E8-10695. Source Rules Involving U.S. Possessions and Other Conforming Changes; Correction

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Correcting amendments.

SUMMARY:

This document contains corrections to final regulations (TD 9391) that were published in the Federal Register on Wednesday, April 9, 2008 (73 FR 19350) providing rules under section 937(b) of the Internal Revenue Code for determining whether income is derived from sources within a U.S. possession or territory specified in section 937(a)(1) (generally referred to in this preamble as a “territory”) and whether income is effectively connected with the conduct of a trade or business within a territory.

DATES:

This correction is effective May 14, 2008, and is applicable on April 9, 2008.

FOR FURTHER INFORMATION CONTACT:

J. David Varley, [phone] (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations and removal of temporary regulations that are the subjects of this document are under sections 1, 170A, 861, 871, 876, 881, 884, 901, 931, 932, 933, 934, 935, 937, 957, 1402, 6012, 6038, 6046, 6688, and 7701 of the Internal Revenue Code.

Need for Correction

As published, final regulations (TD 9391) contain errors that may prove to be misleading and are in need of clarification.

List of Subjects

26 CFR Part 1

• Income taxes
• Reporting and recordkeeping requirements

26 CFR Part 301

• Employment taxes
• Estate taxes
• Excise taxes
• Gift taxes
• Income taxes
• Penalties
• Reporting and recordkeeping requirements

Correction of Publication

Accordingly, 26 CFR parts 1 and 301 are corrected by making the following correcting amendments:

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 1.881-5 is amended as follows:

In paragraph (f)(2), the language “Section 935” possession is defined in § 1.935-1(a)(3)(i).” is removed and the language “Section 935 possession” is defined in § 1.935-1(a)(3)(i).” is added in its place.

§ 1.884-0

[Amended]

Par. 3. Section 1.884-0 is amended as follows:

In paragraph (b)(1), the last sentence, the language “The preceding sentence applies for taxable years ending after April 11, 2005.” is removed and the language “The preceding sentence applies for taxable years ending after April 9, 2008.” is added in its place.

§ 1.932-1

[Amended]

Par. 4. Section 1.932-1 is amended as follows:

In paragraph (c)(3), the first sentence, the language “In the case of an individual who is required to file an income tax return with the United States as a consequence of failing to satisfy the requirements of paragraphs (c)(2)(i)(A) and (B) of this section, there will be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the amount of the tax liability referred to in section 934(a) to the extent paid to the Virgin Islands.” is removed and the language “In the case of an individual who is required to file an income tax return with the United States as a consequence of failing to satisfy the requirements of paragraphs (c)(2)(i)(A) or (B) of this section, there will be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the amount of the tax liability referred to in section 934(a) to the extent paid to the Virgin Islands.” is added in its place.

§ 1.937-2

[Amended]

Par. 5. Section 1.937-2 is amended as follows:

In paragraph (k) Example 2. (i), the fourth sentence, the language “On June 1, 2010, R's interest in Partnership P is not a marketable security within the meaning of section 731(c)(2).” is removed and the language “On June 1, 2010, R's interest in Partnership P is not a marketable security within the meaning of paragraph (f)(1)(vii)(A) of this section.” is added in its place.

§ 1.937-3

[Amended]

Par. 6. Section 1.937-3 is amended as follows:

In paragraph (e) Example 5. (ii), the last sentence, the language “Accordingly, the U.S. income rule of section 937(b)(2), § 1.937-2(c)(1), and paragraph (c)(1) of this section does not operate to prevent Corporation B's services income from being Territory X source or Possession X effectively connected income within the meaning of section 937(b)(1).” is removed and the language “Accordingly, the U.S. income rule of section 937(b)(2), § 1.937-2(c)(1), and paragraph (c)(1) of this section does not operate to prevent Corporation B's services income from being Possession X source or Possession X effectively connected income within the meaning of section 937(b)(1).” is added in its place.

PART 301—PROCEDURE AND ADMINISTRATION

Par. 7. The authority citation for part 301 continues to read, in part, as follows:

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

Par. 8. Section 301.6688-1 is amended as follows:

In paragraph (c), in the first sentence of the paragraph, the language “(1) In general. The penalty set forth in paragraph (a) of this section will not apply if it is established to the satisfaction of the appropriate tax authority (as defined in paragraph (c)(2) of this section) that the failure to file the information return or furnish the information within the prescribed time was due to reasonable cause and not to willful neglect.” is removed and the language “The penalty set forth in paragraph (a) of this section will not apply if it is established to the satisfaction of the Commissioner that the failure to file the information return or furnish the information within the prescribed time was due to reasonable cause and not to willful neglect.” is added in its place.

LaNita Van Dyke,

Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel, (Procedure and Administration).