Information Reporting With Respect to Certain
Foreign Partnerships & Certain Foreign Corporations

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Parts 1 and 602 [TD 8850] RIN 1545-
AV69

TITLE: Information Reporting With Respect to Certain Foreign
Partnerships and Certain Foreign Corporations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations under section 6038
of the Internal Revenue Code relating to information reporting
requirements for United States persons owning interests in
controlled foreign partnerships (CFPs). This document also contains
amendments to the final regulations under section 6038 relating to
the reporting requirements of U.S. shareholders of certain foreign
corporations and amendments to the final regulations under section
6038B relating to the reporting requirements with respect to
transfers of property to foreign partnerships and to foreign
corporations.

DATES: Effective Dates: These regulations are effective December 29,
1999, except that �1.6038B-2(a)(5) is effective January 1, 2000.

Applicability Dates: For dates of applicability, see ��1.6038-2(l),
1.6038-3(l), and 1.6038B-2(c)(4) and (j)(3).

FOR FURTHER INFORMATION CONTACT: Eliana Dolgoff, (202) 622-3860 (not
a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in these final regulations
have been reviewed and approved by the Office of Management and
Budget in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)) under control numbers 1545-1615, 1545-1617, and
1545-1317. Responses to these collections of information are
mandatory.

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

The burden of complying with the collection of information required
to be reported on Form 8865 is reflected in the burden for Form
8865.

The burden of complying with the collection of information required
to be reported on Form 5471 is reflected in the burden for Form
5471.

The burden of complying with the collection of information required
to be reported on Form 926 is reflected in the burden for Form 926.

The estimated annual burden per respondent of complying with the
collection of information in �1.6038-3(c)(1)(ii)(B) and (2)(ii)(B)
varies from .5 hours to 1.5 hours, depending on individual
circumstances, with an estimated average of 1 hour.

Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, OP:FS:FP,
Washington, DC 20224, and to the Office of Management and Budget,
Attn: Desk Officer of the Department Of The Treasury, Office of
Information and Regulatory Affairs, Washington, DC 20503.

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

Background

On September 9, 1998, the IRS published in the Federal Register (63
FR 48144) proposed regulations relating to the reporting
requirements under section 6038 of United States persons that are
direct or indirect partners of CFPs. A public hearing on the
proposed regulations was held on November 10, 1998, even though no
requests to speak at the hearing were received. Though no comments
were made at the hearing, written comments were received. After
consideration of all of the written comments, the proposed
regulations under section 6038 are adopted as revised by this
Treasury decision. The revisions are discussed in the Summary of
Public Comments and Explanation of Revisions section of this
preamble. This document also contains amendments to certain other
final regulations. These amendments are also discussed below.

Summary of Public Comments and Explanation of Revisions

A. General Comments Regarding the Proposed Section 6038 CFP
Regulations

Some commentators suggested that the final regulations should exempt
state and local government employee retirement plans from the
section 6038 reporting requirements. The final regulations provide
that trusts relating to state and local government employee
retirement plans are not required to report under section 6038,
unless required to do so in the instructions to Form 8865, A Return
of U.S. Persons with Respect to Certain Foreign Partnerships.

One commentator asserted that the reasonable cause exception to the
section 6038 penalties appears to apply only to failures to file
Form 8865 and therefore would not protect a taxpayer who files an
incomplete Form 8865 because the taxpayer was unable to obtain all
the required information from the foreign partnership.

The reasonable cause exception has been modified to make clear that
it applies to both a failure to file Form 8865 and to a failure to
submit all information required to be submitted.

Commentators requested that the final regulations provide that the
section 6038 penalties do not apply when there is minor
noncompliance with the reporting requirements under section 6038.

The commentators expressed concern that taxpayers will be subject to
penalties for small discrepancies in the information reported and
suggested that the penalties apply only if there is a substantial
failure to report the required information, or if materially false
or inaccurate information is submitted. Because the IRS and Treasury
believe adding such a standard might encourage taxpayers to submit
incomplete Forms 8865, the standard was not added to the final
regulations. A taxpayer may, nonetheless, avoid application of the
section 6038 penalties because of minor noncompliance with the
section 6038 reporting requirements by demonstrating reasonable
cause. See �1.6038- 3(k)(4).

Commentators also requested that the IRS add additional, specific
reasonable cause exceptions to the section 6038 penalties. For
example, one commentator requested a specific exception be provided
for controlling ten-percent partners (see definition in �1.6038-3(a)
(2)) that are unable to obtain all information required to be
reported by controlling ten-percent partners. The final regulations
do not contain additional, specific reasonable cause exceptions.
Whether there is reasonable cause depends on all the facts and
circumstances of the particular case. Any person who is unable to
obtain information may apply for a reasonable cause determination
specific to that person's situation.

Finally, a commentator asked that in the case of an affiliated group
of corporations filing a consolidated income tax return, the final
regulations not require the members to file separate Forms 8865 if
one member of the group files Form 8865.

The final regulations adopt this recommendation. The common parent
corporation of an affiliated group of corporations filing a
consolidated income tax return may file one Form 8865 on behalf of
all other members of the group required to file Form 8865 pursuant
to section 6038 with respect to a particular foreign partnership.

B. Section 6038/Section 6031 Overlap.

Some commentators requested that the final regulations address the
potential overlap between section 6031 and section 6038. In general,
section 6031(e) provides that a foreign partnership must file Form
1065, A U.S. Partnership Return of Income, @ if it has gross income
derived from sources within the United States or gross income that
is effectively connected with the conduct of a trade or business
within the United States.

Section 6038 provides generally that a U.S. partner of a foreign
partnership must file Form 8865 with respect to that partnership if
the partner individually, or collectively with other ten-percent or
greater U.S. partners, owns more than a fifty-percent interest in
the partnership. Therefore, in some cases, both Forms 1065 and 8865
would be required to be filed with regard to the same partnership
for the same tax year of the partnership.

Although the two forms are not identical, and one is filed by the
partnership while the other is filed by the relevant partners, the
information required by the two forms is substantially the same.

Additionally, some confusion may result from the fact that the two
forms contain similarly titled schedules. In particular, each form
has a Schedule K-1 on which information about a partner's
distributive share of partnership income, deductions, etc., is to be
reported. The IRS is working to eliminate discrepancies between the
two schedules. However, even if the discrepancies are eliminated, it
is still possible the two schedules will not contain identical
information because one schedule will be prepared by a partner and
one will be prepared by the partnership.

In response to the comments that the overlap between section 6031
and section 6038 reporting will be burdensome to taxpayers when both
sets of requirements apply, and to help avoid any confusion on the
part of taxpayers with respect to which Schedule K-1 they should use
to compute their tax liabilities, the final section 6038 regulations
reduce the burden imposed by section 6038 in the case of an overlap.
They provide that if a foreign partnership completes and files Form
1065, a U.S. person required to report under section 6038 must use a
copy of the filed Form 1065, including the Schedules K-1, in
conjunction with fulfilling the person's section 6038 reporting
obligation. Specifically, the instructions to Form 8865 will state
which schedules on Form 1065 are considered equivalent to schedules
on Form 8865. A U.S. partner must attach to the partner's Form 8865
a copy of the Form 1065 schedules that are considered equivalent to
the schedules the partner is required to complete on Form 8865 as a
controlling fifty-percent partner (see definition in �1.6038-3(a)
(1)) or as a controlling ten-percent partner. A partner should not
complete a schedule on Form 8865 when the partner attaches a copy of
the equivalent Form 1065 schedule to its Form 8865. Should a
schedule on Form 8865 ask for information that is not required to be
reported on the equivalent Form 1065 schedule, the partner is not
required to report that information on its Form 8865 if a copy of
the completed equivalent Form 1065 schedule is attached to its Form
8865. A partner attaching copies of schedules from Form 1065 to its
Form 8865 must still complete the parts of Form 8865 that the person
is required to complete as a controlling fifty-percent partner, or
as a controlling ten-percent partner, and for which there is no
equivalent Form 1065 schedule (for example, a partner must still
complete the first page of Form 8865 and certain schedules on page
two of the form).

An example of how a person will use a completed Form 1065 to fulfill
its section 6038 filing obligation is as follows.

Section 1.6038-3(g)(2)(iii) requires a controlling fifty-percent
partner to report aggregate information about the partners'
distributive shares of income, gain, losses, deductions and credits.
Such information is reported on Schedule K of Form 8865. The same
information is also required to be submitted on Schedule K of Form
1065. The instructions to Form 8865 will provide that Schedules K on
Forms 1065 and 8865 are equivalent.

Accordingly, if the partnership completes and files a Form 1065, a
controlling fifty-percent partner filing Form 8865 must attach a
copy of the Schedule K from the Form 1065 to the partner's Form 8865
and should not complete Schedule K on Form 8865. The partner must
also attach all other Form 1065 schedules that are considered
equivalent to Form 8865 schedules that the partner must complete as
a controlling fifty-percent partner.

Additionally, the partner must still complete page one of Form 8865
and Schedules A @ Constructive Ownership of Partnership Interest, @
A-1 A Certain Partners of Foreign Partnership, @ A-2 A Affiliation
Schedule, @ and N A Transactions Between Controlled Foreign
Partnership and Partners or Other Related Entities @ of Form 8865.

Similarly, a controlling ten-percent partner must submit on Schedule
K-1 of Form 8865 a statement of the income, gain, losses, deductions
and credits allocated to the partner's direct interest in the
partnership. See �1.6038-3(g)(1)(i). The same information is also
required to be reported on Schedule K-1 of Form 1065. Therefore, if
the partnership completes and files Form 1065, the partner must
attach to its Form 8865 a copy of its Schedule K-1 from the Form
1065 completed by the partnership and should not complete Schedule
K-1 on Form 8865. The partner is still required to complete the
portions of pages one and two of Form 8865 applicable to controlling
ten-percent partners, as well as Schedule N.

Another comment asserted that the proposed regulations imposed an
excessive reporting burden on taxpayers and that they had the effect
of nullifying the section 6031(e) limitation on reporting required
of foreign partnerships. The comment suggested that the IRS require
only those items specifically enumerated in section 6038(a)(1) to be
reported under section 6038.

Section 6038 grants the IRS authority to require taxpayers to submit
more than the items enumerated in section 6038(a)(1).

Section 6038 provides that the Secretary may require the furnishing
of any other information that is similar or related in nature to
that specified in the first sentence of section 6038(a)(1), or which
the Secretary determines to be appropriate to carry out the
provision of Title 26. The IRS has determined that all of the
information that the final section 6038 regulations require
taxpayers to submit is necessary for the IRS to carry out the
provisions of Title 26.

Additionally, as explained above, section 6031(e) and section 6038
differ with respect to whom they require to report and when the
reporting obligation applies. Section 6031(e) applies only to the
requirement that a Form 1065 be filed, to the application of the
TEFRA partnership-level audit procedures, and to the requirement
that a partnership report information about its operations, even
when there is limited U.S. ownership in the partnership. In
contrast, section 6038 requires certain U.S. partners to report
information when the foreign partnership in which they own an
interest has substantial U.S. ownership.

Section 6031(e) was added to the Internal Revenue Code at the same
time that section 6038 was amended to apply to CFPs. See Taxpayer
Relief Act of 1997, Public Law 105-34, sections 1141- 1142 (111
Stat. 983)(1997). Therefore, rather than intending section 6031(e)
to limit the amount of information required to be reported pursuant
to section 6038, Congress intended the two provisions to work
together to ensure that the IRS receives sufficient information
about foreign partnerships.

C. Tiered Partnerships

Commentators requested that section 6038 reporting apply only to
first-tier CFPs, i.e., section 6038 reporting should only be
required of U.S. persons with respect to foreign partnerships in
which they own a direct interest. However, section 6038(e)(3)(B)
provides that rules similar to the rules of section 267(c) shall
apply when determining whether a person owns a fifty-percent
interest in a foreign partnership. Additionally, the statute does
not require that a U.S. person own its interest in the CFP directly.
Therefore, the final regulations require section 6038 reporting of
United States persons whose ownership interests are entirely the
result of constructive ownership from other persons.

Nevertheless, certain exceptions and modifications to this rule may
apply. Persons that do not own direct interests may qualify for a
reduced reporting obligation pursuant to the exception for
constructive owners in �1.6038-3(c)(2).

Additionally, certain information required by the final section 6038
regulations must be submitted only if the partner owns a direct
interest in the foreign partnership. For example, �1.6038-3(g)(1)(i)
provides that the person reporting under section 6038 must provide a
statement of the income, gain, losses, deductions and credits
allocated to that person's direct interest in the partnership.
Accordingly, if a person is reporting under section 6038 but owns no
direct interest in the partnership, that person will not have to
submit information under �1.6038-3(g)(1)(i). Finally, the final
regulations require attribution from nonresident alien family
members only if the person to whom the interest is being attributed
already owns a direct or indirect (under the rules of section 267(c)
(1) or (5)) interest in the partnership. See �1.6038-3(b)(4).

D. Failure to Recognize That an Arrangement is a Partnership or That
a Partnership is a Foreign Partnership Commentators expressed
concern that taxpayers might fail to report under section 6038
because they failed to recognize that their arrangement constituted
a partnership. Additionally, if no entity is formed under foreign
law, but a partnership is determined to exist, it may be difficult
to determine whether the partnership is foreign or domestic. Some
commentators recommended that the IRS exclude partnerships not
formed under a foreign law statute from the reporting requirements,
subject to an anti-abuse rule. The final regulations do not adopt
this recommendation and additional guidance on these issues is
beyond the scope of this document. They do, however, provide that
the section 6038 reporting requirements do not apply to any United
States person with respect to a foreign partnership that has validly
elected (or is deemed to have elected) to be excluded from the
application of subchapter K. See �1.6038-3(e).

Additionally, a taxpayer that does not comply with section 6038
because it mistakenly concluded that its arrangement was not a
partnership, or that it was not a foreign partnership, may apply for
a reasonable cause determination. See �1.6038-3(k)(4).

E. Section 6038 (CFPs) Effective Date.

Section 1.6038-3 is applicable to CFP tax years ending on or after
December 31, 2000. United States persons are not required to report
under section 6038 for CFP tax years ending before December 31,
2000.

F. Availability of Form 8865.

A United States person required to report information pursuant to
section 6038 must do so by completing and filing Form 8865. A final
version of Form 8865 will be released prior to January 1, 2000.
Taxpayers will be able to download a copy of the form and its
instructions from the IRS Internet website located at
www.irs.ustreas.gov.

G. Clarification of Section 6501(c)(8).

Section 6501(c)(8) provides that in the case of information required
to be reported under section 6038, 6038A, 6038B, 6046, 6046A, or
6048, the time for assessment of any tax imposed by Title 26 with
respect to any event or period to which such information relates
shall not expire before the date that is three years after the date
on which the Secretary is furnished the information required to be
reported under such section.

Taxpayers have expressed uncertainty about the application of this
rule in the context of a failure to properly report information
required under sections 6038, 6038B, or 6046A, with respect to an
interest in a foreign corporation or a foreign partnership, as
applicable. The IRS and Treasury wish to clarify that if a U.S.
person fails to comply with sections 6038, 6038B, or 6046A, the
extended statute of limitations provided by section 6501(c)(8) shall
apply only to the tax consequences related to the information
required to be reported under the relevant reporting section and not
to all transactions within the U.S. person's tax year at issue. For
example, if a U.S. person with a calendar tax year fails to comply
with section 6038 for a controlled foreign partnership's 2001
calendar tax year, section 6501(c)(8) will only extend the statute
of limitations applicable to the U.S. person's 2001 tax year with
respect to any tax consequences associated with the U.S. person's
interest in the foreign partnership during the partnership's 2001
tax year.

H. Amendment to Final Section 6038 Foreign Corporation Regulations

In order to reduce the burden that section 6038 imposes on
taxpayers, this document also amends the final regulations under
section 6038 applicable to shareholders of certain foreign
corporations. The regulations provide that if a United States person
does not own a direct or indirect interest in the foreign
corporation, but is attributed an interest from a nonresident alien,
the person is not required to report under section 6038.

This amendment is effective for tax years of foreign corporations
ending on or after December 29, 1999.

I. Amendments to Final Section 6038B Regulations Applicable to
Transfers of Property to Foreign Partnerships

On February 5, 1999, the IRS published in the Federal Register final
regulations under section 6038B relating to the information
reporting requirements for certain contributions of property by
United States persons to foreign partnerships. See 64 FR 5713. This
document makes several amendments to those final regulations. Each
amendment either reduces the burden that section 6038B imposes on
taxpayers, or does not affect the burden imposed by section 6038B.

First, the amount of information required to be submitted by a
person reporting a transfer of property to a foreign partnership is
reduced. Rather than submit the names and addresses of all the
foreign partnership's partners, the person reporting the transfer
(the transferor) must provide only the names and addresses of the
United States partners that owned a ten-percent or greater direct
interest in the foreign partnership during the transferor's tax year
in which the reportable transfer occurred, and the names and
addresses of any other United States or foreign persons that were
direct partners in the partnership during that tax year and that
were related to the transferor under section 6038B during that tax
year. A person who transferred solely cash and who did not own a
ten-percent or greater interest after the transfer is still not
required to report the names and addresses of any of the foreign
partnership's other partners. This amendment applies to tax years of
U.S. persons required to report under section 6038B beginning on or
after January 1, 2000.

Second, this document changes the time for filing Form 8865 to
report a transfer to a foreign partnership in certain instances.
Currently, �1.6038B-2(a)(5)(ii) provides that if a United States
person required to report a transfer to a foreign partnership is
also required to report pursuant to section 6038 for the period in
which the transfer occurred, then the United States person must
report the transfer on the Form 8865 completed for the partnership's
tax year in which the transfer occurred.

This document deletes the section 6038B/section 6038 overlap rule,
so that a United States person must always report with its tax
return for a particular tax year all of its section 6038B transfers
that took place during that year, regardless of whether any of the
transfers occurred during a period for which section 6038 reporting
is also required. This amendment applies to tax years of U.S.
persons required to report under section 6038B beginning on or after
January 1, 2000.

The following example illustrates this amendment. Assume the tax
year of FPS, a foreign partnership, ends on Sept 30. US, a United
States person and calendar year taxpayer, owns a sixty-percent
interest in FPS and therefore is a controlling fifty-percent partner
of FPS. Accordingly, US must report under section 6038 with respect
to FPS. On October 15, 2001, US transfers property to FPS in a
section 721 transaction. US is required to report this transfer
under section 6038B because US owns at least a ten-percent interest
in the partnership immediately after the transfer. See �1.6038B-2(a)
(1)(i). Under the existing section 6038B regulations, US is required
to report the October 15, 2001 property transfer on the Form 8865
for FPS's tax year ending September 30, 2002, that will be filed
with US's 2002 income tax return.

Under the amendments to section 6038B contained in this document, US
must attach to its 2001 income tax return a Form 8865 on which is
reported the October 15, 2001 property transfer and information
about FPS for FPS's tax year ending September 30, 2001. Assuming US
is also a controlling fifty-percent partner during FPS's tax year
ending September 30, 2002, when US files its 2002 income tax return,
US must attach to that return Form 8865 on which is reported
information about FPS for FPS's tax year ending September 30, 2002.
US should not report the October 15, 2001, property transfer on the
Form 8865 filed with US's 2002 income tax return.

The third and final amendment to the section 6038B regulations
provides an additional opportunity for United States persons to
timely report certain transfers to foreign partnerships. Even if not
reported in accordance with the rules provided in �1.6038B-2(a)(5)
or (j)(1) or (2), a transfer to a foreign partnership that occurred
before January 1, 2000, will nevertheless be considered timely
reported if the transferor reports it on a Form 8865 attached to an
amended tax return for the transferor's tax year in which the
transfer occurred, provided such amended return is filed no later
than September 15, 2000.

Additionally, since issuing the section 6038B regulations in
February 1999, certain tax-exempt organizations have contacted the
IRS and Treasury to request that they be specifically excluded from
the obligation under section 6038B to report their property
transfers to foreign partnerships. The IRS and Treasury invite
comments regarding the extent to which section 6038B reporting
should be required of tax-exempt organizations.

J. Amendment to Final Section 6038B Regulations Applicable to
Transfers of Property to Foreign Corporations

This document makes one amendment to the final section 6038B
regulations governing the reporting requirements with respect to
transfers to foreign corporations. The amendment reduces the burden
that section 6038B imposes on taxpayers.

Pursuant to �1.367(a)-3(c)(8), section 367(a) does not apply to a
domestic corporation's transfer of its own stock or securities in
connection with the performance of services, if the transfer is
considered to be to a foreign corporation solely by reason of
�1.83-6(d)(1). Section 1.83-6(d)(1) provides that if a shareholder
of a corporation transfers property to an employee of such
corporation in consideration of services performed for the
corporation, the transaction is considered to be a contribution of
such property to the capital of such corporation by the shareholder,
and immediately thereafter a transfer of such property by the latter
corporation to the employee.

The final regulations under section 6038B do not contain an
exception to the reporting requirements that corresponds to the rule
in �1.367(a)-3(c)(8). Therefore, a transfer by a domestic
corporation of its stock or securities to an employee of the
domestic corporation's foreign subsidiary may be excluded from the
application of section 367(a), yet still reportable under section
6038B. This document provides that such a transfer is not required
to be reported under section 6038B if the transfer is considered to
be to a foreign corporation solely by reason of �1.83-6(d)(1) and
the fair market value of the property transferred did not exceed
$100,000. This amendment is effective as if it had been included in
TD 8770 (63 FR 33550), and therefore applies to transfers occurring
on or after July 20, 1998.

Special Analyses

It has been determined that these final regulations are not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory 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 final regulations. It
is hereby certified that the collections of information contained in
these final regulations will not have a significant economic impact
on a substantial number of small entities. This certification is
based on the fact that the number of small entities that will be
required to file the form is not substantial. Accordingly, a
Regulatory Flexibility Analysis under the Regulatory Flexibility Act
(5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of
the Internal Revenue Code, these regulations were submitted to the
Chief Counsel for Advocacy of the Small Business Administration for
comment on their impact on small business.

Drafting Information

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

List of Subjects

26 CFR Part 1 Income taxes, Reporting and recordkeeping
requirements.

26 CFR part 602 Reporting and recordkeeping requirements.

Amendments to the Regulations Accordingly, 26 CFR parts 1 and 602
are amended as follows:

PART 1--INCOME TAXES

Par. 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 1.6038-2 also issued under 26 U.S.C. 6038.

Section 1.6038-3 also issued under 26 U.S.C. 6038. * * *

Par. 2. In �1.367(a)-3, paragraph (c)(8) is amended by adding a
sentence to the end of the paragraph to read as follows:

�1.367(a)-3 Treatment of transfers of stock or securities to foreign
corporations.

* * * * *

(c) * * *

(8) * * * The transfer may still, however, be reportable under
section 6038B. See �1.6038B-1(b)(2)(i)(A)(4) and (b)(2)(i)(B)(4).

* * * * *

Par. 3. Section 1.6038-2 is amended as follows:

1. A sentence is added to the end of paragraph (j)(2)(i)(C).

2. Paragraph (l) is added.

The revised and added provisions read as follows:

�1.6038-2 Information returns required of United States persons with
respect to annual accounting periods of certain foreign corporations
beginning after December 31, 1962.

* * * * *

(j) * * *

(2) * * *

(i) * * *

(C) * * * (For a rule regarding attribution from a nonresident
alien, see paragraph (l) of this section).

* * * * *

(l) Other persons excepted from filing. For tax years of foreign
corporations ending on or after December 29, 1999, any person
required to furnish information under this section with respect to a
foreign corporation does not have to furnish that information if the
following conditions are met--

(1) Such person does not own a direct or indirect interest in the
foreign corporation; and

(2) Such person is required to furnish information solely by reason
of attribution of stock ownership from a nonresident alien(s) under
paragraph (c) of this section.

Par. 4. Section 1.6038-3 is added to read as follows: �1.6038-3
Information returns required of certain United States persons with
respect to controlled foreign partnerships (CFPs).

(a) Persons required to make return--(1) Controlling fifty-percent
partners. The term controlling fifty-percent partner means a United
States person that controlled (as defined in paragraph (b)(1) of
this section) the foreign partnership at any time during the
partnership's tax year (as defined in paragraph (b)(8) of this
section). Except as provided in paragraph (c), (d), or (e) of this
section, for each tax year of a foreign partnership during which the
partnership has one or more controlling fifty-percent partners, each
controlling fifty-percent partner must complete and file Form 8865,
A Return of U.S. Persons With Respect To Certain Foreign
Partnerships, @ containing the information described in paragraph
(g) of this section.

(2) Controlling ten-percent partners. If at any point during a
foreign partnership's tax year (as defined in paragraph (b)(8) of
this section) a United States person owned a ten-percent or greater
interest in the partnership while the partnership was controlled by
United States persons owning ten-percent or greater interests, such
United States person is a controlling ten-percent partner. See
paragraph (b)(1) of this section for the definition of control.
However, a United States person is not a controlling ten-percent
partner with respect to a particular foreign partnership for a
particular tax year of the foreign partnership if at any point
during that year the partnership had a controlling fifty-percent
partner, as defined in paragraph (a)(1) of this section. Except as
provided in paragraph (c), (d), or (e) of this section, for each tax
year of a partnership during which the partnership has controlling
ten-percent partners, each controlling ten-percent partner must
complete and file Form 8865 containing the information described in
paragraph (g)(1) of this section.

(3) Separate returns for each partnership. A United States person
required to report under this paragraph (a) must file a separate
Form 8865 for each foreign partnership with respect to which the
person is a controlling fifty-percent partner or a controlling ten-
percent partner.

(b) Ownership determinations and definitions--(1) Control.

Control of a foreign partnership is ownership of more than a fifty-
percent interest in the partnership.

(2) Fifty-percent interest. A fifty-percent interest in a
partnership is an interest equal to fifty percent of the capital
interest in such partnership, an interest equal to fifty percent of
the profits interest in such partnership, or an interest to which
fifty percent of the deductions or losses of such partnership are
allocated.

(3) Ten-percent interest. A ten-percent interest in a partnership is
an interest equal to ten percent of the capital interest in such
partnership, an interest equal to ten percent of the profits
interest in such partnership, or an interest to which ten percent of
the deductions or losses of such partnership are allocated.

(4) Constructive ownership rules. For purposes of determining an
interest in a partnership, the constructive ownership rules of
section 267(c) (other than section 267(c)(3)) apply, taking into
account that such rules refer to corporations and not to
partnerships. However, an interest will be attributed from a
nonresident alien under the family attribution rules of section
267(c)(2) and (4) only if the person to whom the interest is
attributed owns a direct or indirect (under the rules of 267(c)(1)
or (5)) interest in the foreign partnership.

(5) Determination of amount of interest. Whether a person owns a
fifty-percent interest, or a ten-percent interest, as described in
paragraphs (b)(2) and (3) of this section, is determined for each
tax year of the foreign partnership by reference to the agreement of
the partners relating to such interests during that tax year.

(6) Definition of United States person. The term United States
person is defined in section 7701(a)(30).

(7) Definition of a foreign partnership. A foreign partnership is a
partnership described in section 7701(a)(5).

(8) Tax year of a foreign partnership. The tax year of a foreign
partnership is determined under section 706.

(9) Examples. The rules of paragraph (a) of this section and this
paragraph (b) are illustrated by the following examples:

Example 1. Sole U.S. partner does not own more than a fifty-percent
interest. No United States person owns any interest (directly or
constructively) in FPS, a foreign partnership whose tax year under
section 706 is the calendar year. On January 1, 2001, US, a United
States person with the calendar year as its tax year, contributes
property to FPS in exchange for a 40% interest in a section 721
transaction. No United States persons acquire directly or
constructively any other interests in FPS during FPS's 2001 tax
year. US is not a controlling fifty-percent partner during FPS's
2001 tax year. US did not own during that tax year, either directly
or constructively, more than a 50% interest in the partnership under
paragraphs (b)(2) and (4) of this section. Also, US is not a
controlling ten-percent partner; although US owned a 10% or greater
interest, US persons owning at least 10% interests did not control
FPS. Therefore, US does not have to file with its 2001 income tax
return a Form 8865 with respect to FPS under section 6038. (But see
section 6038B for the reporting obligations of US with respect to
its transfer of property to FPS and section 6046A for the reporting
obligation of US with respect to its acquisition of an interest in
FPS. See also �1.6046A-1( e)(1) regarding the overlap between
sections 6038B and 6046A).

Example 2. Controlling ten-percent partners. Assume the same facts
as in Example 1. In addition, on January 1, 2002, US1, a United
States person unrelated to US and a calendar year taxpayer,
purchases a 15% interest in FPS from a foreign partner of FPS.
Neither US nor US1 is a controlling fifty-percent partner during
FPS's 2002 tax year because neither one owns more than a 50% percent
interest in FPS during that year. However, US and US1 are
controlling ten-percent partners for that year because each owns at
least a 10% interest (US owns a 40% interest and US1 owns a 15%
interest) and together they control FPS because collectively they
own more than a 50% interest in FPS. As controlling ten-percent
partners, under section 6038, each is required to file a Form 8865
with its 2002 income tax return.

(US1 must also report its acquisition of the 15% interest in FPS
under section 6046A on its Form 8865 filed with its 2002 income tax
return.) Example 3. Constructive ownership rules. Assume the same
facts as in Example 2. In addition, on January 1, 2003, US2, a
United States person and the brother of US, purchases 50% of the
stock of FC, a foreign corporation. FC owns a 20% interest in FPS.
Thus, under sections 6038(e)(3) and 267(c)(1), US2 indirectly owns a
10% interest in FPS (10% is US2's proportionate share of FC's 20%
interest in FPS), and under sections 6038(e)(3) and 267(c)(2), US2
is attributed US's 40% interest.

Additionally, US directly owns a 40% interest in FPS and is
attributed US2's 10% interest pursuant to section 6038(e)(3) and
section 267(c)(2). Therefore, US2 is considered to own a 50%
interest (10% indirectly and 40% from US) in FPS, and US is
considered to own a 50% interest in FPS (40% directly and 10% from
US2). FPS has no controlling fifty-percent partners, because neither
US, US1, nor US2, owns a greater than 50% interest. However, US,
US1, and US2 are each controlling ten-percent partners and each must
file Form 8865 pursuant to section 6038 for FPS's 2003 tax year
ending December 31, 2003. Each must attach Form 8865 to its tax
return for its 2003 tax year.

Example 4. Controlling fifty-percent partners. Assume the same facts
as in Example 3. In addition, on June 1, 2004, US acquires an
additional 1% direct interest in FPS. US is now a controlling fifty-
percent partner of FPS, because US owns a 41% interest directly and
a 10% interest constructively from US2.

US2 is also a controlling fifty-percent partner, because US2 owns
10% indirectly and 41% constructively from US. Both US and US2 are
required to file Form 8865 containing all the information required
to be submitted by controlling fifty-percent partners.

(But see paragraph (c)(1) of this section, which contains filing
exceptions when there are multiple controlling fifty-percent
partners). US1 is no longer a controlling ten-percent partner
because FPS now has at least one controlling fifty-percent partner,
and US1 does not qualify as a controlling fifty-percent partner.
Therefore, US1 is not required to file Form 8865 under section 6038.

Example 5. Constructive ownership from a nonresident alien.

US, a United States person, does not own directly or constructively
an interest in FPS, a foreign partnership. The tax year of FPS is
the calendar year. NRA, a nonresident alien, is the mother of US. In
2002, NRA acquires a 55% interest in FPS. Because US owns neither a
direct nor a constructive interest in FPS under sections 6038(e)(3)
and 267(c)(1) or (5), NRA's interest is not attributed to US under
sections 6038(e)(3) and 267(c)(2). If in 2003 NRA becomes a United
States person, NRA's interest will be attributed to US. However, US
is excused from filing Form 8865 if US satisfies the requirements of
the constructive owners exception in paragraph (c)(2) of this
section. In 2003, NRA is a controlling fifty-percent partner and
must file a Form 8865 under section 6038 for FPS's 2003 tax year.

(c) Exceptions when more than one United States person is required
to file Form 8865 pursuant to section 6038--(1) Multiple controlling
fifty-percent partners--(i) In general.

If, with respect to the same foreign partnership for the same tax
year, more than one United States person is a controlling fifty-
percent partner, then in lieu of each controlling fifty-percent
partner filing a separate Form 8865, only one Form 8865 from one of
the controlling fifty-percent partners is required, provided all of
the requirements of paragraph (c)(1)(ii) of this section are
satisfied. A person that is a controlling fifty-percent partner
solely because of an interest to which deductions or losses are
allocated may file the single return only if there is no United
States person that is a controlling fifty-percent partner by reason
of an interest in capital or profits.

(ii) Requirements--(A) The person undertaking the filing obligation
must file Form 8865 with that person's income tax return in the
manner provided by Form 8865 and the accompanying instructions. The
return must contain all of the information that would have been
required to be reported by this section if each controlling fifty-
percent partner had filed its own Form 8865.

(B) Any controlling fifty-percent partner not filing Form 8865 must
file with its income tax return a statement titled A Controlled
Foreign Partnership Reporting @ containing the following
information--

(1) A statement that the person qualified as a controlling fifty-
percent partner, but is not submitting Form 8865 pursuant to the
multiple controlling fifty-percent partners exception;

(2) The name, address, and taxpayer identification number (if any)
of the foreign partnership of which the person qualified as a
controlling fifty-percent partner;

(3) A representation that the filing requirement has been or will be
satisfied;

(4) The name and address of the person filing the single return;

(5) The Internal Revenue Service Center where the single return is
required to be filed; and

(6) Any additional information that Form 8865 and the accompanying
instructions require.

(iii) Penalties. If the requirements listed in paragraph (c)(1)(ii)
of this section are not satisfied, a United States person that did
not file a Form 8865 pursuant to this paragraph will be subject to
the penalties in paragraph (k) of this section, unless the
reasonable cause provision in paragraph (k)(4) of this section is
satisfied.

(2) Certain constructive owners excepted from furnishing
information--(i) In general. A United States person that does not
own a direct interest in the foreign partnership and that is
required to file Form 8865 under this section solely by reason of
constructive ownership from a United States person(s) pursuant to
paragraph (b)(4) of this section (an indirect partner) is not
required to file Form 8865 if all of the requirements listed in
paragraph (c)(2)(ii) of this section are met.

(ii) Requirements--(A) The United States person(s) whose interest
the indirect partner constructively owns reports all the information
such person(s) is required to submit under this section, unless such
person also is required to file solely by reason of constructive
ownership from a United States person(s) pursuant to paragraph (b)
(4) of this section, or another person reports the information
pursuant to paragraph (c)(1) of this section.

(B) The indirect partner files with its income tax return a
statement titled A Controlled Foreign Partnership Reporting @
containing the following information--

(1) A representation that the indirect partner was required to file
Form 8865, but is not doing so pursuant to the constructive owners
exception;

(2) The names and addresses of the United States persons whose
interests the indirect partner constructively owns;

(3) The name and address of the foreign partnership with respect to
which the indirect partner would have had to have filed Form 8865
but for this exception; and

(4) Any additional information that Form 8865 and the accompanying
instructions require.

(iii) Penalties. A United States person that pursuant to this
paragraph (c)(2) does not file a return will be subject to the
penalties in paragraph (k) of this section if the requirements
listed in paragraph (c)(2)(ii) of this section are not satisfied,
unless such failure is due to reasonable cause, as defined in
paragraph (k)(4) of this section.

(iv) Overlap with multiple controlling fifty-percent partners
exception--(A) If a United States person qualifies for both the
exception in paragraph (c)(1) of this section and the exception in
this paragraph (c)(2), such person may only utilize the multiple
controlling fifty-percent partners exception in paragraph (c)(1) of
this section to avoid filing Form 8865.

(B) Example. The following example illustrates the operation of this
paragraph (c)(2)(iv):

Example. US is a U.S. citizen. US owns 100% of the stock of DC, a
domestic corporation. DC owns a 60% direct interest in FPS, a
foreign partnership. DC and US are the only U.S. persons that own
interests directly or constructively in FPS. DC owns directly a
greater than 50% interest in FPS. US constructively owns DC's
interest pursuant to sections 6038(e)(3) and 267(c)(1).

Therefore, both DC and US are controlling fifty-percent partners.

US qualifies for both the exception in paragraph (c)(1) of this
section (multiple controlling fifty-percent partners) and the
exception in paragraph (c)(2) of this section (constructive owner
exception). US may only utilize the paragraph (c)(1) exception to
avoid its filing obligation. Accordingly, DC may file a single Form
8865 on behalf of US and itself. However, that form must contain all
the information that would have been submitted had DC and US each
submitted a separate Form 8865.

(3) Members of an affiliated group of corporations filing a
consolidated return. If one or more members of an affiliated group
of corporations filing a consolidated return are required under
section 6038 to file a Form 8865 for a particular foreign
partnership, the common parent corporation may file one Form 8865 on
behalf of all of the members of the group required to report under
section 6038. Except with respect to group members who also qualify
under the exception in paragraph (c)(2) of this section, the Form
8865 must contain all the information that would have been required
to be submitted if each group member were required to file its own
Form 8865.

(d) Exception for certain trusts. Trusts relating to state and local
government employee retirement plans are not required to report
under this section, unless the instructions to Form 8865 provide
otherwise.

(e) Reporting under this section not required with respect to
partnerships excluded from the application of subchapter K.

The reporting requirements of this section will not apply to any
United States person in respect of an eligible partnership as
described in �1.761-2(a) if such partnership has validly elected to
be excluded from all of the provisions of subchapter K of chapter 1
of the Internal Revenue Code in the manner specified in �1.761-2(b)
(2)(i), or such partnership is deemed to have elected to be excluded
from all of the provisions of subchapter K of chapter 1 of the
Internal Revenue Code in accordance with the provisions of
�1.761-2(b)(2)(ii).

(f) Period covered by return. The information required under this
section must be furnished for the tax year of the foreign
partnership ending with or within the United States person's tax
year. See section 706 for rules regarding tax years of partnerships.

(g) Contents of return--(1) Information required to be submitted by
controlling fifty-percent partners and controlling ten-percent
partners. All controlling fifty-percent partners and all controlling
ten-percent partners must submit the following information on Form
8865 in the form and manner and to the extent prescribed by Form
8865 and its instructions--

(i) A statement of the income, gain, losses, deductions and credits
allocated to the direct interest in the partnership of the person
reporting under section 6038;

(ii) A list of all partnerships (foreign or domestic) in which the
foreign partnership owned a direct interest, or owned a constructive
interest of ten percent of more under the rules of section 267(c)(1)
or (5), during the partnership's tax year for which the Form 8865 is
being filed; (iii) Information about all foreign entities that were

disregarded as entities separate from their owner under ��301.7701-2
and 301.7701-3 that were owned by the foreign partnership during the
partnership's tax year for which the Form 8865 is being filed;

(iv) A summary of the transactions that took place during the
partnership's tax year between the partnership and the person filing
the return, between the partnership and any other partnership of
which the person filing the return is a controlling fifty-percent
partner, and between the partnership and any corporation controlled
(under section 6038(e)(2) and the regulations thereunder) by the
person filing the return; and

(v) Any other information that Form 8865 or its accompanying
instructions require to be submitted.

(2) Additional information required to be submitted by controlling
fifty-percent partners. In addition to the information required
pursuant to paragraph (g)(1) of this section, controlling fifty-
percent partners must also submit the following information in the
form and manner and to the extent required by Form 8865 and its
instructions--

(i) A list of the names, addresses and tax identification numbers
(if any) of each United States person that owned a direct interest
of ten percent or more in the partnership during the partnership's
tax year, and of each United States and foreign person whose
interests in the partnership the controlling fifty-percent partner
constructively owned under paragraph (b)(4) of this section during
the partnership's tax year;

(ii) A list of transactions between the partnership and any United
States person owning at the time of the transaction at least a 10-
percent direct interest (as defined in paragraph (b)(3) of this
section) in the foreign partnership;

(iii) A statement of the aggregate of the partners' distributive
shares of items of income, gain, losses, deductions and credits;

(iv) A statement of income, gain, losses, deductions and credits
allocated to each United States person holding a direct interest in
the foreign partnership of ten percent or more; and

(v) Any other information Form 8865 or its accompanying instructions
require controlling fifty-percent partners to submit.

(h) Method of reporting. Except as otherwise provided on Form 8865
or the accompanying instructions, all amounts required to be
furnished on Form 8865 must be expressed in United States dollars.
All statements required on or with Form 8865 pursuant to this
section must be in English.

(i) Time and place for filing return--(1) In general. Form 8865 must
be filed with the United States person's income tax return on or
before the due date (including extensions) of that return. If the
United States person is not required to file an income tax return
for its tax year with which or within which the foreign
partnership's tax year ends, but is required to file an information
return for that year (for example, Form 1065, A U.S. Partnership
Return of Income, @ or Form 990, A Return of Organization Exempt
from Income Tax @ ), the Form 8865 must be filed with the United
States person's information return filed on or before the due date
(including extensions) of that return.

(2) Duplicate return. If required by the instructions to Form 8865,
a duplicate Form 8865 (including attachments and schedules) must
also be filed.

(j) Overlap with section 6031--(1) In general. A partner may be
required to file Form 8865 under this section and the foreign
partnership in which it is a partner may also be required to file a
Form 1065 under section 6031(e) for the same partnership tax year.
However, if a foreign partnership completes and files Form 1065, the
United States partner must use a copy of the relevant parts of Form
1065 to fulfill certain of its filing obligations under section
6038. Specifically, instead of completing the Form 8865 schedules
that the person would otherwise be required to complete as a
controlling fifty-percent or a controlling ten-percent partner, the
person must instead attach to its Form 8865 copies of the relevant
schedules from Form 1065 that the instructions to Form 8865 state
are considered equivalent to schedules on Form 8865. Should a
schedule on Form 8865 ask for information that is not required to be
reported on the equivalent Form 1065 schedule, the partner is not
required to report that information on its Form 8865 if a copy of
the completed equivalent Form 1065 schedule is attached to its Form
8865. A person attaching copies of schedules from Form 1065 to its
Form 8865 must still complete the parts of Form 8865 that the person
is required to complete as a controlling fifty-percent partner, or a
controlling ten-percent partner, and for which there is no
equivalent Form 1065 schedule (for example, the first page of Form
8865).

(2) Example. The following example illustrates the application of
this paragraph (j):

Example.US, a United States citizen, owns a 55% interest in FPS, a
foreign partnership and calendar year taxpayer.

Because US owns more than a 50% interest in FPS, US is a controlling
fifty-percent partner of FPS and must file a Form 8865 with respect
to FPS. During 2001, FPS earns gross income that is effectively
connected with the conduct of a trade or business within the United
States. Therefore, pursuant to section 6031(e)(2)(B), FPS must file
Form 1065 for its 2001 tax year. If FPS completes and files Form
1065, US must use copies of the relevant schedules from Form 1065 to
complete US's Form 8865 for FPS's 2001 tax year. If FPS instead had
a September 30 tax year pursuant to section 706, then US must attach
to its Form 1040 for US's 2001 tax year a Form 8865 completed with
respect to FPS's tax year ending September 30, 2001. If FPS filed a
Form 1065 for its tax year ending September 30, 2001, then US must
use that Form 1065 to fulfill in part its reporting obligations
under section 6038 by attaching the relevant schedules from the Form
1065 to US's Form 8865.

(k) Failure to comply with reporting requirement--(1) In general.
Any United States person required to file Form 8865 under Section
6038 and this section that fails to comply (as defined in paragraph
(k)(2) of this section) with the reporting requirements of this
section, will be subject to the penalties described in paragraph (k)
(3) of this section.

(2) Failure to comply. A failure to comply is separately determined
for each foreign partnership for which a United States person has a
section 6038 reporting obligation. A failure to comply with the
requirements of section 6038 includes the following--

(i) The failure to report at the proper time and in the proper
manner any information required to be reported under the rules of
this section; or

(ii) The provision of false or inaccurate information in purported
compliance with the requirements of this section.

(3) Penalties. A United States person that fails to comply (as
defined in paragraph (k)(2) of this section) with the reporting
requirements of this section must pay the following penalties,
subject to the reasonable cause exception in paragraph (k)(4) of
this section:

(i) Dollar amount penalty--(A) $10,000 penalty. A penalty of $10,000
shall be imposed for each tax year of each foreign partnership with
respect to which a failure to comply occU.S. (B) Increase in
penalty. If a failure to comply with the applicable reporting
requirements of section 6038 and this section continues for more
than 90 days after the date on which the Commissioner or the
Commissioner's delegate mails notice of the failure to the United
States person required to file Form 8865, the person must pay an
additional penalty of $10,000 for each 30-day period (or fraction
thereof) during which the failure continues after the 90-day period
has expired.

(C) Limitation. The additional penalty imposed on any United States
person by section 6038(b)(2) and paragraph (k)(3)(i)(B) of this
section is limited to a maximum of $50,000 for each partnership for
each tax year with respect to which the failure occU.S.

(ii) Penalty of reducing foreign tax credit--(A) Effect on foreign
tax credit. Failure to comply with the reporting requirements of
section 6038 and this section may cause a reduction of foreign tax
credits under section 901 (taxes of foreign countries and of
possessions of the United States). In applying section 901 to a
United States person for any tax year with or within which its
foreign partnership's tax year ended, the amount of taxes paid (and
deemed paid under sections 902 and 960) by the United States person
will be reduced by 10 percent if the person fails to comply.
However, no tax deemed paid under section 904(c) will be reduced
under the provisions of this paragraph (k)(3)(ii).

(B) Reduction for continued failure. If a failure to comply with the
reporting requirements of section 6038 and this section continues
for more than 90 days after the date on which the Commissioner or
the Commissioner's delegate mails notice of the failure to the
person required to file Form 8865, then the amount of the reduction
in paragraph (k)(3)(ii)(A) of this section will be 10 percent, plus
an additional 5 percent for each 3-month period (or fraction
thereof) during which the failure continues after the 90-day period
has expired.

(C) Limitation on reduction. The amount of the reduction under
paragraphs (k)(3)(ii)(A) and (B) of this section for each failure to
furnish information required under this section will not exceed the
greater of $10,000, or the gross income of the foreign partnership
for its tax year with respect to which the failure occurred.

(D) Offset for dollar amount penalty imposed. The total amount of
the reduction which, but for this paragraph (k)(3)(ii)(D), may be
made under this paragraph (k)(3)(ii) with respect to any separate
failure, may not exceed the maximum amount of the reductions that
may be imposed, reduced (but not below zero) by the dollar amount
penalty imposed by paragraph (k)(3)(i) of this section with respect
to the failure.

(4) Reasonable cause limitation. The time prescribed for filing a
complete Form 8865, and the beginning of the 90-day period after the
Commissioner or the Commissioner's delegate mails notice under
paragraphs (k)(3)(i)(B) and (ii)(B) of this section, will be treated
as being not earlier than the last day on which reasonable cause
existed for failure to furnish the information. The United States
person may show reasonable cause by providing a written statement to
the Commissioner's delegate having jurisdiction over the person's
return to which the Form 8865 should have been attached, setting
forth the reasons for the failure to comply. Whether a failure to
comply was due to reasonable cause will be determined by the
Commissioner, or the Commissioner's delegate, under all the facts
and circumstances.

(5) Statute of limitations. For exceptions to the limitations on
assessment in the event of a failure to provide information under
section 6038, see section 6501(c)(8).

(l) Effective date. This section applies to tax years of a foreign
partnership ending on or after December 31, 2000.

Par. 5. Section 1.6038B-1 is amended as follows:

1. The heading is revised.

2. The first three sentences of paragraph (b)(1)(i) are removed and
four sentences are added in their place.

3. Paragraph (b)(2)(i)(A)(4) is added.

4. Paragraph (b)(2)(i)(B)(3) is revised.

5. Paragraph (b)(2)(i)(B)(4) is added.

6. Paragraph (g) is revised.

The added and revised provisions read as follows:

�1.6038B-1 Reporting of certain transfers to foreign corporations.

* * * * *

(b) * * * (1) * * * (i) Reporting procedure. Except for stock or
securities qualifying under the special reporting rule of paragraph
(b)(2) of this section, and certain exchanges described in section
354 (listed below), any U.S. person that makes a transfer described
in section 6038B(a)(1)(A), 367(d) or (e), is required to report
pursuant to section 6038B and the rules of this section and must
attach the required information to Form 926, A Return by Transferor
of Property to a Foreign Corporation.

@ For special rules regarding cash transfers made in tax years
beginning after February 5, 1999, see paragraphs (b)(3) and (g) of
this section. For purposes of determining a U.S. transferor that is
subject to section 6038B, the rules of �1.367(a)-1T(c) and
�1.367(a)-3(d) shall apply with respect to a transfer described in
section 367(a), and the rules of �1.367(a)-1T( c) shall apply with
respect to a transfer described in section 367(d). Additionally, if
in an exchange described in section 354, a U.S. person exchanges
stock of a foreign corporation in a reorganization described in
section 368(a)(1)(E), or a U.S. person exchanges stock of a domestic
or foreign corporation for stock of a foreign corporation pursuant
to an asset reorganization described in section 368(a)(1)(C),(D), or
(F), that is not treated as an indirect stock transfer under section
367(a), then the U.S. person exchanging stock is not required to
report under section 6038B. * * *

* * * * *

(2) * * *

(i) * * *

(A) * * *

(4) The transfer is considered to be to a foreign corporation solely
by reason of �1.83-6(d)(1) and the fair market value of the property
transferred did not exceed $100,000; or

(B) * * *

(3) The transferor properly reported the income from the transfer on
its timely-filed (including extensions) Federal income tax return
for the taxable year that includes the date of the transfer; or

(4) The transfer is considered to be to a foreign corporation solely
by reason of �1.83-6(d)(1) and the fair market value of the property
transferred did not exceed $100,000.

* * * * *

(g) This section applies to transfers occurring on or after July 20,
1998, except for transfers of cash made in tax years beginning on or
before February 5, 1999, which are not required to be reported under
section 6038B, and except for paragraph (e) of this section, which
applies to transfers that are subject to ��1.367(e)-1(f) and
1.367(e)-2(e). See �1.6038B-1T for transfers occurring prior to July
20, 1998. See also �1.6038B-1T(e) in effect prior to August 9, 1999,
(as contained in 26 CFR part 1 revised April 1, 1999) for transfers
described in section 367(e) that are not subject to ��1.367(e)-1(f)
and 1.367(e)-2(e).

Par. 6. Section 1.6038B-2 is amended as follows:

1. Paragraph (a)(5) is revised.

2. Paragraph (c)(4) is revised.

3. Paragraph (c)(6) is amended by removing the period at the end and
adding A ; and @ in its place.

4. Paragraph (j)(1) introductory text is amended by revising the
first sentence.

5. Paragraph (j)(3) is added.

The revised and added provisions read as follows:

�1.6038B-2 Reporting of certain transfers to foreign partnerships.

(a) * * *

(5) Time for filing Form 8865. The Form 8865 on which a transfer is
reported must be attached to the transferor's timely filed
(including extensions) income tax return for the tax year that
includes the date of the transfer. If the person required to report
under this section is not required to file an income tax return for
its tax year during which the transfer occurred, but is required to
file an information return for that year (for example, Form 1065, A
U.S. Partnership Return of Income, @ or Form 990, A Return of
Organization Exempt from Income Tax @ ), the person should attach
the Form 8865 to its information return.

* * * * *

(c) * * *

(4) The names and addresses of the other partners in the foreign
partnership, unless the transfer is solely of cash and the
transferor holds less than a ten-percent interest in the transferee
foreign partnership immediately after the transfer.

However, for tax years of U.S. persons beginning on or after January
1, 2000, the person reporting pursuant to section 6038B (the
transferor) must provide the names and addresses of each United
States person that owned a ten-percent or greater direct interest in
the foreign partnership during the transferor's tax year in which
the transfer occurred, and the names and addresses of any other
United States or foreign persons that were direct partners in the
foreign partnership during that tax year and that were related to
the transferor during that tax year. See paragraph (i)(4) of this
section for the definition of a related person;

* * * * *

(j) * * * (1) In general. Except as otherwise provided in this
section, this section applies to transfers made on or after January
1, 1998. * * *

* * * * *

(3) Special rule for transfers made before January 1, 2000.

Even if not reported in accordance with the rules provided in
paragraph (a)(5) of this section, or paragraph (j)(1) or (2) of this
section, a transfer that occurred before January 1, 2000 will
nevertheless be considered timely reported if the transferor reports
it on a Form 8865 attached to an amended tax return for the
transferor's tax year in which the transfer occurred, provided such
amended return is filed no later than September 15, 2000.

PART 602--OMB CONTROL NUMBERS UNDER THE Paperwork Reduction Act

Par. 7. The authority citation for part 602 continues to read as
follows:

Authority: 26 U.S.C. 7805.

Par. 8. In �1.602.101, paragraph (b) is amended by revising the
entries for �1.6038-2, �1,6038(B)-1, and �1.6038B-2 and adding an
entry in numerical order to the table to read as follows:

�602.101 OMB Control numbers.

* * * * *

(b) * * * 

CFR part or section where Current OMB
identified and described control No.

* * * * *

1.6038-2..........................................1545-1617

1.6038-3..........................................1545-1617

* * * * *

1.6038B-1.........................................1545-1617

* * * * *

1.6038B-2.........................................1545-1617

* * * * *

Deputy Commissioner of Internal Revenue.
Robert Wenzel
Approved: December 9, 1999
Acting Assistant Secretary of the Treasury.
Jonathan Talisman

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