Par. 5. Section 1.1503(d)-5 is amended by: 1. In paragraph (b)(1): a. Adding the language “(including the special rules under § 1.1502-13(j)(10) concerning the treatment of intercompany (or corresponding) items (as defined in § 1.1502-13(b)(2) and (3))” in the second sentence after the language “1502.” b. Adding a sentence after the second sentence. 2. Removing the language “the following shall not be taken into account—” from the introductory text of paragraph (b)(2) and adding the language “any item described in paragraphs (b)(2)(i) through (iv) is not taken into account.” in its place. 3. Revising paragraphs (b)(2)(i) through (iii). 4. Adding paragraph (b)(2)(iv). 5. In paragraph (c)(1)(i): a. Adding the language “(including the special rules under § 1.1502-13(j)(10) concerning the treatment of intercompany (or corresponding) items (as defined in § 1.1502-13(b)(2) and (3)) attributable to a separate unit” in the second sentence after the language “1502.” b. Adding a sentence after the second sentence. 6. Adding two sentences after the third sentence of paragraph (c)(3)(i). 7. Revising paragraph (c)(4)(iv). The revisions and additions read as follows:
* * * * *
(b) * * *
(1) * * * For examples illustrating the interaction of the intercompany transaction rules in § 1.1502-13 with the dual consolidated loss rules, see § 1.1502-13(j)(15)(x) and (xi). * * *
(2) * * *
(i) Net capital loss. An item described in this paragraph (b)(2)(i) is any net capital loss of the dual resident corporation.
(ii) Carryover or carryback loss. An item described in this paragraph (b)(2)(ii) is any carryover or carryback loss.
(iii) Item attributable to a separate unit or transparent entity. An item described in this paragraph (b)(2)(iii) is any item of income, gain, deduction, or loss that is attributable to a separate unit or an interest in a transparent entity of the dual resident corporation.
(iv) Items arising from ownership of stock —(A) In general. Except as provided in paragraph (b)(2)(iv)(B) of this section, an item described in this paragraph (b)(2)(iv)(A) is an amount that the dual resident corporation takes into account in its gross income as a result of ownership of stock in a corporation (including as a result of a sale or other disposition), as well as any deduction or loss with respect to such amount. Thus, for example (and except as provided in paragraph (b)(2)(iv)(B) of this section), an item described in this paragraph (b)(2)(iv)(A) includes gain recognized on the sale or exchange of stock, a dividend (including an amount under section 78), a deduction allowed under section 245A(a) with respect to a dividend, an amount included in gross income under section 951 or 951A, foreign currency gain or loss under section 986(c), and a deduction allowed under section 250(a)(1)(B) with respect to an inclusion under section 951A.
(B) Exception for portfolio stock. Paragraph (b)(2)(iv)(A) of this section does not apply to a dividend received by the dual resident corporation from a corporation, any other amount that the dual resident corporation includes in its gross income as a result of ownership of stock in a corporation, or any deduction with respect to either such amount, if the dual resident corporation owns less than ten percent of the sum of the value of all classes of stock of the corporation. For purposes of the preceding sentence, the percentage of stock owned by the dual resident corporation is determined as of the beginning of the taxable year of the dual resident corporation in which it receives the dividend, includes in gross income another amount as a result of ownership of stock, or claims a deduction with respect to the dividend or inclusion in gross income, and by applying the rules of section 318(a) (except that in applying section 318(a)(2)(C), the phrase “ten percent” is used instead of the phrase “50 percent”).
(c) * * *
(1) * * *
(i) * * * For examples illustrating the interaction of the intercompany transaction rules in § 1.1502-13 with the dual consolidated loss rules, see § 1.1502-13(j)(15)(x) and (xi). * * *
* * * * *
(3) * * *
(i) * * * For this purpose, an adjustment to conform to U.S. tax principles does not include the attribution to a hybrid entity separate unit or an interest in a transparent entity of any items that have not and will not be reflected on the books and records of the hybrid entity or transparent entity; for example, items that are reflected on the books and records of the domestic owner cannot be attributed to a hybrid entity separate unit or an interest in a transparent entity as a result of disregarded payments made between the domestic owner and the hybrid entity or transparent entity. See § 1.1503(d)-5(c)(1)(ii) (providing that items reflected on the books and records of the hybrid entity or transparent entity are eliminated if they are otherwise disregarded for U.S. tax purposes). See also § 1.1503(d)-7(c)(6) and (c)(23) through (25) for examples illustrating the application of this paragraph (c)(3)(i). * * *
(4) * * *
(iv) Items arising from ownership of stock —(A) In general. Except as provided in paragraph (c)(4)(iv)(B) of this section, for purposes of determining the items of income, gain, deduction, and loss of a domestic owner that are attributable to a separate unit or an interest in a transparent entity, any amount that the domestic owner includes in gross income as a result of ownership of stock in a corporation (including as a result of a sale or other disposition), as well as any deduction or loss with respect to such an amount, is not taken into account. Thus, for example (and except as provided in paragraph (c)(4)(iv)(B) of this section), gain recognized by a domestic owner on the sale or exchange of stock is not attributable to a separate unit of the domestic owner; in addition, neither a dividend received by a domestic owner (including an amount under section 78), nor any deduction allowed under section 245A(a) with respect to a dividend, is attributable to a separate unit of the domestic owner; further, neither an amount included in gross income by a domestic owner under section 951 or 951A, foreign currency gain or loss under section 986(c), nor any deduction under section 250(a)(1)(B) with respect to an inclusion under section 951A, is attributable to a separate unit of the domestic owner. See § 1.1503(d)-7(c)(24) for an example illustrating the application of this paragraph (c)(4)(iv)(A).
(B) Exception for portfolio stock. Paragraph (c)(4)(iv)(A) of this section does not apply to a dividend received by a domestic owner from a corporation, any other amount that is included in gross income by the domestic owner as a result of ownership of stock in a corporation, or any deduction with respect to either such amount, if the domestic owner owns less than ten percent of the sum of the value of all classes of stock of the corporation. For purposes of the preceding sentence, the percentage of stock owned by the domestic owner is determined as of the beginning of the taxable year of the domestic owner in which it receives the dividend or includes in gross income the other amount, and by applying the rules of section 318(a) (except that in applying section 318(a)(2)(C), the phrase “ten percent” is used instead of the phrase “50 percent”).
(C) Additional rules for portfolio stock. For purposes of determining the items of income, gain, deduction, and loss of a domestic owner that are attributable to a separate unit or an interest in a transparent entity—
( 1 ) The amount of a dividend described in paragraph (c)(4)(iv)(B) of this section that is taken into account is equal to the amount of the dividend less the amount of any deduction with respect to the dividend; and
( 2 ) Any other amount described in paragraph (c)(4)(iv)(B) of this section is taken into account if an actual dividend from the corporation described in paragraph (c)(4)(iv)(B) of this section would be attributable to the separate unit or interest in the transparent entity.
* * * * *