E9-21226. Treatment of Services Under Section 482; Allocation of Income and Deductions From Intangible Property; Apportionment of Stewardship Expense; Correction

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Correcting amendments.

SUMMARY:

This document contains corrections to final regulations (TD 9456) that were published in the Federal Register on Tuesday, August 4, 2009 (74 FR 38830) providing guidance regarding the treatment of controlled services transactions under section 482 and the allocation of income from intangible property, in particular with respect to contributions by a controlled party to the value of intangible property owned by another controlled party. These final regulations modify regulations under section 861 concerning stewardship expenses to be consistent with the changes made to the guidance under section 482.

DATES:

This correction is effective on September 9, 2009, and is applicable on August 4, 2009.

FOR FURTHER INFORMATION CONTACT:

Carol B. Tan or Gregory A. Spring, [phone] for matters relating to section 482, or Richard L. Chewning, [phone] for matters relating to stewardship expenses (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the subject of this document are under sections 482, 861, 6038, and 6662 of the Internal Revenue Code.

Need for Correction

As published, the final regulations (TD 9456) contain errors that may prove to be misleading and are in need of clarification.

List of Subjects in 26 CFR Part 1

• Income taxes
• Reporting and recordkeeping requirements

Correction of Publication

Accordingly, 26 CFR part 1 is 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 1.482-1 is amended by revising the last sentence of paragraph (d)(3)(v) to read as follows:

§ 1.482-1

Allocation of income and deductions among taxpayers.

* * * * *

(d) * * *

(3) * * *

(v) * * * For guidance concerning the specific comparability considerations applicable to transfers of tangible and intangible property and performance of services, see §§ 1.482-3 through 1.482-6 and § 1.482-9; see also §§ 1.482-3(f), 1.482-4(f)(4), and 1.482-9(m), dealing with the coordination of intangible and tangible property and performance of services rules.

Par. 3. Section 1.482-6 is amended by revising the third sentence of paragraph (c)(3)(i)(B)(1) to read as follows:

§ 1.482-6

Profit split method.

* * * * *

(c) * * *

(3) * * *

(i) * * *

(B) * * *

(1) * * * Thus, in cases where such nonroutine contributions are present, there normally will be an unallocated residual profit after the allocation of income described in paragraph (c)(3)(i)(A) of this section. * * *

Par. 4. Section 1.482-8 is amended by revising the second sentence of paragraph (b) Example 10. (iv) to read as follows:

§ 1.482-8

Examples of the best method rule.

* * * * *

(b) * * *

Example 10.

* * *

(iv) * * * A functional analysis indicates that USSub's activities to promote Product Y in year 4 are similar to activities performed by Agency A during years 1 through 3 under the contract with USSub. * * *

* * * * *

Par. 5. Section 1.482-9 is amended as follows:

1. The last sentence of paragraph (b)(8) Example 22. (i) is revised.

2. Paragraphs (b)(8) Example 23. (ii) second occurrence, (b)(8) Example 23. (iii), and (b)(8) Example 23. (iv) are redesignated as paragraphs (b)(8) Example 23. (iii), (b)(8) Example 23. (iv), and (b)(8) Example 23. (v).

3. The table of paragraph (e)(4) Example 4. (ii) is revised.

4. The last sentence of paragraph (g)(2) Example 2. (iii) is revised.

5. The table of paragraph (k)(3) Example 2. (iii) is revised.

The revisions read as follows:

§ 1.482-9

Methods to determine taxable income in connection with a controlled services transaction.

* * * * *

(b) * * *

(8) * * *

Example 22.

(i) * * * Company P's total services cost for services A, B, C, and D charged within the group is 100.

* * * * *

(e) * * *

(4) * * *

Example 4.

* * *

(ii) * * *

Category	Rate
Project managers	$100 per hour.
Technical staff	$75 per hour.

* * * * *

(g) * * *

(2) * * *

Example 2.

* * *

(iii) * * * In an effort to submit a winning bid to secure the contract, Company B points to its Level 2 license and its record of successful completion of projects, and also demonstrates to Country 2 government that it has access to substantial technical expertise pertaining to processing of Level 1 waste.

* * * * *

(k) * * *

(3) * * *

Example 2.

* * *

(iii) * * *

Company	A	B	Total
Allocation	400/500	100/500
Amount	80	20	100

* * * * *

Par. 6. Section 1.861-8 is amended by revising the fourth sentence of paragraph (g). Example 17. (ii)(A) to read as follows:

§ 1.861-8

Computation of taxable income from sources within the United States and from other sources and activities.

* * * * *

(g) * * *

Example 17.

* * *

(ii) * * *

(A) * * * For purposes of applying the foreign tax credit limitation, the statutory grouping is general category gross income from sources without the United States and the residual grouping is gross income from sources with in the United States. * * *

* * * * *

LaNita Van Dyke,

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