Cases: ASAT, Inc. v. Commissioner, 108 T.C. 147 (1997)
Forms: Form 5472; Form 8991; Form 1120-FSC; Form 5471
Final rules 14
(a) Requirement If, at any time during a taxable year, a corporation (hereinafter in this section referred to as the “reporting corporation”)—
Amended 1989
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7403(b), inserted before period at end “and such corporation shall maintain (in the location, in the manner, and to the extent prescribed in regulations) such records as may be appropriate to determine the correct treatment of transactions with related parties as the Secretary shall by regulations prescribe (or shall cause another person to so maintain such records)”.
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(1) is a domestic corporation, and
Amended 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11315(b)(1), struck out “or is a foreign corporation engaged in trade or business within the United States” after “corporation”.
(2) is 25-percent foreign-owned,
Amended 1989
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7403(a)(1), amended par. (2) generally, substituting “is 25-percent foreign-owned,” for “is controlled by a foreign person,”.
such corporation shall furnish, at such time and in such manner as the Secretary shall by regulations prescribe, the information described in subsection (b) and such corporation shall maintain (in the location, in the manner, and to the extent prescribed in regulations) such records as may be appropriate to determine the correct treatment of transactions with related parties as the Secretary shall by regulations prescribe (or shall cause another person to so maintain such records).
(b) Required information
Amended 1986, 1996, 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 14401(b)(1), amended subsec. (b) generally. Prior to amendment, subsec. (b) described information required to be furnished by certain foreign-owned corporations.
- 1996 Pub. L. 104-188 Pub. L. 104–188, § 1704(f)(5)(B), inserted “and” at end of par. (2), substituted a period for “, and” at end of par. (3), and struck out par. (4) which read as follows: “such information as the Secretary may require for purposes of carrying out the provisions of section 453C.”
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1245(b)(2), (3), amended par. (3) generally, substituting “foreign person which is a related party to the reporting corporation, and” for “foreign corporation which is a member of the same controlled group as the reporting corporation.”
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1245(b)(3), added par. (4).
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(1) In general For purposes of subsection (a), the information described in this subsection is such information as the Secretary prescribes by regulations relating to—
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1245(a), substituted “each person” for “each corporation” in introductory provisions and amended subpar. (A) generally, substituting “related party to the reporting corporation” for “member of the same controlled group as the reporting corporation”.
(A) the name, principal place of business, nature of business, and country or countries in which organized or resident, of each person which—
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(i) is a related party to the reporting corporation, and
(ii) had any transaction with the reporting corporation during its taxable year,
(B) the manner in which the reporting corporation is related to each person referred to in subparagraph (A), and
(C) transactions between the reporting corporation and each foreign person which is a related party to the reporting corporation.
(2) Additional information regarding base erosion payments For purposes of subsection (a) and section 6038C, if the reporting corporation or the foreign corporation to whom section 6038C applies is an applicable taxpayer, the information described in this subsection shall include—
Amended 1986, 1996
- 1996 Pub. L. 104-188 Pub. L. 104–188, § 1704(f)(5)(B), inserted “and” at end of par. (2), substituted a period for “, and” at end of par. (3), and struck out par. (4) which read as follows: “such information as the Secretary may require for purposes of carrying out the provisions of section 453C.”
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1245(b)(1), substituted “each person” for “each corporation”.
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(A) such information as the Secretary determines necessary to determine the base erosion minimum tax amount, base erosion payments, and base erosion tax benefits of the taxpayer for purposes of section 59A for the taxable year, and
(B) such other information as the Secretary determines necessary to carry out such section.
For purposes of this paragraph, any term used in this paragraph which is also used in section 59A shall have the same meaning as when used in such section.
(c) Definitions For purposes of this section—
Amended 1989, 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11704(a)(23), redesignated pars. (4) to (6) as (3) to (5), respectively.
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7403(a)(2), amended subsec. (c) generally, substituting pars. (1) to (6) for former pars. (1) to (3) defining “control”, “related party”, and “foreign person”.
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(1) 25-percent foreign-owned A corporation is 25-percent foreign-owned if at least 25 percent of—
(A) the total voting power of all classes of stock of such corporation entitled to vote, or
(B) the total value of all classes of stock of such corporation,
is owned at any time during the taxable year by 1 foreign person (hereinafter in this section referred to as a “25-percent foreign shareholder”).
Amended 1984
- 1984 Pub. L. 98-369 Pub. L. 98–369 substituted section “6038(e)(1)” for “6038(d)(1)”.
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(2) Related party The term “related party” means—
Amended 1986
- 1986 Pub. L. 99-514 Pub. L. 99–514, § 1245(b)(4), amended par. (2) generally. Prior to amendment, par. (2), controlled group, read as follows: “The term ‘controlled group’ means any controlled group of corporations within the meaning of section 1563(a); except that—
“(A) ‘at least 50 percent’ shall be substituted—
“(i) for ‘at least 80 percent’ each place it appears in section 1563(a)(1), and
“(ii) for ‘more than 50 percent’ each place it appears in section 1563(a)(2)(B), and
“(B) the determination shall be made without regard to subsections (a)(4), (b)(2)(C), and (e)(3)(C) of section 1563.”
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(A) any 25-percent foreign shareholder of the reporting corporation,
(B) any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the reporting corporation or to a 25-percent foreign shareholder of the reporting corporation, and
Amended 1983
- 1983 Pub. L. 97-448 Pub. L. 97–448 inserted “, (b)(2)(C),” after “(a)(4)”.
(C) any other person who is related (within the meaning of section 482) to the reporting corporation.
(3) Foreign person The term “foreign person” means any person who is not a United States person. For purposes of the preceding sentence, the term “United States person” has the meaning given to such term by section 7701(a)(30), except that any individual who is a citizen of any possession of the United States (but not otherwise a citizen of the United States) and who is not a resident of the United States shall not be treated as a United States person.
Amended 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11704(a)(23), redesignated pars. (4) to (6) as (3) to (5), respectively.
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(4) Records The term “records” includes any books, papers, or other data.
Amended 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11704(a)(23), redesignated pars. (4) to (6) as (3) to (5), respectively.
(5) Section 318 to apply Section 318 shall apply for purposes of paragraphs (1) and (2), except that—
Amended 1990
- 1990 Pub. L. 101-508 Pub. L. 101–508, § 11704(a)(23), redesignated pars. (4) to (6) as (3) to (5), respectively.
(A) “10 percent” shall be substituted for “50 percent” in section 318(a)(2)(C), and
(B) subparagraphs (A), (B), and (C) of section 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States person.
(d) Penalty for failure to furnish information or maintain records
Amended 1989
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7403(c), inserted “or maintain records” after “information” in heading and amended text generally, making changes in substance and structure of pars. (1) to (3).
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(1) In general If a reporting corporation—
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 14401(b)(2), substituted “$25,000” for “$10,000”.
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(A) fails to furnish (within the time prescribed by regulations) any information described in subsection (b), or
(B) fails to maintain (or cause another to maintain) records as required by subsection (a),
such corporation shall pay a penalty of $25,000 for each taxable year with respect to which such failure occurs.
(2) Increase in penalty where failure continues after notification If any failure described in paragraph (1) continues for more than 90 days after the day on which the Secretary mails notice of such failure to the reporting corporation, such corporation shall pay a penalty (in addition to the amount required under paragraph (1)) of $25,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of such 90-day period.
Amended 2017
- 2017 Pub. L. 115-97 Pub. L. 115–97, § 14401(b)(2), substituted “$25,000” for “$10,000”.
(3) Reasonable cause For purposes of this subsection, the time prescribed by regulations to furnish information or maintain records (and the beginning of the 90-day period after notice by the Secretary) shall be treated as not earlier than the last day on which (as shown to the satisfaction of the Secretary) reasonable cause existed for failure to furnish the information or maintain the records.
(e) Enforcement of requests for certain records
Amended 1989
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7403(d), added subsec. (e) and redesignated former subsec. (e) as (f).
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(1) Agreement to treat corporation as agent The rules of paragraph (3) shall apply to any transaction between the reporting corporation and any related party who is a foreign person unless such related party agrees (in such manner and at such time as the Secretary shall prescribe) to authorize the reporting corporation to act as such related party’s limited agent solely for purposes of applying sections 7602, 7603, and 7604 with respect to any request by the Secretary to examine records or produce testimony related to any such transaction or with respect to any summons by the Secretary for such records or testimony. The appearance of persons or production of records by reason of the reporting corporation being such an agent shall not subject such persons or records to legal process for any purpose other than determining the correct treatment under this title of any transaction between the reporting corporation and such related party.
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(2) Rules where information not furnished If—
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(A) for purposes of determining the correct treatment under this title of any transaction between the reporting corporation and a related party who is a foreign person, the Secretary issues a summons to such corporation to produce (either directly or as agent for such related party) any records or testimony,
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(B) such summons is not quashed in a proceeding begun under paragraph (4) and is not determined to be invalid in a proceeding begun under section 7604(b) to enforce such summons, and
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(C) the reporting corporation does not substantially comply in a timely manner with such summons and the Secretary has sent by certified or registered mail a notice to such reporting corporation that such reporting corporation has not so substantially complied,
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the Secretary may apply the rules of paragraph (3) with respect to such transaction (whether or not the Secretary begins a proceeding to enforce such summons). If the reporting corporation fails to maintain (or cause another to maintain) records as required by subsection (a), and by reason of that failure, the summons is quashed in a proceeding described in subparagraph (B) or the reporting corporation is not able to provide the records requested in the summons, the Secretary may apply the rules of paragraph (3) with respect to any transaction to which the records relate.
(3) Applicable rules in cases of noncompliance If the rules of this paragraph apply to any transaction—
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(A) the amount of the deduction allowed under subtitle A for any amount paid or incurred by the reporting corporation to the related party in connection with such transaction, and
(B) the cost to the reporting corporation of any property acquired in such transaction from the related party (or transferred by such corporation in such transaction to the related party),
shall be the amount determined by the Secretary in the Secretary’s sole discretion from the Secretary’s own knowledge or from such information as the Secretary may obtain through testimony or otherwise.
(4) Judicial proceedings
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(A) Proceedings to quash Notwithstanding any law or rule of law, any reporting corporation to which the Secretary issues a summons referred to in paragraph (2)(A) shall have the right to begin a proceeding to quash such summons not later than the 90th day after such summons was issued. In any such proceeding, the Secretary may seek to compel compliance with such summons.
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(B) Review of secretarial determination of noncompliance Notwithstanding any law or rule of law, any reporting corporation which has been notified by the Secretary that the Secretary has determined that such corporation has not substantially complied with a summons referred to in paragraph (2) shall have the right to begin a proceeding to review such determination not later than the 90th day after the day on which the notice referred to in paragraph (2)(C) was mailed. If such a proceeding is not begun on or before such 90th day, such determination by the Secretary shall be binding and shall not be reviewed by any court.
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(C) Jurisdiction The United States district court for the district in which the person (to whom the summons is issued) resides or is found shall have jurisdiction to hear any proceeding brought under subparagraph (A) or (B). Any order or other determination in such a proceeding shall be treated as a final order which may be appealed.
(D) Suspension of statute of limitations If the reporting corporation brings an action under subparagraph (A) or (B), the running of any period of limitations under section 6501 (relating to assessment and collection of tax) or under section 6531 (relating to criminal prosecutions) with respect to any affected taxable year shall be suspended for the period during which such proceeding, and appeals therein, are pending. In no event shall any such period expire before the 90th day after the day on which there is a final determination in such proceeding. For purposes of this subparagraph, the term “affected taxable year” means any taxable year if the determination of the amount of tax imposed for such taxable year is affected by the treatment of the transaction to which the summons relates.
Amended 1996
- 1996 Pub. L. 104-188 Pub. L. 104–188, § 1702(c)(5), substituted “any affected taxable year” for “any transaction to which the summons relates” and inserted at end “For purposes of this subparagraph, the term ‘affected taxable year’ means any taxable year if the determination of the amount of tax imposed for such taxable year is affected by the treatment of the transaction to which the summons relates.”
(f) Cross reference For provisions relating to criminal penalties for violation of this section, see section 7203.
Amended 1989
- 1989 Pub. L. 101-239 Pub. L. 101–239, § 7403(d), added subsec. (e) and redesignated former subsec. (e) as (f).