DEADLINE EXTENDED FOR CFCs ENGAGED IN INSURANCE TO ELECT DOMESTIC TAX TREATMENT.

Rev. Proc. 90-65

SECTION 1. PURPOSE

This revenue procedure provides additional guidance under section 953(d) of the Internal Revenue Code of 1986 for corporations whose election under section 953(d) for the first taxable year beginning after December 31, 1987, was due before September 15, 1989, and who failed to make a timely election under section 953(d) for that year. The revenue procedure applies only to a corporation that upon making a section 953(d) election becomes a member of an affiliated group that files a consolidated return on the basis of a fiscal year.

SECTION 2. BACKGROUND

Notice 89-79, 1989-2 C.B. 392, provides guidance to certain foreign corporations concerning the election to be treated as a domestic corporation under section 953(d) of that Code. Notice 89-79 provides that, to be effective for a taxable year, an election under section 953(d) must be filed by the due date prescribed in section 6072(b) (with extensions) for the federal income tax return that is filed for the first year the election is in effect. Under Notice 89- 79 and section 843, an electing corporation must use a calendar year annual accounting period unless it becomes an includible corporation in an affiliated group that files a consolidated return on the basis of a fiscal year.

Generally, an electing corporation that satisfies the stock ownership requirements of section 1504(a) of the Code will become an includible corporation in an affiliated group when it is first treated as a domestic corporation under section 953(d). See Section 1504(b)(2) and (c)(1) for exceptions applicable to life insurance companies. For any taxable year of the electing corporation beginning after December 31, 1987, for which an election under section 953(d) is filed, the electing corporation will first be treated as a domestic corporation on the day following the close of its prior taxable year. If the electing cooperation becomes a member of a consolidated group upon the effective date of the election, the electing corporation must report its income on the consolidated return for the taxable year of the group in which or with which the electing corporation's taxable year begins. The consolidated return should report the income of the electing corporation for the portion of the year for which it was a member of the consolidated group, from the day following the close of its prior taxable year to the close of the group's taxable year. Section 1.502-76(b) of the Income Tax Regulations.

The extended due date for the return of the calendar year electing corporation, for its first taxable year beginning after December 31, 1987, was September 15, 1989. The extended due date for the consolidated returns of certain fiscal year affiliated groups on which electing corporations would report income for their first taxable year beginning after December 31, 1987, may have been prior to July 24, 1989, the date Notice 89-79 was issued by Internal Revenue Service.

SECTION 3. PROCEDURE

01 If a corporation was unable to make a timely election under section 953(d) for its first taxable year beginning after December 31, 1987, and the final date for making its election for such year was prior to September 15, 1989, such corporation may make a section 953(d) election pursuant to the provisions of this revenue procedure effective as of the first day of the electing corporation's first taxable year beginning after December 31, 1987, as provided herein. A late election, described in the preceding sentence, cannot be made unless the electing corporation has filed an effective election under section 953(d) for the second taxable year for which an election can be made if the date for making an election for such second taxable year precedes the date when an election is made pursuant to this revenue procedure. The final date for making an election pursuant to this revenue procedure is March 15, 1991. The procedure for making such election is described in section 3.02, .03 and .04, below.

02 A corporation to which this revenue procedure applies can make an election under section 953(d) of the Code, effective for the electing corporation's first taxable year beginning after December 31, 1987, by mailing an original election statement to: Internal Revenue Service, Assistant Commissioner (International), IN:C:C:51, 950 L'Enfant Plaza South, S.W., Washington D.C. 20024. The election statement must be in the form provided in Notice 89-79 except that it should be entitled "FOREIGN INSURANCE COMPANY ELECTION UNDER SECTION 953(d) PURSUANT TO REV. PROC. 90-65." If the electing corporation has previously made an election for the second taxable year for which a section 953(d) election can be made, such corporation should attach a copy of its previous election statement to the election statement for this retroactive election.

03 A corporation that makes an election pursuant to this revenue procedure must report its income for its first taxable year beginning after December 31, 1987, on the amended consolidated income tax return of the affiliated group for the taxable year of the affiliated group in which or with which such taxable year of the electing corporation commences. A copy of the election statement filed pursuant to this revenue procedure and any previously filed section 953(d) election statement, as described in section 3.02, above, must be attached to the amended consolidated return. The amended consolidated return of the affiliated group must be filed by March 15, 1991, at the following address: Internal Revenue Service, P.O. Box #245, Ben Salem, PA 19020, D.P. 102C.

04 The electing corporation should also amend any United States income tax return it previously filed that reported income that should have been reported on the consolidated return and indicate on the amended return the tax identification number of the affiliated group that it is joining. Any return of the electing corporation amended pursuant to this revenue procedure must be filed by March 15, 1991, at the address provided in section 3.03, above.

05 If an electing corporation amends a United States income tax return that reported income that should have been reported on the consolidated return, as provided in section 3.04, above, any refund of tax paid with respect to the income reported on such amended return may be applied to the tax due on the amended consolidated return. If an electing corporation previously paid the tax due under section 953(d)(6) for a section 953(d) election made for the second taxable year for which an election can be made, the amount paid may be applied to the amount due under section 953(d)(6) for an election made pursuant to this revenue procedure. The amended consolidated return should indicate the name and tax identification number of the electing corporation and the tax year of the return of the electing corporation from which the payment of tax is to be applied.

06 The extension of time provided by this revenue procedure for making an election under section 953(d) of the Code does not operate to extend the time for payment of the tax due, including the additional tax due under section 953(d)(6). Accordingly, interest will be imposed under section 6601 on any amount of such tax due that is not paid on or before the date prescribed for payment. Additions to tax under section 6651(a)(1) and (2) and section 6653(a) for any tax due with respect to the inclusion of the electing corporation's income on the amended consolidated return, will not be imposed if such tax is paid by March 15, 1991. The penalty for underpayment of estimated tax under section 6655 for installment payments due for the amended consolidated return will not be waived.

SECTION 4. EFFECT ON OTHER DOCUMENTS

Notice 89-79 is amplified.

SECTION 5. EFFECTIVE DATE

This revenue procedure is effective for the first taxable year beginning after December 31, 1987, of a corporation specified in section 953(d)(1) of the Code, if such corporation's due date for making an election under section 953(d) for such first taxable year was prior to September 15, 1989.

DRAFTING INFORMATION

The principal author of this revenue procedure is Valerie Mark of the Office of the Associate Chief Counsel (International). For further information about this revenue procedure, contact Ms. Mark at (202) 566-6645 (not a toll-free call).