 1099-C
as required by the 36-month rule. See
§ 1.6050P-1(a)(1) and (b)(2)(iv). Finally,
the 1996 final regulations provided that an
identifiable event with respect to the 36-
month non-payment testing period in
§ 1.6050P-1(b)(2)(i)(H) and (b)(2)(iv) could
not occur prior to December 31, 1997. See
§ 1.6050P-1(b)(2)(iv)(C) of the 1996 regula-
tions.

On October 25, 2004, final regulations
reflecting the amendments to section
6050P(c) made by the 1999 Act were pub-
lished in the Federal Register (TD 9160;
69 FR 62181). These regulations describe
circumstances in which an organization
has a significant trade or business of lend-
ing money and provide three safe harbors
under which organizations will not be
considered to have a significant trade or
business of lending money.

On November 10, 2008, final and tem-
porary regulations were published in the
Federal Register (TD 9430; 73 FR

66539\) (the 2008 regulations) to amend
the regulations under section 6050P to
exempt from the 36-month rule entities
that were not within the scope of section
6050P as originally enacted (organiza-
tions with a significant trade or business
of lending money and agencies other than
federal executive agencies). The changes
made by the 2008 regulations reduced the
burden on these entities and protected
debtors from receiving information re-
turns that reported discharges of indebted-
ness from these entities before a discharge
had occurred. The 2008 regulations also
added § 1.6050P-1(b)(2)(v), which pro-
vided that, for organizations with a signif-
icant trade or business of lending money
and agencies other than federal executive
agencies that were required to file infor-
mation returns pursuant to the 36-month
rule in a tax year prior to 2008 and failed
to file them, the date of discharge would
be the first identifiable event, if any, de-
scribed in § 1.6050P-1(b)(2)(i)(A) through
(G) that occurs after 2007. On September
17, 2009, final regulations were published in
the Federal Register (TD 9461; 74 FR
47728-01) adopting the 2008 regulations
without change.

Notice 2012-65

Even after the amendments to the reg-
ulations in 2008 and 2009, concerns con-
tinued to arise about the 36-month rule,
and taxpayers remained confused regard-
ing whether the receipt of a Form 1099-C
represents cancellation of indebtedness
that must be included in gross income. To
address those concerns, in Notice
2012-65 (2012-52 IRB 773 (Dec. 27,
2012)), the Treasury Department and the
IRS requested comments from the public
regarding whether to remove or modify
the 36-month rule as an identifiable event
for purposes of information reporting un-
der section 6050P. Ten comments were
received, all recommending removal or
revision of the 36-month rule. Several
commenters generally expressed concerns
that the expiration of a 36-month non-
payment testing period does not necessar-
ily coincide with an actual discharge of
the indebtedness, leading to confusion on
the part of the debtor and, in some in-
stances, uncertainty on the part of the
creditor regarding whether it may lawfully

continue to pursue the debt. Additionally,
commenters noted that the IRS's ability to
collect tax on discharge of indebtedness
income may be undermined if the actual
discharge occurs in a different year than
the year of information reporting.

##### Proposed Regulations

In response to the comments received,
on October 15, 2014, a notice of proposed
rulemaking (REG-136676-13) proposing
removing the 36-month rule was pub-
lished in the Federal Register (79 FR
61791). The Treasury Department and the
IRS agreed that information reporting un-
der section 6050P should generally coin-
cide with the actual discharge of a debt.
Because reporting under the 36-month
rule may not reflect a discharge of indebt-
edness, a debtor may conclude that the
debtor has taxable income even though
the creditor has not discharged the debt
and continues to pursue collection. Issuing
a Form 1099-C before a debt has been
discharged may also cause the IRS to ini-
tiate compliance actions even though a
discharge has not occurred. Additionally,
§ 1.6050P-1(e)(9) provides that no addi-
tional reporting is required if a subsequent
identifiable event occurs. Therefore, in
cases in which the Form 1099-C is issued
because of the 36-month rule but before
the debt is discharged, the IRS does not
subsequently receive third-party reporting
when the debt is discharged. The IRS's
ability to enforce collection of tax for dis-
charge of indebtedness income may, thus,
be diminished when the information re-
porting does not reflect an actual cancel-
lation of indebtedness.

Section 1.6050P-1(b)(2)(i)(H), (b)(2)
(iv), and (b)(2)(v) were proposed to be
removed on the date final regulations are
published in the Federal Register. The
proposed regulations also proposed con-
forming amendments to the effective/ap-
plicability date provision, § 1.6050P-1(h).

## Explanation and Summary of Comments

The notice of proposed rulemaking in-
vited comments on the proposed removal
of the 36-month rule. A public hearing
was not requested and none was held.
Four comments were received. All com-
menters supported the proposal and

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agreed that the 36-month rule did not
increase compliance and caused confu-
sion, and supported its removal. Accord-
ingly, these final regulations adopt the
proposed regulations without change (ex-
cept as described in the Applicability Date
section of this preamble), remove the 36-
month rule from the list of identifiable
events, and remove related provisions.

## Applicability Date

The notice of proposed rulemaking
proposed to amend the effective/applica-
bility date paragraph in § 1.6050P-1(h) to
remove references to the 36-month rule
that were added along with the 36-month
rule in TD 9461, 74 FR 47728-01, and
such amendments would have been both
effective and applicable as of the date of
publication of these final regulations in
the Federal Register. The Treasury De-
partment and the IRS have determined
that it is not in the interest of sound tax
administration to have the removal of the
36-month rule apply for a portion of a
calendar year. Therefore, these final reg-
ulations do not adopt the effective/appli-
cability date provision of the proposed
regulations. Information returns required
to be filed under section 6050P must be
filed on or before February 28 (March 31
if filed electronically) of the year follow-
ing the calendar year in which the identi-
fiable event occurs and payee statements
must be furnished on or before January 31
of the year following the calendar year in
which the identifiable event occurs. The
final regulations are applicable to infor-
mation returns required to be filed, and
payee statements required to be furnished,
after December 31, 2016. Because the
deadline for filing information returns and
furnishing payee statements for calendar
year 2016 would be after December 31,

2016, the expiration of the 36-month test-
ing period during 2016 does not create a
requirement to file information returns
and furnish payee statements. However,
§ 1.6050P-1 (as contained in 26 CFR part
1, revised April 2016) continues to apply
to information returns required to be filed,
and payee statements required to be fur-
nished, on or before December 31, 2016.

## Special Analyses

Certain IRS regulations, including this
one, are exempt from the requirements of
Executive Order 12866, as supplemented
and reaffirmed by Executive Order 13563.
Therefore, a regulatory impact assessment
is not required. 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 Code,
the notice of proposed rulemaking that
preceded these final regulations was sub-
mitted to the Chief Counsel for Advocacy
of the Small Business Administration for
comment on its impact on small business,
and no comments were received.

## Drafting Information

The principal author of these final reg-
ulations is Eliezer Mishory of the Office
of Associate Chief Counsel (Procedure
and Administration).

## Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is
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 * * *

Par. 2. Section 1.6050P-1 is amended
by:

1\. Removing paragraphs (b)(2)(i)(H),
(b)(2)(iv), and (b)(2)(v).

2\. Adding the word "or" at the end of
paragraph (b)(2)(i)(F).

3\. Removing the semicolon and adding
a period in its place at the end of para-
graph (b)(2)(i)(G).

4\. Revising paragraph (h).

The revision reads as follows:

§ 1.6050P-1 Information reporting for
discharge of indebtedness by certain
entities.

(h) Applicability dates. This section ap-
plies to information returns required to be
filed, and payee statements required to be
furnished, after December 31, 2016. Sec-
tion 1.6050P-1 (as contained in 26 CFR
part 1, revised April 2016) applies to in-
formation returns required to be filed, and
payee statements required to be furnished,
on or before December 31, 2016.

John Dalrymple,
Deputy Commissioner for
Services and Enforcement.

October 17, 2016.

Mark J. Mazur,
Assistant Secretary of
the Treasury (Tax Policy).

(Filed by the Office of the Federal Register on November
09, 2016, 8:45 a.m., and published in the issue of the Federal
Register for November 10, 2016, 81 F.R. 78908)

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# Part III. Administrative, Procedural, and Miscellaneous

## Per Capita Payments from Proceeds of Settlements of Indian Tribal Trust Cases

## Notice 2016-65

### BACKGROUND

Notice 2013-1, 2013-3 IRB 281, pro-
vides guidance on the federal tax treat-
ment of per capita payments that members
of Indian tribes receive from proceeds of
certain settlements of tribal trust cases

between the United States and those In-
dian tribes. Additional tribes have settled
tribal trust cases against the United States
since publication of Notice 2013-1.
This notice provides an updated Appen-
dix that reflects the additional settlement
agreements.

## FURTHER INFORMATION

For further information regarding this
notice, please contact Jon Damm at phone
number (202) 317-8493 (not a toll-free
number).

## EFFECT ON OTHER DOCUMENTS

Notice 2013-1 Appendix is modified
and superseded.

## Appendix

### Tribes That Have Entered into Settlement Agreements of Tribal Trust Cases

1\. Assiniboine and Sioux Tribes of the Fort Peck Reservation

2\. Bad River Band of Lake Superior Chippewa Indians

3\. Blackfeet Tribe of the Blackfeet Indian Reservation

4\. Bois Forte Band of Chippewa

5\. Cachil Dehe Band of Wintun Indians of the Colusa Rancheria

6\. Chippewa Cree Tribe of the Rocky Boy's Reservation

7\. Coeur d'Alene Tribe

8\. Confederated Salish and Kootenai Tribes

9\. Confederated Tribes of Siletz Indians

10\. Confederated Tribes of the Colville Reservation

11\. Confederated Tribes of the Goshute Reservation

12\. Crow Creek Sioux Tribe

13\. Eastern Shawnee Tribe of Oklahoma

14\. Hualapai Indian Tribe

15\. Iowa Tribe of Kansas and Nebraska

16\. Kaibab Band of Paiute Indians of Arizona

17\. Kickapoo Tribe of Kansas

18\. Lac Courte Oreilles Band of Lake Superior Chippewa Indians

19\. Lac du Flambeau Band of Lake Superior Chippewa Indians

20\. Leech Lake Band of Ojibwe

21\. Lower Brule Sioux Tribe

22\. Makah Indian Tribe of the Makah Reservation

23\. Mescalero Apache Tribe

24\. Minnesota Chippewa Tribe

25\. Nez Perce Tribe

26\. Nooksack Indian Tribe

27\. Northern Cheyenne Tribe of Indians

28\. Omaha Tribe of Nebraska

29\. Passamaquoddy Tribe of Maine

30\. Pawnee Nation

31\. Prairie Band of Potawatomi Nation

32\. Pueblo of Zia

33\. Quechan Tribe of the Fort Yuma Reservation

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# Appendix

## Tribes That Have Entered into Settlement Agreements of Tribal Trust Cases

34\. Red Cliff Band of Lake Superior Chippewa Indians

35\. Rincon Luiseño Band of Indians

36\. Rosebud Sioux Tribe

37\. Round Valley Indian Tribes

38\. Salt River Pima-Maricopa Indian Community

39\. Santee Sioux Tribe of Nebraska

40\. Sault Ste. Marie Tribe

41\. Shoshone-Bannock Tribes of the Fort Hall Reservation

42\. Soboba Band of Luiseno Indians

43\. Spirit Lake Dakotah Nation

44\. Spokane Tribe of Indians

45\. Standing Rock Sioux Tribe

46\. Stillaguamish Tribe of Indians

47\. Summit Lake Paiute Tribe

48\. Swinomish Indian Tribal Community

49\. Te-Moak Tribe of Western Shoshone Indians

50\. Tohono O'odham Nation

51\. Tulalip Tribes

52\. Tule River Indian Tribe

53\. Ute Indian Tribe of the Uintah and Ouray Reservation

54\. Ute Mountain Ute Tribe

55\. Winnebago Tribe of Nebraska

56\. Qawalangin Tribe of Unalaska

57\. Tlingit & Haida Tribes of Alaska

58\. Northwestern Band of Shoshone Indians

59\. Hoopa Valley Tribe

60\. Ak-Chin Indian Community

61\. Oglala Sioux Tribe

62\. Yoruk Tribe

63\. Cheyenne River Sioux Tribe

64\. Paiute-Shoshone Indians of the Bishop Community of the Bishop Colony

65\. Seminole Nation of Oklahoma

66\. Otoe-Missouria Tribe of Oklahoma

67\. Samish Indian Nation

68\. Tonkawa Tribe of Indians of Oklahoma

69\. Yakama Nation

70\. Miami Tribe of Oklahoma

71\. Shoshone Indian Tribe and the Northern Arapahoe Indian Tribe of the Wind River Reservation

72\. Pueblo of Laguna

73\. Navajo Nation

74\. Caddo Nation of Oklahoma

75\. Gros Ventre and Assiniboine Tribes of the Fort Belknap Indian Reservation

76\. Chickasaw Nation

77\. Choctaw Nation

78\. Klamath Tribe

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# Appendix

## Tribes That Have Entered into Settlement Agreements of Tribal Trust Cases

79\. Skokomish Indian Tribe

80\. Quinault Indian Nation

81\. Southern Utah Indian Tribe

82\. Confederated Tribes of the Umatilla Indian Reservation

83\. White Earth Nation

84\. Kickapoo Tribe of Oklahoma

85\. Sisseton Wahpeton Oyate of the Lake Traverse Reservation

86\. Grand Traverse Band of Ottawa and Chippewa Indians

87\. Muscogee (Creek) Nation of Oklahoma

88\. Gila River Indian Community

89\. Aleut Community of St. Paul Island

90\. San Carlos Apache Tribe

91\. Comanche Nation

92\. Colorado River Indian Tribes

93\. Jicarilla Apache Nation

94\. Pueblo of Acoma

95\. Penobscot Indian Nation

96\. Seminole Tribe of Florida

## Update for Weighted Average Interest Rates, Yield Curves, and Segment Rates

### Notice 2016-68

This notice provides guidance on the
corporate bond monthly yield curve, the
corresponding spot segment rates used un-
der § 417(e)(3), and the 24-month average
segment rates under § 430(h)(2) of the
Internal Revenue Code. In addition, this
notice provides guidance as to the interest
rate on 30-year Treasury securities under
§ 417(e)(3)(A)(ii)(II) as in effect for plan
years beginning before 2008 and the 30-
year Treasury weighted average rate un-
der § 431(c)(6)(E)(ii)(I).

### YIELD CURVE AND SEGMENT RATES

Generally, except for certain plans un-
der sections 104 and 105 of the Pension
Protection Act of 2006 and CSEC plans
under § 414(y), § 430 of the Code speci-
fies the minimum funding requirements

that apply to single-employer plans pursu-
ant to § 412. Section 430(h)(2) specifies
the interest rates that must be used to
determine a plan's target normal cost and
funding target. Under this provision, pres-
ent value is generally determined using
three 24-month average interest rates
("segment rates"), each of which applies
to cash flows during specified periods. To
the extent provided under § 430(h)(2)(C)
(iv), these segment rates are adjusted by
the applicable percentage of the 25-year av-
erage segment rates for the period ending
September 30 of the year preceding the cal-
endar year in which the plan year begins.1
However, an election may be made under
§ 430(h)(2)(D)(ii) to use the monthly yield
curve in place of the segment rates.

Notice 2007-81, 2007-44 I.R.B. 899,
provides guidelines for determining the
monthly corporate bond yield curve, and
the 24-month average corporate bond seg-
ment rates used to compute the target nor-
mal cost and the funding target. Consis-
tent with the methodology specified in
Notice 2007-81, the monthly corporate
bond yield curve derived from October
2016 data is in Table I at the end of this

notice. The spot first, second, and third
segment rates for the month of October
2016 are, respectively, 1.57, 3.45, and
4.39.

The 24-month average segment rates
determined under § 430(h)(2)(C)(i) through
(iii) must be adjusted pursuant to § 430(h)
(2)(C)(iv) to be within the applicable mini-
mum and maximum percentages of the cor-
responding 25-year average segment rates.
For plan years beginning before 2021, the
applicable minimum percentage is 90% and
the applicable maximum percentage is
110%. The 25-year average segment rates
for plan years beginning in 2015, 2016, and
2017 were published in Notice 2014-50,
2014-40 I.R.B. 590, Notice 2015-61,
2015-39 I.R.B. 408, and Notice 2016-54,
2016-40 I.R.B. 429, respectively.

## 24-MONTH AVERAGE CORPORATE BOND SEGMENT RATES

The three 24-month average corporate
bond segment rates applicable for Novem-
ber 2016 without adjustment for the 25-
year average segment rate limits are as
follows:

1Pursuant to § 433(h)(3)(A), the 3rd segment rate determined under § 430(h)(2)(C) is used to determine the current liability of a CSEC plan (which is used to calculate the minimum amount
of the full funding limitation under § 433(c)(7)(C)).

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Applicable Month

First Segment

Second Segment

Third Segment

November 2016

1.53

3.76

4.74

Based on § 430(h)(2)(C)(iv), the 24-
month averages applicable for November

2016 adjusted to be within the applicable
minimum and maximum percentages of

the corresponding 25-year average seg-
ment rates, are as follows:

For Plan Years Beginning In

Adjusted 24-Month Average Segment Rates

Applicable Month

First Segment

Second Segment

Third Segment

2015

November

2016

4.72

6.11

6.81

2016

November

2016

4.43

5.91

6.65

2017

November

2016

4.16

5.72

6.48

## 30-YEAR TREASURY SECURITIES INTEREST RATES

Generally for plan years beginning af-
ter 2007, § 431 specifies the minimum
funding requirements that apply to mul-
tiemployer plans pursuant to § 412. Sec-
tion 431(c)(6)(B) specifies a minimum
amount for the full-funding limitation de-
scribed in § 431(c)(6)(A), based on the
plan's current liability. Section 431(c)(6)

(E)(ii)(I) provides that the interest rate
used to calculate current liability for this
purpose must be no more than 5 percent
above and no more than 10 percent below
the weighted average of the rates of inter-
est on 30-year Treasury securities during
the four-year period ending on the last day
before the beginning of the plan year.
Notice 88-73, 1988-2 C.B. 383, provides
guidelines for determining the weighted
average interest rate. The rate of interest

on 30-year Treasury securities for October
2016 is 2.50 percent. The Service deter-
mined this rate as the average of the daily
determinations of yield on the 30-year
Treasury bond maturing in August 2046.
For plan years beginning in the month
shown below, the weighted average of the
rates of interest on 30-year Treasury se-
curities and the permissible range of rate
used to calculate current liability are as
follows:

For Plan Years Beginning in

30-Year Treasury Weighted Average

Permissible Range

Month

Year

90%

to

105%

November

2016

2.92

2.62

3.06

MINIMUM PRESENT VALUE
SEGMENT RATES

In general, the applicable interest rates
under § 417(e)(3)(D) are segment rates

computed without regard to a 24-month
average. Notice 2007-81 provides guide-
lines for determining the minimum pres-
ent value segment rates. Pursuant to that
notice, the minimum present value seg-

ment rates determined for October 2016
are as follows:

First Segment

Second Segment

Third Segment

1.57

3.45

4.39

## DRAFTING INFORMATION

The principal author of this notice is
Tom Morgan of the Office of the Associ-

ate Chief Counsel (Tax Exempt and Gov-
ernment Entities). However, other person-
nel from the IRS participated in the
development of this guidance. For further

information regarding this notice, contact
Mr. Morgan at 202-317-6700 or Tony
Montanaro at 202-317-8698 (not toll-free
calls).

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Table I Monthly Yield Curve for October 2016 Derived from October 2016 Data

Maturity

Yield

Maturity

Yield

Maturity

Yield

Maturity

Yield

Maturity

Yield

0.5

0.94

20.5

4.13

40.5

4.42

60.5

4.53

80.5

4.58

1.0

1.16

21.0

4.15

41.0

4.43

61.0

4.53

81.0

4.58

1.5

1.35

21.5

4.16

41.5

4.43

61.5

4.53

81.5

4.58

2.0

1.49

22.0

4.17

42.0

4.43

62.0

4.53

82.0

4.58

2.5

1.60

22.5

4.18

42.5

4.44

62.5

4.53

82.5

4.58

3.0

1.67

23.0

4.19

43.0

4.44

63.0

4.53

83.0

4.58

3.5

1.74

23.5

4.20

43.5

4.44

63.5

4.54

83.5

4.58

4.0

1.81

24.0

4.21

44.0

4.45

64.0

4.54

84.0

4.59

4.5

1.90

24.5

4.22

44.5

4.45

64.5

4.54

84.5

4.59

5.0

1.99

25.0

4.23

45.0

4.45

65.0

4.54

85.0

4.59

5.5

2.10

25.5

4.24

45.5

4.46

65.5

4.54

85.5

4.59

6.0

2.22

26.0

4.25

46.0

4.46

66.0

4.54

86.0

4.59

6.5

2.35

26.5

4.26

46.5

4.46

66.5

4.55

86.5

4.59

7.0

2.48

27.0

4.27

47.0

4.47

67.0

4.55

87.0

4.59

7.5

2.61

27.5

4.27

47.5

4.47

67.5

4.55

87.5

4.59

8.0

2.74

28.0

4.28

48.0

4.47

68.0

4.55

88.0

4.59

8.5

2.87

28.5

4.29

48.5

4.47

68.5

4.55

88.5

4.59

9.0

2.99

29.0

4.30

49.0

4.48

69.0

4.55

89.0

4.59

9.5

3.10

29.5

4.30

49.5

4.48

69.5

4.55

89.5

4.59

10.0

3.21

30.0

4.31

50.0

4.48

70.0

4.55

90.0

4.60

10.5

3.31

30.5

4.32

50.5

4.48

70.5

4.56

90.5

4.60

11.0

3.40

31.0

4.33

51.0

4.49

71.0

4.56

91.0

4.60

11.5

3.49

31.5

4.33

51.5

4.49

71.5

4.56

91.5

4.60

12.0

3.56

32.0

4.34

52.0

4.49

72.0

4.56

92.0

4.60

12.5

3.63

32.5

4.34

52.5

4.49

72.5

4.56

92.5

4.60

13.0

3.70

33.0

4.35

53.0

4.50

73.0

4.56

93.0

4.60

13.5

3.75

33.5

4.36

53.5

4.50

73.5

4.56

93.5

4.60

14.0

3.80

34.0

4.36

54.0

4.50

74.0

4.56

94.0

4.60

14.5

3.85

34.5

4.37

54.5

4.50

74.5

4.57

94.5

4.60

15.0

3.89

35.0

4.37

55.0

4.51

75.0

4.57

95.0

4.60

15.5

3.92

35.5

4.38

55.5

4.51

75.5

4.57

95.5

4.60

16.0

3.96

36.0

4.38

56.0

4.51

76.0

4.57

96.0

4.60

16.5

3.98

36.5

4.39

56.5

4.51

76.5

4.57

96.5

4.60

17.0

4.01

37.0

4.39

57.0

4.51

77.0

4.57

97.0

4.61

17.5

4.03

37.5

4.40

57.5

4.52

77.5

4.57

97.5

4.61

18.0

4.05

38.0

4.40

58.0

4.52

78.0

4.57

98.0

4.61

18.5

4.07

38.5

4.41

58.5

4.52

78.5

4.57

98.5

4.61

19.0

4.09

39.0

4.41

59.0

4.52

79.0

4.58

99.0

4.61

19.5

4.11

39.5

4.41

59.5

4.52

79.5

4.58

99.5

4.61

20.0

4.12

40.0

4.42

60.0

4.52

80.0

4.58

100.0

4.61

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## Part IV. Items of General Interest

### Notice of Proposed Rulemaking

United States Property Held
by Controlled Foreign
Corporations Through
Partnerships with Special
Allocations

REG-114734-16

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Notice of proposed rulemaking

SUMMARY: This document contains
proposed regulations that provide rules re-
garding the determination of the amount
of United States property treated as held
by a controlled foreign corporation (CFC)
through a partnership. The proposed reg-
ulations affect United States shareholders
of CFCs.

DATES: Written or electronic comments
and requests for a public hearing must be
received by February 1, 2017.

ADDRESSES: Send submissions to: CC:
PA:LPD:PR (REG-114734-16), room
5203, Internal Revenue Service, P.O. Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be hand-
delivered Monday through Friday be-
tween the hours of 8 a.m. and 4 p.m. to
CC:PA:LPD:PR (REG-114734-16), Cou-
rier's Desk, Internal Revenue Service, 1111
Constitution Avenue NW, Washington, DC,
or sent electronically via the Federal eRule-
making Portal at http://www.regulations.
gov (IRS REG-114734-16).

FOR FURTHER INFORMATION CON-
TACT: Concerning the proposed regula-
tions, Rose E. Jenkins, (202) 317-6934;
concerning submissions of comments or re-
quests for a public hearing, Regina Johnson,
(202) 317-6901 (not toll-free call).

SUPPLEMENTARY INFORMATION:

#### Background

In the Rules and Regulations section of
this issue of the Bulletin, the Department

of Treasury (Treasury Department) and
the IRS are issuing final regulations that
amend the Income Tax Regulations (26
CFR part 1) relating to sections 954 and
956. Under § 1.956-4(b), a CFC that is a
partner in a partnership determines its
share of United States property held by
the partnership in accordance with the
CFC's liquidation value percentage in the
partnership, or, when relevant, based on a
special allocation of income (or, where
appropriate, gain) from the property. This
document proposes to amend § 1.956-
4(b) so that a CFC that is a partner in a
controlled partnership determines its share
of United States property held by the part-
nership under the liquidation value per-
centage method, regardless of the exis-
tence of any special allocation of income
or gain from the property.

### Explanation of Provisions

Section 956 determines the amount
that a United States shareholder (as de-
fined in section 951(b)) of a CFC must
include in gross income with respect to
the CFC under section 951(a)(1)(B). This
amount is determined, in part, based on
the average of the amounts of United
States property held, directly or indirectly,
by the CFC at the close of each quarter
during its taxable year. For this purpose,
in general, the amount taken into account
with respect to any United States property
is the adjusted basis of the property, re-
duced by any liability to which the prop-
erty is subject. See section 956(a) and
§ 1.956-1(e). Section 956(e) grants the
Secretary authority to prescribe such reg-
ulations as may be necessary to carry out
the purposes of section 956, including reg-
ulations to prevent the avoidance of section
956 through reorganizations or otherwise.

Under § 1.956-4(b), a CFC that is a
partner in a partnership generally is treated
as holding its share of United States prop-
erty held by the partnership in accordance
with the CFC partner's liquidation value
percentage in the partnership. However, if
there is a special allocation of income (or,
where appropriate, gain) from United
States property that does not have a prin-
cipal purpose of avoiding the purposes of
section 956, the partner's attributable

share of that property is determined solely
by reference to the special allocation. See
§ 1.956-4(b)(2)(ii). The Treasury Depart-
ment and the IRS have concluded that, in
general, these rules provide a reasonable
means of determining a partner's interest
in property held by a partnership for pur-
poses of section 956 because they gener-
ally result in an allocation of specific
items of property that corresponds with
each partner's economic interest in that
property, including any income or gain
that may be subject to special allocations.

The Treasury Department and the IRS
are concerned, however, that special allo-
cations with respect to a partnership that is
controlled by a single multinational group
are unlikely to have economic signifi-
cance for the group as a whole and can
facilitate tax planning that is inconsistent
with the purposes of section 956. Accord-
ingly, these proposed regulations propose
to revise § 1.956-4(b) such that a part-
ner's attributable share of each item of
property of a partnership controlled by the
partner would be determined solely in ac-
cordance with the partner's liquidation
value percentage, even if income or gain
from the property is subject to a special
allocation. Specifically, under proposed
§ 1.956-4(b)(2)(iii), the rule in § 1.956-
4(b)(2)(ii) requiring a partner's attribut-
able share of partnership property to be
determined by reference to special alloca-
tions with respect to the property would
not apply in the case of a partnership
controlled by the partner. For this pur-
pose, a partner is treated as controlling a
partnership if the partner and the partner-
ship are related within the meaning of
section 267(b) or section 707(b), substi-
tuting "at least 80 percent" for "more than
50 percent". The examples in § 1.956-
4(b)(3) are proposed to be modified in
accordance with the proposed rule.

These proposed regulations are pro-
posed to be effective for taxable years of
CFCs ending on or after the date of pub-
lication in the Federal Register of the
Treasury decision adopting them as final
regulations, and taxable years of United
States shareholders in which or with
which such taxable years end, with respect
to property acquired on or after the date of
publication in the Federal Register of the

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Treasury decision adopting them as final
regulations. The IRS may, where appro-
priate, challenge transactions under cur-
rently applicable Code or regulatory pro-
visions or judicial doctrines.

### Special Analyses

Certain IRS regulations, including
these regulations, are exempt from the
requirements of Executive Order 12866,
as supplemented and reaffirmed by Exec-
utive Order 13563. Therefore, a regula-
tory assessment is not required. It has also
been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C.
Chapter 5) does not apply to these regu-
lations, 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), this notice of
proposed rulemaking has been submitted
to the Chief Counsel of Advocacy of the
Small Business Administration for com-
ment on its impact on small business.

### Comments and Requests for Public Hearing

Before these proposed regulations are
adopted as final regulations, consideration
will be given to any comments that are
submitted timely to the IRS as prescribed
in this preamble under the "Addresses"
heading. The Treasury Department and
the IRS request comments on all aspects
of the proposed rules. All comments will
be available at www.regulations.gov or
upon request. A public hearing will be
scheduled if requested in writing by any
person that timely submits electronic or
written comments. If a public hearing is
scheduled, notice of the date, time, and
place for the public hearing will be pub-
lished in the Federal Register.

### Drafting Information

The principal author of these proposed
regulations is Rose E. Jenkins of the Of-
fice of Associate Chief Counsel (Interna-
tional). However, other personnel from
the Treasury Department and the IRS par-
ticipated in their development.

*****

### Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is pro-
posed 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 * * *

Section 1.956-4 also issued under 26
U.S.C. 956(d) and 956(e).

Par. 2. Section 1.956-4 is amended by:

1\. Revising paragraph (b)(2)(ii).

2\. Adding paragraph (b)(2)(iii).

3\. Adding a sentence at the end of
paragraph (i) of Example 2 of paragraph
(b)(3).

4\. Revising paragraph (ii) of Example 2
of paragraph (b)(3).

5\. Revising Example 3 of paragraph
(b)(3).

6\. Adding Example 4 to paragraph
(b)(3).

7\. Revising paragraph (f)(1).

The revisions and additions read as fol-
lows:

### § 1.956-4 Certain rules applicable to partnerships.

* * * * *

(b) * * *

(2) * * *

(ii) Special allocations. Except as oth-
erwise provided in paragraph (b)(2)(iii) of
this section, for purposes of paragraph
(b)(1) of this section, if a partnership
agreement provides for the allocation of
book income (or, where appropriate, book
gain) from a subset of the property of the
partnership to a partner other than in ac-
cordance with the partner's liquidation
value percentage in a particular taxable
year (a special allocation), then the part-
ner's attributable share of that property is
determined solely by reference to the part-
ner's special allocation with respect to the
property, provided the special allocation
does not have a principal purpose of
avoiding the purposes of section 956.

(iii) Limitation on special allocations
in the case of a controlled partnership.
Paragraph (b)(2)(ii) of this section does
not apply to determine a partner's attrib-
utable share of partnership property in the

case of a partnership controlled by the
partner. For purposes of this paragraph
(b)(2)(iii), a partner controls a partnership
when the partner and the partnership are
related within the meaning of section
267(b) or section 707(b), determined by
substituting "at least 80 percent" for
"more than 50 percent" wherever it ap-
pears.

(3) * * *

Example 2. (i) Facts. * * * FS does not control
FPRS within the meaning of paragraph (b)(2)(iii) of
this section.

(ii) Result. Under paragraph (b)(1) of this sec-
tion, for purposes of section 956, FS is treated as
holding its attributable share of the property held by
FPRS with an adjusted basis equal to its attributable
share of FPRS's adjusted basis in such property. In
general, FS's attributable share of property held by
FPRS is determined in accordance with FS's liqui-
dation value percentage. However, because FS does
not control FPRS within the meaning of paragraph
(b)(2)(iii) of this section and because the special
allocation does not have a principal purpose of
avoiding the purposes of section 956, under para-
graph (b)(2)(ii) of this section, FS's attributable
share of the FPRS property is determined by refer-
ence to its special allocation. FS's special allocation
percentage for the FPRS property is 80%, and thus
FS's attributable share of the FPRS property is 80%
and its attributable share of FPRS's basis in the
FPRS property is $80x. Accordingly, for purposes of
determining the amount of United States property
held by FS as of the close of quarter 1 of year 1, FS
is treated as holding United States property with an
adjusted basis of $80x.

Example 3. (i) Facts. USP, a domestic corpora-
tion, wholly owns FS, a controlled foreign corpora-
tion, which, in turn, owns a 25% capital and profits
interest in FPRS, a foreign partnership. The remain-
ing 75% capital and profits interest in FPRS is
owned by an unrelated foreign person. Thus, FS does
not control FPRS within the meaning of paragraph
(b)(2)(iii) of this section. FPRS holds property (the
"FPRS property") that would be United States prop-
erty if held by FS directly. The FPRS property has an
adjusted basis of $100x and is anticipated to appre-
ciate in value but generate relatively little income.
The FPRS partnership agreement, which satisfies the
requirements of section 704(b), specially allocates
80% of the income with respect to the FPRS prop-
erty to the unrelated foreign person and 80% of the
gain with respect to the disposition of FPRS property
to FS. The special allocation does not have a prin-
cipal purpose of avoiding the purposes of section
956.

(ii) Result. Because FPRS is not controlled by FS
within the meaning of paragraph (b)(2)(iii) of this
section, and the special allocation does not have a
principal purpose of avoiding the purposes of section
956, under paragraph (b)(2)(ii) of this section, FS's
attributable share of the FPRS property is deter-
mined by reference to a special allocation with re-
spect to the FPRS property. Given the income and
gain anticipated with respect to the FPRS property, it
is appropriate to determine FS's attributable share of

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the property in accordance with the special alloca-
tion of gain. Accordingly, for purposes of determin-
ing the amount of United States property held by FS
in each year that FPRS holds the FPRS property,
FS's attributable share of the FPRS property is 80%
and its attributable share of FPRS's basis in the
FPRS property is $80x. Thus, FS is treated as hold-
ing United States property with an adjusted basis of
$80x.

Example 4. (i) Facts. The facts are the same as in
Example 3 of this paragraph (b)(3), except that USP
owns the 75% capital and profits interest in FPRS
rather than an unrelated foreign person. Thus, FS
controls FPRS within the meaning of paragraph
(b)(2)(iii) of this section. At the close of quarter 1 of
year 1, the liquidation value percentage, as deter-
mined under paragraph (b)(2) of this section, for FS
with respect to FPRS is 25%.

(ii) Result. Because FPRS is controlled by FS
within the meaning of paragraph (b)(2)(iii) of this
section, under paragraph (b)(2)(iii) of this section,
FS's attributable share of the FPRS property is not
determined by reference to the special allocation of
gain with respect to the FPRS property. Accordingly,
for purposes of determining the amount of United
States property held by FS in each year that FPRS
holds the FPRS property, FS's attributable share of
the FPRS property is determined under paragraph
(b)(2)(i) in accordance with FS's liquidation value
percentage, which is 25%, and its attributable share
of FPRS's basis in the FPRS property is $25x. Thus,
FS is treated as holding United States property with
an adjusted basis of $25x.

* * * * *

(f) * * *

(1) Except as otherwise provided in
this paragraph (f)(1), paragraph (b) of this
section applies to taxable years of con-
trolled foreign corporations ending on or
after November 3, 2016, and taxable years
of United States shareholders in which or
with which such taxable years end, with
respect to property acquired on or after
November 3, 2016. Paragraphs (b)(2)(ii)
and (iii) of this section, as well as Exam-
ple 2, Example 3, and Example 4 of para-
graph (b)(3) of this section, apply to tax-
able years of controlled foreign
corporations ending on or after the date of
publication in the Federal Register of the
Treasury decision adopting this rule as a
final regulation, and taxable years of
United States shareholders in which or
with which such taxable years end, with
respect to property acquired on or after the
date of publication in the Federal Regis-
ter of the Treasury decision adopting this
rule as a final regulation. For purposes of
this paragraph (f)(1), a deemed exchange
of property pursuant to section 1001 on or
after November 3, 2016 constitutes an ac-
quisition of the property on or after that
date, and a deemed exchange of property

pursuant to section 1001 on or after the
date of publication in the Federal Regis-
ter of the Treasury decision adopting this
rule as a final regulation constitutes an
acquisition of the property on or after that
date.

See § 1.956-2(a)(3), as contained in 26
CFR part 1 revised as of April 1, 2016, for
the rules applicable to taxable years of a
controlled foreign corporation beginning
on or after July 23, 2002, and ending
before November 3, 2016, and with re-
spect to property acquired before Novem-
ber 3, 2016, to taxable years of a con-
trolled foreign corporation beginning on
or after July 23, 2002.

John Dalrymple
Deputy Commissioner for
Services and Enforcement.

(Filed by the Office of the Federal Register on October 31,
2016, 4:15 p.m., and published in the issue of the Federal
Register for November 03, 2016 81 F.R. 76497)

### Partial Withdrawal of Notice of Proposed Rulemaking

Treatment of Related
Person Factoring Income;
Certain Investments in
United States Property; and
Stock Redemptions through
Related Corporations

### REG-122387-16

AGENCY: Internal Revenue Service
(IRS), Treasury.

ACTION: Partial withdrawal of notice of
proposed rulemaking.

SUMMARY: This document withdraws
portions of a notice of proposed rulemak-
ing (INTL-49-86, subsequently con-
verted to REG-209001-86) published in
the Federal Register (53 FR 22186) on
June 14, 1988, (the 1988 NPRM). The
withdrawn portions relate to stock re-
demptions through related corporations,
the application of section 956 to United
States property indirectly held by a con-
trolled foreign corporation (CFC), and
certain related party factoring transac-

tions, as well as the definition of the term
"obligation" for purposes of section 956.

DATES: Sections 1.304-4, 1.956-1(b)
(4), 1.956-2(d)(2), and 1.956-3(b)(2)(ii)
of proposed rules published in the Fed-
eral Register on June 14, 1988, are with-
drawn as of November 3, 2016.

FOR FURTHER INFORMATION CON-
TACT: Rose E. Jenkins, (202) 317-6934
(not a toll-free number).

SUPPLEMENTARY INFORMATION:
Background

On June 14, 1988, the Department of
Treasury (Treasury Department) and the
IRS published in the Federal Register
proposed regulations (INTL-49-86, sub-
sequently converted to REG-209001-86,
53 FR 22186), including: (i) proposed
1.304-4, which provides a special rule
regarding the use of a related corporation
to acquire for property the stock of an-
other commonly owned corporation; (ii)
proposed § 1.956-1(b)(4), which de-
scribes United States property indirectly
held by a CFC for purposes of section
956; (iii) proposed § 1.956-2(d)(2),
which sets forth the definition of "obliga-
tion" for purposes of section 956; and (iv)
proposed § 1.956-3, which provides guid-
ance on the treatment of certain trade or
service receivables received in factoring
transactions as United States property for
purposes of section 956, including rules in
proposed § 1.956-3(b)(2)(ii) that address
the acquisition of a trade or service receiv-
able by a nominee or pass-through entity.
The regulations were proposed by cross-
reference to temporary regulations in
§§ 1.304-4T, 1.956-1T(b)(4), 1.956-
2T(d), and 1.956-3T that were published
in the same issue of the Federal Register
(TD 8209, 53 FR 22163). This document
withdraws certain of these proposed reg-
ulations because the rules in the proposed
regulations are supplanted by final regu-
lations or other proposed regulations.

Specifically, in the Rules and Regula-
tions section of this issue of the Bulletin,
the Treasury Department and the IRS are
issuing final regulations that contain rules
in § 1.956-1(b) concerning United States
property indirectly held by a CFC for pur-
poses of section 956, and rules in
§ 1.956-3(b)(2)(ii) concerning the acqui-

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sition by a nominee, pass-through entity,
or related foreign corporation for purposes
of the section 956 rules governing factor-
ing transactions. The final regulations in
§§ 1.956-1(b) and 1.956-3(b)(2)(ii) were
included in a notice of proposed rulemak-
ing (REG-155164-09) published in the
Federal Register on September 2, 2015
(80 FR 53058, as corrected at 80 FR
66485). Thus, the rules in proposed
§§ 1.956-1(b)(4) and 1.956-3(b)(2)(ii)
provided in the 1988 NPRM are with-
drawn. As described in the preamble to
the final regulations published in the
Rules and Regulations section of this is-
sue of the Bulletin, the remainder of the
rules in § 1.956-3 proposed in the 1988
NPRM also are included in the final reg-
ulations, with minor modifications.

Additionally, on December 30, 2009,
the Treasury Department and the IRS pub-
lished in the Federal Register proposed
regulations (74 FR 69043), which contain
in proposed § 1.304-4 special rules re-
garding the use of related corporations to
avoid the application of section 304 that
supplant the rules set forth in the 1988
NPRM. On December 26, 2012, final reg-
ulations including § 1.304-4 as proposed
in 2009 were published in the Federal
Register (TD 9606, 77 FR 75844). Ac-
cordingly, the rule in the 1988 NPRM that
addresses section 304 is withdrawn.

Furthermore, on April 8, 2016, the
Treasury Department and the IRS pub-
lished in the Federal Register proposed
regulations (81 FR 20588), which contain
in proposed § 1.956-2(d) a definition of
obligation for purposes of section 956, as

well as several exceptions from the defi-
nition, including those set forth in the
1988 NPRM. Accordingly, the rule in the
1988 NPRM that addresses the definition
of obligation is withdrawn.

* * * * *

## Partial Withdrawal of a Notice of Proposed Rulemaking

Accordingly, under the authority of 26
U.S.C. 7805, §§ 1.304-4, 1.956-1(b)(4),
1.956-2(d)(2), and 1.956-3(b)(2)(ii) of
the notice of proposed rulemaking
(INTL-49-86) published in the Federal
Register on June 14, 1988, (53 FR 22186)
are withdrawn.

John M Dalrymple
Deputy Commissioner for
Services and Enforcement.

(Filed by the Office of the Federal Register on November
02, 2016, 8:45 a.m., and published in the issue of the Federal
Register for November 03, 2016, 81 F.R. 76544)

Deletions From Cumulative
List of Organizations,
Contributions to Which are
Deductible Under Section
170 of the Code

Announcement 2016-41

The Internal Revenue Service has re-
voked its determination that the organiza-
tions listed below qualify as organizations
described in sections 501(c)(3) and

170(c)(2) of the Internal Revenue Code of
1986.

Generally, the IRS will not disallow
deductions for contributions made to a
listed organization on or before the date of
announcement in the Internal Revenue
Bulletin that an organization no longer
qualifies. However, the IRS is not pre-
cluded from disallowing a deduction for
any contributions made after an organiza-
tion ceases to qualify under section 170(c)
(2) if the organization has not timely filed
a suit for declaratory judgment under sec-
tion 7428 and if the contributor (1) had
knowledge of the revocation of the ruling
or determination letter, (2) was aware that
such revocation was imminent, or (3) was
in part responsible for or was aware of the
activities or omissions of the organization
that brought about this revocation.

If on the other hand a suit for declara-
tory judgment has been timely filed, con-
tributions from individuals and organiza-
tions described in section 170(c)(2) that
are otherwise allowable will continue to
be deductible. Protection under section
7428(c) would begin on November 28,
2016 and would end on the date the court
first determines the organization is not
described in section 170(c)(2) as more
particularly set for in section 7428(c)(1).
For individual contributors, the maximum
deduction protected is $1,000, with a hus-
band and wife treated as one contributor.
This benefit is not extended to any indi-
vidual, in whole or in part, for the acts or
omissions of the organization that were
the basis for revocation.

Tri-County Behavioral Health Providers
Portland, Oregon

Gregory's Journey
Williamsport, PA

Effective Date of Revocation 1/1/2013

Effective Date of Revocation 7/1/2013

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# Definition of Terms

Revenue rulings and revenue procedures
(hereinafter referred to as "rulings") that
have an effect on previous rulings use the
following defined terms to describe the
effect:

Amplified describes a situation where
no change is being made in a prior pub-
lished position, but the prior position is
being extended to apply to a variation of
the fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that
the same principle also applies to B, the
earlier ruling is amplified. (Compare with
modified, below).

Clarified is used in those instances
where the language in a prior ruling is
being made clear because the language
has caused, or may cause, some confu-
sion. It is not used where a position in a
prior ruling is being changed.

Distinguished describes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.

Modified is used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A

and B, the prior ruling is modified because
it corrects a published position. (Compare
with amplified and clarified, above).

Obsoleted describes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.

Revoked describes situations where the
position in the previously published ruling
is not correct and the correct position is
being stated in a new ruling.

Superseded describes a situation where
the new ruling does nothing more than
restate the substance and situation of a
previously published ruling (or rulings).
Thus, the term is used to republish under
the 1986 Code and regulations the same
position published under the 1939 Code
and regulations. The term is also used
when it is desired to republish in a single
ruling a series of situations, names, etc.,
that were previously published over a pe-
riod of time in separate rulings. If the new
ruling does more than restate the sub-

stance of a prior ruling, a combination of
terms is used. For example, modified and
superseded describes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is
self contained. In this case, the previously
published ruling is first modified and then,
as modified, is superseded.

Supplemented is used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names
in subsequent rulings. After the original
ruling has been supplemented several
times, a new ruling may be published that
includes the list in the original ruling and
the additions, and supersedes all prior rul-
ings in the series.

Suspended is used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of
cases in litigation, or the outcome of a
Service study.

# Abbreviations

The following abbreviations in current
use and formerly used will appear in ma-
terial published in the Bulletin.

A-Individual.

Acq .- Acquiescence.

B-Individual.

BE-Beneficiary.

F.R .- Federal Register.

FUTA-Federal Unemployment Tax Act.

FX-Foreign corporation.

G.C.M .- Chief Counsel's Memorandum.

GE-Grantee.

GP-General Partner.

GR-Grantor.

IC-Insurance Company.

Ct.D .- Court Decision.

I.R.B .- Internal Revenue Bulletin.

CY-County.

LE-Lessee.

LP-Limited Partner.

LR-Lessor.

M-Minor.

Nonacq .- Nonacquiescence.

O Organization.

P-Parent Corporation.

PHC-Personal Holding Company.

PO-Possession of the U.S.

PR-Partner.

PRS-Partnership.

PTE-Prohibited Transaction Exemption.
Pub. L .- Public Law.

REIT-Real Estate Investment Trust.

Rev. Proc .- Revenue Procedure.

Rev. Rul .- Revenue Ruling.

S-Subsidiary.

S.P.R .- Statement of Procedural Rules.

Stat .- Statutes at Large.

T-Target Corporation.

T.C .- Tax Court.

T.D .- Treasury Decision.

TFE-Transferee.

TFR-Transferor.

T.I.R .- Technical Information Release.

TP-Taxpayer.
TR-Trust.

TT-Trustee.

U.S.C .- United States Code.

DE-Donee.

Del. Order-Delegation Order.

DISC-Domestic International Sales Corporation.
DR-Donor.

E-Estate.

EE-Employee.

E.O .- Executive Order.

ER-Employer.

ERISA-Employee Retirement Income Security Act.
EX-Executor.

F-Fiduciary.

FC-Foreign Country.

FICA-Federal Insurance Contributions Act.

FISC-Foreign International Sales Company.

FPH-Foreign Personal Holding Company.

BK-Bank.

B.T.A .- Board of Tax Appeals.

C-Individual.

C.B .- Cumulative Bulletin.

CFR-Code of Federal Regulations.

CI-City.

COOP-Cooperative.

D-Decedent.

DC-Dummy Corporation.

X-Corporation.

Y-Corporation.

Z-Corporation.

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Numerical Finding List1

Notices :- Continued

Treasury Decisions :- Continued

Bulletin 2016-27 through 2016-48

2016-68, 2016-48 I.R.B. 774

9774, 2016-30 I.R.B. 151 9775, 2016-30 I.R.B. 159

2016-67, 2016-47 I.R.B. 751

9776, 2016-32 I.R.B. 222

Action on Decision:

Proposed Regulations:

9777, 2016-36 I.R.B. 282

2016-01, 2016-16 I.R.B. 580

REG-163113-02, 2016-36 I.R.B. 329

9778, 2016-31 I.R.B. 196

2016-02, 2016-31 I.R.B. 193

REG-147196-07, 2016-29 I.R.B. 32

9779, 2016-33 I.R.B. 233 9780, 2016-38 I.R.B. 357

2016-03, 2016-40 I.R.B. 424

REG-123854-12, 2016-28 I.R.B. 15

9781, 2016-35 I.R.B. 274

REG-150992-13, 2016-44 I.R.B. 537

9782, 2016-36 I.R.B. 301

Announcements:

REG-131418-14, 2016-33 I.R.B. 248

9783, 2016-39 I.R.B. 396

REG-102516-15, 2016-32 I.R.B. 231

2016-21, 2016-27 I.R.B. 8

9784, 2016-39 I.R.B. 402

2016-23, 2016-27 I.R.B. 10

REG-109086-15, 2016-30 I.R.B. 171

9785, 2016-38 I.R.B. 375

2016-24, 2016-30 I.R.B. 170

REG-134016-15, 2016-31 I.R.B. 205

9786, 2016-42 I.R.B. 442

2016-25, 2016-31 I.R.B. 205

REG-134122-15, 2016-46 I.R.B. 728

9789, 2016-44 I.R.B. 527

2016-26, 2016-38 I.R.B. 389

REG-101689-16, 2016-30 I.R.B. 170

9790, 2016-45 I.R.B. 540

2016-27, 2016-33 I.R.B. 238

REG-103058-16, 2016-33 I.R.B. 238 REG-105005-16, 2016-38 I.R.B. 380

9791, 2016-47 I.R.B. 734

2016-28, 2016-34 I.R.B. 272

REG-108792-16, 2016-36 I.R.B. 320

9792, 2016-48 I.R.B. 751

2016-29, 2016-34 I.R.B. 272

REG-108934-16, 2016-44 I.R.B. 532

9793, 2016-48 I.R.B. 768

2016-30, 2016-37 I.R.B. 355

REG-114734-16, 2016-48 I.R.B. 777

2016-31, 2016-38 I.R.B. 392

REG-122387-16, 2016-48 I.R.B. 779

2016-32, 2016-40 I.R.B. 434

REG-123600-16, 2016-43 I.R.B. 523

2016-33, 2016-39 I.R.B. 422

REG-130314-16, 2016-45 I.R.B. 718

2016-34, 2016-39 I.R.B. 422

2016-35, 2016-39 I.R.B. 423

Revenue Procedures:

2016-36, 2016-39 I.R.B. 423

2016-37, 2016-39 I.R.B. 423

2016-37, 2016-29 I.R.B. 136

2016-38, 2016-43 I.R.B. 523

2016-39, 2016-30 I.R.B. 164

2016-39, 2016-45 I.R.B. 720

2016-40, 2016-32 I.R.B. 228

2016-41, 2016-48 I.R.B. 780

2016-41, 2016-30 I.R.B. 165

2016-42, 2016-34 I.R.B. 269

Notices:

2016-43, 2016-36 I.R.B. 316

2016-44, 2016-36 I.R.B. 316

2016-40, 2016-27 I.R.B. 4

2016-45, 2016-37 I.R.B. 344

2016-41, 2016-27 I.R.B. 5

2016-46, 2016-37 I.R.B. 345

2016-42, 2016-29 I.R.B. 67

2016-47, 2016-37 I.R.B. 346

2016-43, 2016-29 I.R.B. 132

2016-48, 2016-37 I.R.B. 348

2016-44, 2016-29 I.R.B. 132

2016-49, 2016-42 I.R.B. 462

2016-45, 2016-29 I.R.B. 135

2016-50, 2016-43 I.R.B. 522

2016-46, 2016-31 I.R.B. 202

2016-51, 2016-42 I.R.B. 465

2016-47, 2016-35 I.R.B. 276

2016-52, 2016-42 I.R.B. 520

2016-48, 2016-33 I.R.B. 235

2016-53, 2016-44 I.R.B. 530

2016-49, 2016-34 I.R.B. 265

2016-54, 2016-45 I.R.B. 685

2016-50, 2016-38 I.R.B. 384

2016-55, 2016-45 I.R.B. 707

2016-51, 2016-37 I.R.B. 344

2016-52, 2016-40 I.R.B. 425

Revenue Rulings:

2016-53, 2016-39 I.R.B. 421

2016-54, 2016-40 I.R.B. 429

2016-17, 2016-27 I.R.B. 1

2016-55, 2016-40 I.R.B. 432

2016-18, 2016-31 I.R.B. 194

2016-57, 2016-40 I.R.B. 432

2016-19, 2016-35 I.R.B. 273

2016-58, 2016-41 I.R.B. 438

2016-20, 2016-36 I.R.B. 279

2016-59, 2016-42 I.R.B. 457

2016-23, 2016-39 I.R.B. 382

2016-60, 2016-42 I.R.B. 458

2016-24, 2016-39 I.R.B. 395

2016-61, 2016-46 I.R.B. 722

2016-25, 2016-41 I.R.B. 435

2016-62, 2016-46 I.R.B. 725

2016-26, 2016-45 I.R.B. 538

2016-63, 2016-45 I.R.B. 683

Treasury Decisions:

2016-64, 2016-46 I.R.B. 726

2016-65, 2016-48 I.R.B. 772

9772, 2016-28 I.R.B. 11

2016-66, 2016-47 I.R.B. 747

9773, 2016-29 I.R.B. 56

1A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016-01 through 2016-26 is in Internal Revenue Bulletin
2016-26, dated June 27, 2016.

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## Finding List of Current Actions on Previously Published Items1

Bulletin 2016-27 through 2016-48

Notices:

2009-89
Modified by
Notice 2016-51, 2016-37 I.R.B. 344

2012-54
Obsoleted by
Notice 2016-51, 2016-37 I.R.B. 344

2013-1
Modified by
Notice 2016-41, 2016-27 I.R.B. 5

2013-1
Superseded by
Notice 2016-41, 2016-27 I.R.B. 5

2013-1
Modified by
Notice 2016-65, 2016-48 I.R.B. 772

2013-1
Superseded by
Notice 2016-65, 2016-48 I.R.B. 772

2013-67
Modified by
Notice 2016-51, 2016-37 I.R.B. 344

2015-63
Superseded by
Notice 2016-58, 2016-41 I.R.B. 438

### Revenue Procedures:

2003-16
Modified by
Rev. Proc. 2016-47, 2016-37 I.R.B. 346

2007-44
Clarified by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2007-44
Modified by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2007-44
Superseded by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2009-33
Modified by
Rev. Proc. 2016-48, 2016-37 I.R.B. 348

Revenue Procedures :- Continued

2015-36
Modified by
Rev. Proc. 2016-37, 2016-29 I.R.B. 136

2016-3
Modified by
Rev. Proc. 2016-40, 2016-32 I.R.B. 228

2016-3
Modified by
Rev. Proc. 2016-45, 2016-37 I.R.B. 228

2016-3
Supplemented by
Rev. Proc. 2016-50, 2016-43 I.R.B. 522

2016-29
Modified by
Rev. Proc. 2016-39, 2016-30 I.R.B. 164

#### Treasury Decisions:

2013-17
Obsoleted by
T.D. 9785 2016-38 I.R.B. 375

2014-12
Modified by
T.D. 9776 2016-32 I.R.B. 222

"A cumulative list of all revenue rulings, revenue procedures, Treasury decisions, etc., published in Internal Revenue Bulletins 2016-01 through 2016-26 is in Internal Revenue Bulletin
2016-26, dated June 27, 2016.

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# Internal Revenue Service Washington, DC 20224

Official Business
Penalty for Private Use, $300

# INTERNAL REVENUE BULLETIN

The Introduction at the beginning of this issue describes the purpose and content of this publication. The weekly Internal Revenue
Bulletins are available at www.irs.gov/irb/.

# We Welcome Comments About the Internal Revenue Bulletin

If you have comments concerning the format or production of the Internal Revenue Bulletin or suggestions for improving it, we
would be pleased to hear from you. You can email us your suggestions or comments through the IRS Internet Home Page
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