SERVICE WILL NOT RULE ON EXCLUSION FROM FOREIGN BASE COMPANY INCOME.

Rev. Proc. 87-61

SECTION 1. PURPOSES

Rev. Proc. 76-25, 1976-1 C.B. 563, sets forth procedures for taxpayers to follow in requesting rulings under section 954(b)(4) of the Internal Revenue Code of 1954. The first purpose of this revenue procedure is to declare Rev. Proc. 76-25 obsolete because section 954(b)(4) of the Code was substantially amended by the Tax Reform Act of 1986, 1986-3 (Vol. 1) C.B. 1.

Rev. Proc. 87-6, 1987-1 I.R.B. 45, sets forth areas in which the Internal Revenue Service will not issue advance rulings or determination letters. The second purpose of this revenue procedure is to amplify Rev. Proc. 87-6 by adding determinations under section 954(b)(4) of the Code to the list of areas in which advance rulings or determination letters will not be issued.

SEC. 2. OBSOLESCENCE OF REV. PROC. 76-25

Section 951 of the Code requires a United States shareholder of a controlled foreign corporation, as defined in section 957, to include in gross income the corporation's Subpart F income, as defined in section 952. Subpart F income ordinarily includes foreign base company income, as defined in section 954. However, section 954(b)(4) as in effect for taxable years beginning before January 1, 1987, provided that foreign base company income did not include any item of income (except certain foreign base company oil related income) if the Secretary was satisfied that neither the organization of the corporation nor the transaction giving rise to the income had as a significant purpose a substantial reduction of taxes. Rev. Proc. 76-25 sets forth information to be submitted in requesting a ruling under section 954(b)(4).

Section 1221(d) of the Tax Reform Act of 1986 amended section 954(b)(4) of the Code, eliminating the significant tax reduction purpose test. Therefore, Rev. Proc. 76-25 is obsolete.

SEC. 3. AMPLIFICATION OF REV. PROC. 87-6

Section 954(b)(4) of the Code now provides in part that foreign base company income does not include any item of income if the Secretary is satisfied that the income was subject to an effective rate of income tax imposed by a foreign country greater than 90 percent of the maximum rate of tax specified in section 11. The effective rate of foreign tax may also affect the tax treatment of income earned by a controlled foreign corporation through a branch outside its country of incorporation; see section 954(d)(2) of the Code and section 1.954-3(b) of the Income Tax Regulations.

Rev. Proc. 87-6 lists areas in which the Service will not issue advance rulings or determination letters. Section 2.01 of Rev. Proc. 87-6 explains that the Service will not issue advance rulings on matters that are inherently factual. Determining the effective rate of tax imposed by a foreign jurisdiction is inherently factual and therefore not appropriate for an advance ruling. Even if the structure of the foreign tax regime and the nominal rates of tax are known, the effective rate of tax that will be imposed on income earned in the future may depend on the amount of income and expenses, the allocation and characterization of income and expenses, and other facts that cannot be known with certainty at the time the ruling is requested.

Therefore, Rev. Proc. 87-6 is amended by adding to Section 3.01 the following paragraph:

Section 954. -- Foreign Base Company Income. -- Determining the effective rate of tax that a foreign country will impose on income.

SEC. 4. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 76-25 is obsolete. Rev. Proc. 87-6 is amplified.

SEC. 5. EFFECTIVE DATE

Section 2 of this revenue procedure is effective for taxable years beginning after December 31, 1986. Section 3 of this revenue procedure will apply to all ruling requests on file in the National Office on December 14, 1987, the date of its publication, and to all requests received thereafter.