PLR 200750014: Group may revoke foreign levy safe harbor election

Plain-English summary

A domestic parent had elected a safe harbor method for a foreign subsidiary that paid levies in another country while receiving economic benefits there. It asked to revoke that method and use the alternative facts and circumstances method for a later tax year. The IRS found that the request was filed at least 30 days before the relevant return deadline and that the election had been in effect for at least three earlier tax years. It consented to revocation beginning with the requested year and continuing thereafter. The ruling does not decide how much of the foreign levy, if any, qualifies as a tax rather than payment for a specific economic benefit.

Ruling snapshot

• Question: May the parent revoke its foreign levy safe harbor election for the subsidiary?
• Outcome: Approved, effective for the requested tax year and later years.
• Key authorities: Treas. Reg. §§ 1.901-2A(c) and 1.901-2A(d)(4).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 200750014
Third Party Communication: None
Release Date: 12/14/2007
Date of Communication: Not Applicable
Index Number: 901.00-00, 901.01-04
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:INTL:B03
PLR-137481-07
Date:
September 10, 2007

TY: -------

Legend

Corp A = -----------------------------------------------------------------------------------------------
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Corp B = ----------------------------------------------- Corp C = ----------------------------------------- Country L = --------------------- Country M = ---------
DE P = --------------------------
DE Q = --------------------------------------------
Date 1 = ---------------------------
Tax Year = -------
W
Tax Year = ------
X

Dear ----------------:

This is in response to your letter dated August 15, 2007, in which you requested consent for Corp A to revoke, effective for Tax Year X, its election on behalf of Corp C, effective for Tax Year W, to use the safe harbor method described in Treas. Reg.
§1.901-2A(c)(3) in determining the amount of foreign income tax paid or accrued to Country M. The information submitted for consideration is substantially as set forth below.

The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.
PLR-137481-07
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Corp A is a domestic corporation that is the common parent of an affiliated group of corporations (“the Corp A Group”) that has filed consolidated federal income tax returns on a calendar year basis for Tax Year W and all subsequent tax years. Presently included in the Corp A Group are four domestic corporations that collectively own one hundred percent of Corp B, a Country L corporation. Corp B owns one hundred percent of Corp C, also a Country L corporation. Corp C has operations and activities in Country M that are conducted through DE P and DE Q, that are treated as disregarded entities for federal income tax purposes.

Corp C is a dual capacity taxpayer, as defined in Treas. Reg. §1.901-2(a)(2)(ii)(A), with respect to its operations in Country M. Corp A elected on behalf of Corp C, pursuant to
§1.901-2A(d)(3), to apply the safe harbor method with respect to all qualifying levies imposed by Country M, effective for Tax Year W. Corp A’s safe harbor election has not been revoked as defined in §1.901-2(a)(2)(ii)(A). The due date (including extensions) for Corp A’s tax return for Tax Year X is Date 1, which is more than 30 days after August 15, 2007, the date of Corp A’s request to revoke the safe harbor election.

Treas. Reg. §1.901-2A(c)(1) permits dual capacity taxpayers in computing foreign tax credits for qualifying levies of each country to use either a “facts and circumstances” method or an elective ”safe harbor” method to determine the amount of a levy that is not paid in exchange for a specific economic benefit.

Treas. Reg. §1.901-2A(d) describes the manner in which taxpayers may elect the safe harbor method. Treas. Reg. §1.901-2A(d)(4) provides that that election may not be revoked without the consent of the Commissioner. An application for consent must be made not later than 30 days before the due date (including extensions) for the filing of the income tax return for the first taxable year for which the revocation is sought to be effective, with certain exceptions not applicable to this situation. The Commissioner may make his consent to any revocation conditioned upon adjustments being made in one or more taxable years so as to prevent the revocation from resulting in a distortion of the amount of any item relating to tax liability in any taxable year. The Commissioner will normally consent to a revocation under the circumstances described in §1.901-2A (d)(4)(i) through (vi).

Treas. Reg. §1.901-2A(d)(4)(vi) provides that the Commissioner will normally consent to a revocation of a safe harbor election if the election has been in effect with respect to at least three taxable years prior to the taxable year for which the revocation is to be effective.

Based solely on the information and representations submitted, Corp A’s application for consent to revoke the safe harbor election made on behalf of Corp C with respect to the levies of Country M was made not later than 30 days before the federal income tax return due date (including extensions) for Tax Year X and the applicable safe harbor
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elections have been in effect with respect to at least Corp A’s last three taxable years prior to Tax Year X. Accordingly, consent is granted to Corp A to revoke the election previously made on behalf of Corp C for Corp C to use the safe harbor method described in Treas. Reg. §1.901-2A(c)(3) with respect to the levies of Country M effective for Tax Year X and for all subsequent tax years.

No opinion was requested, and no opinion is expressed, as to whether, based upon all of the relevant facts and circumstances, the amount, if any, paid pursuant to a levy or levies imposed by Country M is not an amount paid in exchange for a specific economic benefit.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling.

Sincerely,

Richard L. Chewning
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(International)