Rev. Proc. 74-48

Section 1. Purpose.

The purpose of this Revenue Procedure is to state guidelines relating to the exclusion from Interest Equalization Tax (IET) for acquisitions of the stock or debt obligations of less developed country corporations under section 4916(a)(2) of the Internal Revenue Code of 1954 and relating to the effect of Executive Order 11766, 1974-1 C.B. 322, which reduced to zero the rate of IET effective for acquisitions of foreign stock and debt obligations made after January 29, 1974. This reduction meant that no IET liability would be incurred by U.S. persons making acquisitions after January 29, 1974, unless a positive rate was later reimposed.

Sec. 2. Background.

.01 Under section 147.3-1(e) of the Temporary Regulations under the Interest Equalization Tax, the National Office of the Internal Revenue Service issued rulings that a foreign corporation would be treated as a less developed country corporation for its annual accounting period. On the basis of such a ruling, acquisitions of the stock or debt obligations of the less developed country corporation by any United States person during the annual accounting period, and on or before the 90th day after the close of the annual accounting period, were excluded from IET.

.02 If certain information was filed with the National Office within 90 days after the close of the annual accounting period pursuant to section 147.3-1(e)(2)(x)(b) of the regulations, such filing constituted a request for a ruling with respect to the annual accounting period during which the information was filed, and any acquisition of stock or debt obligations of such corporation during the period such request was pending was treated as an acquisition of stock or debt obligations of a less developed country corporation, and thus was excluded from IET. Section 147.3-1(e)(2)(x)(b) of the regulations also provided that the Commissioner could grant reasonable extensions of the 90-day period to file the information during which time acquisitions of such stock or debt obligations were excluded from IET.

.03 Since the rate of IET was zero for acquisitions made after January 29, 1974, it was not necessary for U.S. persons who acquired foreign stock or debt obligations to avail themselves of the exclusion for less developed country corporations. However, many corporations which had received less developed country corporation rulings may have wished to maintain their status as less developed country corporations during the zero rate period in the event the IET was reimposed at a positive rate prior to its expiration date, which in fact was June 30, 1974.

Sec. 3. Procedure.

.01 Any corporation which had a current ruling as of January 29, 1974 treating it as a less developed country corporation was granted an extension of time to file the information required by section 147.3-1(e)(2)(x)(b) of the regulations. The time to file such information was extended to 60 days after the effective date of a reimposition of a positive rate in IET.

Sec. 4. Scope and Duration.

These guidelines are intended to apply only to the period while the IET rate was zero. Since the IET has subsequently expired and does not apply to any acquisition made after June 30, 1974, the above guidelines apply only to the period after January 29, 1974, and before July 1, 1974.

¹ Also released as TIR-1281, dated April 3, 1974.