On June 24, 2008, the IRS published final and temporary regulations under section 956 (T.D. 9402, 2008-31 I.R.B. 254) in the Federal Register (73 FR 35580). On the same date, the IRS published a notice of proposed rulemaking (REG-102122-08, 2008-31 I.R.B. 278) (the proposed regulations) in the Federal Register (73 FR 35606) cross-referencing the temporary regulations. The temporary and proposed regulations provided guidance regarding the determination of basis in certain United States property (as defined in section 956(c)) acquired by a controlled foreign corporation (as defined in section 957(a)) in certain nonrecognition transactions that are intended to repatriate earnings and profits of the controlled foreign corporation without an income inclusion by its United States shareholders under section 951(a)(1)(B). The purpose of these regulations is to prevent a United States shareholder of a controlled foreign corporation from avoiding an income inclusion under section 951(a)(1)(B) where the controlled foreign corporation acquires United States property in an exchange to which these regulations apply and claims a basis in the United States property that is less than the amount of earnings and profits repatriated. No comments in response to the proposed regulations were received and no public hearing was requested or held. This Treasury decision adopts the proposed regulations with minor changes, described below, as final regulations and removes the corresponding temporary regulations.

Language was added to §1.956-1(e)(6)(iii) to clarify the effect of the assumption of a liability by a controlled foreign corporation in connection with an exchange to which §1.956-1(e)(6) applies. The final regulations also modify §1.956-1(e)(6)(v) to address the situation in which the controlled foreign corporation exchanges specified United States property the adjusted basis in which has been determined under §1.956-1(e)(6) for other United States property, by providing that for purposes of applying section 956 the controlled foreign corporation’s adjusted basis in the other United States property is no less than its adjusted basis in the specified United States property as determined under §1.956-1(e)(6)(iii). A cross-reference to the anti-abuse rule of §1.956-1T(b)(4) was also added to §1.956-1(e)(6)(vi), Example 3.

These final regulations apply to property acquired in exchanges occurring on or after June 24, 2011. For transactions that occur prior to June 24, 2011, see §1.956-1T(e)(6) as contained in 26 CFR Part 1 revised as of April 1, 2011.

It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866; therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, these regulations have been submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Paragraph 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 1.956-1(e)(6) also issued under 26 U.S.C. 367(b) and 956(e).

Par. 2. Section 1.956-1 is amended by revising the last sentence of paragraph (e)(1), revising paragraphs (e)(5) and (e)(6), and removing paragraph (f) to read as follows:

This document contains amendments to 26 CFR parts 1 and 54 under section 6081 of the Internal Revenue Code (Code). On November 8, 2005, the Treasury Department and the IRS published a notice of proposed rulemaking (REG-144898-04, 2005-2 C.B. 1062) by cross-reference to temporary regulations (T.D. 9229, 2005-2 C.B. 1051) in the Federal Register (70 FR 67356, 70 FR 67397) relating to the simplification of procedures for obtaining automatic extensions of time to file certain returns. On July 1, 2008, the Treasury Department and the IRS published final and temporary regulations (T.D. 9407, 2008-33 I.R.B. 330) in the Federal Register (73 FR 37362) finalizing the rules simplifying the procedures for obtaining automatic extensions of time to file certain returns. A notice of proposed rulemaking (REG-115457-08, 2008-33 I.R.B. 390) cross-referencing the temporary regulations also was published in the Federal Register (73 FR 37389) on July 1, 2008. The temporary and proposed regulations reduced the automatic six-month extension of time to file contained in the 2005 proposed regulations to five months for certain pass-through entities (most partnerships, estates, and certain trusts).

As these pass-through entities were previously allowed to obtain an automatic six-month extension of time to file certain returns, the Treasury Department and the IRS requested comments on whether, and how, a five-month extension of time to file for these pass-through entities might increase or reduce overall taxpayer burden. Approximately 70 comments were received in response to the notice of proposed rulemaking. A public hearing was held on January 13, 2009. Three speakers appeared at the public hearing and commented on the notice of proposed rulemaking.

All comments were considered and are available for public inspection at www.regulations.gov or upon request. After consideration of the written comments and the comments provided at the public hearing, the proposed regulations under section 6081 are adopted as revised by this Treasury decision. The public comments, public hearing, and the revisions are discussed in this preamble.

Prior to issuance of the 2005 temporary regulations, T.D. 9229, pass-through entities were entitled to an automatic three-month extension of time to file certain returns by filing one form, and could also request a discretionary additional three-month extension of time to file by filing a second form. T.D. 9229 provided temporary regulations that simplified the extension process by allowing most taxpayers, including pass-through entities, to obtain a six-month automatic extension of time to file by filing one single form. In the 2008 final and temporary regulations, T.D. 9407, the Treasury Department and the IRS finalized rules granting an automatic six-month extension of time to file for non pass-through entities and granting certain pass-through entities a five-month automatic extension of time to file certain returns. The five-month extension included in the 2008 final and temporary regulations for certain pass-through entities responded to comments received on the 2005 temporary regulations. Commentators expressed concern that an automatic six-month extension for pass-through entities would unduly burden individual and corporate taxpayers with ownership interests in pass-through entities because individual and corporate taxpayers might not receive information returns from pass-through entities in sufficient time to complete their income tax returns in an accurate and timely manner.

Recognizing the inherent conflict between providing sufficient time for pass-through entities to prepare returns and ensuring that the owners and beneficiaries of pass-through entities timely receive information returns needed to file their own returns, the 2008 proposed and temporary regulations specifically requested comments on whether a shorter filing extension period for pass-through entities might increase or reduce overall taxpayer burden. The IRS received approximately 70 comments, many of which are summarized in this preamble.

Several commentators suggested that the Treasury Department and the IRS should consider changing the filing and extension due dates for individual and corporate tax returns rather than shortening the extension period for pass-through entities. For example, some commentators suggested moving the individual taxpayer return due date to April 30th, or allowing individuals and corporations a seven-month extension of time to file returns. Other commentators suggested moving up the filing date for partnership, trust, and estate taxpayers to March 15th, thereby allowing these entities a full six-month extension of time to file until September 15th so that individual taxpayers with ownership interests in the entities would receive information timely.

These suggestions are not viable options for a regulation project because the due dates for filing tax returns are determined by statute. See, for example, sections 6012(a) and 6072. Further, section 6081 provides that, except in the case of taxpayers who are abroad, the maximum extension of time to file a tax return cannot exceed six months. Accordingly, without legislative action, the Treasury Department and the IRS cannot change the due date for filing tax returns or increase the maximum extension of time to file a tax return for pass-through entities, individuals, or corporations.

Although the comments with regard to shortening the automatic extension period for these pass-through entities varied as to time periods, the majority of commentators agreed that a less than six-month extension period for pass-through entities would generally reduce overall taxpayer burden by allowing taxpayers with ownership interests in pass-through entities to receive information in a more timely fashion vis--vis preparation of their own individual or corporate income tax returns. There was no clear consensus, however, regarding what the optimal period of extension would be for reducing taxpayer burden.

The Treasury Department and the IRS considered several extension periods for pass-through entities, including a four-month and a five-month extension period, when drafting the proposed and temporary regulations. The Treasury Department and the IRS ultimately decided upon a five-month automatic extension period for the proposed and temporary regulations. Many comments were received supporting the five-month extension period. Some commentators noted, however, that the five-month extension period would not alleviate the burden on corporate taxpayers with ownership interests in pass-through entities. These commentators expressed a concern that even a five-month extension period for these entities would, in most cases, simply align the extended due date for pass-through entities with the extended due date for corporate returns, resulting in the same delay of information to corporate owners of these entities. That delay, the commentators contend, would greatly increase the need for filing amended returns. Commentators suggested shortening the automatic extension for these entities to less than five months.

In opting for the five-month extension, the Treasury Department and the IRS recognize that some corporations with ownership interests in pass-through entities may continue to experience delayed receipt of information needed to complete their own corporate returns. The Treasury Department and the IRS, however, continue to believe that a five-month extension period reduces the overall burden on taxpayers and strikes the most reasonable balance for all affected taxpayers. The five-month extension period allows pass-through entities, including complex and tiered entities, an adequate time for preparation of the required pass-through returns and also ensures the timely and accurate dissemination of information to a large number of taxpayers who require that information for completion of their own income tax returns.

Electing large partnerships required to file Form 1065-B, “U.S. Return of Income for Electing Large Partnerships,” for any taxable year will be allowed an automatic six-month extension of time to file the return, however, because these pass-through entities are statutorily required to furnish Schedules K-1 by March 15, regardless of any extension of time to file the return. See section 6031(b).

Comments varied in response to the five-month automatic filing extension period provided for trust taxpayers. Several commentators expressed support of the overall five-month extension to pass-through entities. Other commentators suggested that trusts resemble an end taxpayer more than a pass-through entity, and in that respect are more akin to individuals than to partnerships. These commentators argued that trusts did not belong in the same class of entities as partnerships and estates for purposes of automatic filing extensions.

Some commentators further expressed concern that Schedules K-1 would not be received by trusts in a sufficiently timely fashion. For example, commenters noted that trusts are often invested in partnerships, which are often invested in other partnerships in tiered structures, with each entity relying on the next for information before preparing their own statements. These commenters feared that, due to the compressed timeframe when Forms 1065, “U.S. Return of Partnership Income,” will typically be prepared, Schedules K-1 received by each succeeding entity in the chain ultimately will be received by trusts at the very last minute, resulting in inaccuracies and increased preparer burden.

Commentators also pointed out that the five-month extended deadline for trusts would coincide with the extended due date for S Corporation tax returns. Due to the fact that many trusts are invested in S Corporations, these commentators viewed this as an increased burden on trusts and their return preparers.

The Treasury Department and the IRS recognize that only allowing a five-month extension of time to file for trusts may cause a hardship, as some trusts may have less time to complete accurate income tax returns and to provide timely information to the trust’s beneficiaries. Providing a longer extension of time to file, however, still presents the potential of shifting the burden to individuals who might not receive timely information. In addition, the Treasury Department and the IRS believe that the five-month automatic filing extension period has generally been successful and continues to strike the right balance in reducing overall taxpayer burden since the proposed and temporary regulations were adopted.

Therefore, after thorough consideration of all the comments, the Treasury Department and the IRS determined that the five-month extension period best reduces overall tax burden. Accordingly, these final regulations provide that trusts will continue to receive an automatic five month extension of time to file as provided in the proposed and temporary regulations.

Finally, a comment questioned whether the five-month automatic extension of time to file estate or trust income tax returns applies to individuals filing bankruptcy petitions under chapter 7 or 11 of title 11 of the United States Code. The bankruptcy estate created when a petition is filed by an individual under either chapter 7 or 11 is a separate taxable entity for title 26 purposes. See 26 U.S.C. §1398. Although fiduciaries of these individual bankruptcy estates (trustees or debtors-in-possession) may be required to file Forms 1041, the bankruptcy estates are not pass-through entities as described in these regulations. Therefore, the five-month automatic extension provided by these regulations is inapplicable to bankruptcy estates of individuals under chapter 7 or 11 of title 11 of the Bankruptcy Code.

Pass-through entities eligible to file bankruptcy petitions, such as partnerships, would be affected by these regulations. A separate taxable entity is not created when a partnership files a bankruptcy case. See generally 26 U.S.C. §1399. The trustee or debtor-in-possession of the bankrupt partnership files a Form 1065, not a Form 1041. Thus, the five-month automatic extension provided in these regulations would apply, as the filing of a bankruptcy petition does not change the information reporting requirements of pass-through entities, such as a partnership.

Accordingly, after consideration of all comments and in order to best minimize overall taxpayer burden, these final regulations provide for a five-month automatic extension of time to file certain returns for partnerships, trusts, and estates other than certain bankruptcy estates.

These final regulations also adopt without modification the proposed amendments to 26 CFR part 54, which allow filers of Form 8928, “Return of Certain Excise Taxes Under Chapter 43 of the Internal Revenue Code,” to obtain an automatic six-month extension of time to file the return after the date prescribed for filing the return.

It has been determined that this Treasury Decision is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. Although these final regulations reference forms that are approved under the Paperwork Reduction Act (44 U.S.C. chapter 35), the regulations themselves do not impose a collection of information on small entities. Therefore, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding this regulation was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small businesses.

Paragraph 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 1.6081-2 also issued under 26 U.S.C. 6081. * * *

Section 1.6081-6 also issued under 26 U.S.C. 6081. * * *

Par. 2. Section 1.6081-2 is added to read as follows:

Par. 3. Section 1.6081-2T is removed.

Par. 4. Section 1.6081-6 is added to read as follows:

Par. 5. Section 1.6081-6T is removed.

Par. 6. The authority citation for part 54 is amended by adding an entry in numerical order to read in part as follows:

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

Section 54.6081-1 also issued under 26 U.S.C. 6081(a).

Par. 7. Section 54.6081-1 is added to read as follows:

The Service has determined that it is appropriate to temporarily suspend certain income limitation requirements under § 42 for certain qualified low-income projects. The suspension will apply to low-income housing projects approved by the Agency, in which vacant units are rented to displaced individuals. The Agency will determine the appropriate period of temporary housing for each project, not to extend beyond July 31, 2012 (temporary housing period).

A displaced individual temporarily occupying a unit during the first year of the credit period under § 42(f)(1) will be deemed a qualified low-income tenant for purposes of determining the project’s qualified basis under § 42(c)(1), and for meeting the project’s 20-50 test or 40-60 test as elected by the project owner under § 42(g)(1). After the end of the temporary housing period established by the Agency (not to extend beyond July 31, 2012), a displaced individual will no longer be deemed a qualified low-income tenant.

During the temporary housing period established by the Agency, the status of a vacant unit (that is, market-rate or low-income for purposes of § 42 or never previously occupied) after the first year of the credit period that becomes temporarily occupied by a displaced individual remains the same as the unit’s status before the displaced individual moves in. Displaced individuals temporarily occupying vacant units will not be treated as low-income tenants under § 42(i)(3)(A)(ii). However, even if it houses a displaced individual, a low-income or market rate unit that was vacant before the effective date of this notice will continue to be treated as a vacant low-income or market rate unit. Similarly, a unit that was never previously occupied before the effective date of this notice will continue to be treated as a unit that has never been previously occupied even if it houses a displaced individual. Thus, the fact that a vacant unit becomes occupied by a displaced individual will not affect the building’s applicable fraction under § 42(c)(1)(B) for purposes of determining the building’s qualified basis, nor will it affect the 20-50 test or 40-60 test of § 42(g)(1). If the income of occupants in low-income units exceeds 140 percent of the applicable income limitation, the temporary occupancy of a unit by a displaced individual will not cause application of the available unit rule under § 42(g)(2)(D)(ii). In addition, the project owner is not required during the temporary housing period to make attempts to rent to low-income individuals the low-income units that house displaced individuals.

The non-transient use requirement of § 42(i)(3)(B)(i) shall not apply to any unit providing temporary housing to a displaced individual during the temporary housing period determined by the Agency in accordance with section I of this notice.

All other rules and requirements of § 42 will continue to apply during the temporary housing period established by the Agency. After the end of the temporary housing period, the applicable income limitations contained in § 42(g)(1), the available unit rule under § 42(g)(2)(D)(ii), the nontransient requirement of § 42(i)(3)(B)(i), and the requirement to make reasonable attempts to rent vacant units to low-income individuals shall resume. If a project owner offers to rent a unit to a displaced individual after the end of the temporary housing period, the displaced individual must be certified under the requirements of § 42(i)(3)(A)(ii) and § 1.42-5(b) and (c) to be a qualified low-income tenant. To qualify for the relief in this notice, the project owner must additionally meet all of the following requirements:

The displaced individual must have resided in a North Dakota jurisdiction designated for Individual Assistance by FEMA as a result of flooding in North Dakota beginning on February 14, 2011.

The project owner must obtain approval from the Agency for the relief described in this notice. The Agency will determine the appropriate period of temporary housing for each project, not to extend beyond July 31, 2012.

To comply with the requirements of § 1.42-5, project owners are required to maintain and certify certain information concerning each displaced individual temporarily housed in the project, specifically the following: name, address of damaged residence, social security number, and a statement signed under penalties of perjury by the displaced individual that, because of damage to the individual’s residence in a North Dakota jurisdiction designated for Individual Assistance by FEMA as a result of the flooding beginning on February 14, 2011, the individual requires temporary housing. The owner must notify the Agency that vacant units are available for rent to displaced individuals.

The owner must also certify the date the displaced individual began temporary occupancy and the date the project will discontinue providing temporary housing as established by the Agency. The certifications and recordkeeping for displaced individuals must be maintained as part of the annual compliance monitoring process with the Agency.

Rents for the low-income units that house displaced individuals must not exceed the existing rent-restricted rates for the low-income units established under § 42(g)(2).

Existing tenants in occupied low-income units cannot be evicted or have their tenancy terminated as a result of efforts to provide temporary housing for displaced individuals.

Written comments should be sent to:

or hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to:

Alternatively, comments may be submitted electronically via e-mail to the following address: Notice.Comments@irscounsel.treas.gov. “Notice 2011-61” should be in the subject line of the e-mail. All comments will be available for public inspection and copying. Comments are requested by August 17, 2011.