Internal Revenue Code:Sec. 6038A. Information with respect to certain foreign-owned corporations
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle F - Procedure and Administration
CHAPTER 61 - INFORMATION AND RETURNS
Subchapter A - Returns and Records
PART III - INFORMATION RETURNS
Subpart A - Information Concerning Persons Subject to Special
Provisions
Statute
Sec. 6038A. Information with respect to certain foreign-owned
corporations
(a) Requirement
If, at any time during a taxable year, a corporation (hereinafter
in this section referred to as the ''reporting corporation'') -
(1) is a domestic corporation, and
(2) is 25-percent foreign-owned,
such corporation shall furnish, at such time and in such manner as
the Secretary shall by regulations prescribe, the information
described in subsection (b) and such corporation shall maintain (in
the location, in the manner, and to the extent prescribed in
regulations) such records as may be appropriate to determine the
correct treatment of transactions with related parties as the
Secretary shall by regulations prescribe (or shall cause another
person to so maintain such records).
(b) Required information
For purposes of subsection (a), the information described in this
subsection is such information as the Secretary may prescribe by
regulations relating to -
(1) the name, principal place of business, nature of business,
and country or countries in which organized or resident, of each
person which -
(A) is a related party to the reporting corporation, and
(B) had any transaction with the reporting corporation during
its taxable year,
(2) the manner in which the reporting corporation is related to
each person referred to in paragraph (1), and
(3) transactions between the reporting corporation and each
foreign person which is a related party to the reporting
corporation.
(c) Definitions
For purposes of this section -
(1) 25-percent foreign-owned
A corporation is 25-percent foreign-owned if at least 25
percent of -
(A) the total voting power of all classes of stock of such
corporation entitled to vote, or
(B) the total value of all classes of stock of such
corporation,
is owned at any time during the taxable year by 1 foreign person
(hereinafter in this section referred to as a ''25-percent
foreign shareholder'').
(2) Related party
The term ''related party'' means -
(A) any 25-percent foreign shareholder of the reporting
corporation,
(B) any person who is related (within the meaning of section
267(b) or 707(b)(1)) to the reporting corporation or to a
25-percent foreign shareholder of the reporting corporation,
and
(C) any other person who is related (within the meaning of
section 482) to the reporting corporation.
(3) Foreign person
The term ''foreign person'' means any person who is not a
United States person. For purposes of the preceding sentence,
the term ''United States person'' has the meaning given to such
term by section 7701(a)(30), except that any individual who is a
citizen of any possession of the United States (but not otherwise
a citizen of the United States) and who is not a resident of the
United States shall not be treated as a United States person.
(4) Records
The term ''records'' includes any books, papers, or other data.
(5) Section 318 to apply
Section 318 shall apply for purposes of paragraphs (1) and (2),
except that -
(A) ''10 percent'' shall be substituted for ''50 percent'' in
section 318(a)(2)(C), and
(B) subparagraphs (A), (B), and (C) of section 318(a)(3)
shall not be applied so as to consider a United States person
as owning stock which is owned by a person who is not a United
States person.
(d) Penalty for failure to furnish information or maintain records
(1) In general
If a reporting corporation -
(A) fails to furnish (within the time prescribed by
regulations) any information described in subsection (b), or
(B) fails to maintain (or cause another to maintain) records
as required by subsection (a),
such corporation shall pay a penalty of $10,000 for each taxable
year with respect to which such failure occurs.
(2) Increase in penalty where failure continues after
notification
If any failure described in paragraph (1) continues for more
than 90 days after the day on which the Secretary mails notice of
such failure to the reporting corporation, such corporation shall
pay a penalty (in addition to the amount required under paragraph
(1)) of $10,000 for each 30-day period (or fraction thereof)
during which such failure continues after the expiration of such
90-day period.
(3) Reasonable cause
For purposes of this subsection, the time prescribed by
regulations to furnish information or maintain records (and the
beginning of the 90-day period after notice by the Secretary)
shall be treated as not earlier than the last day on which (as
shown to the satisfaction of the Secretary) reasonable cause
existed for failure to furnish the information or maintain the
records.
(e) Enforcement of requests for certain records
(1) Agreement to treat corporation as agent
The rules of paragraph (3) shall apply to any transaction
between the reporting corporation and any related party who is a
foreign person unless such related party agrees (in such manner
and at such time as the Secretary shall prescribe) to authorize
the reporting corporation to act as such related party's limited
agent solely for purposes of applying sections 7602, 7603, and
7604 with respect to any request by the Secretary to examine
records or produce testimony related to any such transaction or
with respect to any summons by the Secretary for such records or
testimony. The appearance of persons or production of records by
reason of the reporting corporation being such an agent shall not
subject such persons or records to legal process for any purpose
other than determining the correct treatment under this title of
any transaction between the reporting corporation and such
related party.
(2) Rules where information not furnished
If -
(A) for purposes of determining the correct treatment under
this title of any transaction between the reporting corporation
and a related party who is a foreign person, the Secretary
issues a summons to such corporation to produce (either
directly or as agent for such related party) any records or
testimony,
(B) such summons is not quashed in a proceeding begun under
paragraph (4) and is not determined to be invalid in a
proceeding begun under section 7604(b) to enforce such summons,
and
(C) the reporting corporation does not substantially comply
in a timely manner with such summons and the Secretary has sent
by certified or registered mail a notice to such reporting
corporation that such reporting corporation has not so
substantially complied,
the Secretary may apply the rules of paragraph (3) with respect
to such transaction (whether or not the Secretary begins a
proceeding to enforce such summons). If the reporting
corporation fails to maintain (or cause another to maintain)
records as required by subsection (a), and by reason of that
failure, the summons is quashed in a proceeding described in
subparagraph (B) or the reporting corporation is not able to
provide the records requested in the summons, the Secretary may
apply the rules of paragraph (3) with respect to any transaction
to which the records relate.
(3) Applicable rules in cases of noncompliance
If the rules of this paragraph apply to any transaction -
(A) the amount of the deduction allowed under subtitle A for
any amount paid or incurred by the reporting corporation to the
related party in connection with such transaction, and
(B) the cost to the reporting corporation of any property
acquired in such transaction from the related party (or
transferred by such corporation in such transaction to the
related party),
shall be the amount determined by the Secretary in the
Secretary's sole discretion from the Secretary's own knowledge or
from such information as the Secretary may obtain through
testimony or otherwise.
(4) Judicial proceedings
(A) Proceedings to quash
Notwithstanding any law or rule of law, any reporting
corporation to which the Secretary issues a summons referred to
in paragraph (2)(A) shall have the right to begin a proceeding
to quash such summons not later than the 90th day after such
summons was issued. In any such proceeding, the Secretary may
seek to compel compliance with such summons.
(B) Review of secretarial determination of noncompliance
Notwithstanding any law or rule of law, any reporting
corporation which has been notified by the Secretary that the
Secretary has determined that such corporation has not
substantially complied with a summons referred to in paragraph
(2) shall have the right to begin a proceeding to review such
determination not later than the 90th day after the day on
which the notice referred to in paragraph (2)(C) was mailed.
If such a proceeding is not begun on or before such 90th day,
such determination by the Secretary shall be binding and shall
not be reviewed by any court.
(C) Jurisdiction
The United States district court for the district in which
the person (to whom the summons is issued) resides or is found
shall have jurisdiction to hear any proceeding brought under
subparagraph (A) or (B). Any order or other determination in
such a proceeding shall be treated as a final order which may
be appealed.
(D) Suspension of statute of limitations
If the reporting corporation brings an action under
subparagraph (A) or (B), the running of any period of
limitations under section 6501 (relating to assessment and
collection of tax) or under section 6531 (relating to criminal
prosecutions) with respect to any affected taxable year shall
be suspended for the period during which such proceeding, and
appeals therein, are pending. In no event shall any such
period expire before the 90th day after the day on which there
is a final determination in such proceeding. For purposes of
this subparagraph, the term ''affected taxable year'' means any
taxable year if the determination of the amount of tax imposed
for such taxable year is affected by the treatment of the
transaction to which the summons relates.
(f) Cross reference
For provisions relating to criminal penalties for violation
of this section, see section 7203.
Sources
(Added Pub. L. 97-248, title III, Sec. 339(a), Sept. 3, 1982, 96
Stat. 632; amended Pub. L. 97-448, title III, Sec. 306(b)(4), Jan.
12, 1983, 96 Stat. 2406; Pub. L. 98-369, div. A, title VII, Sec.
714(l), July 18, 1984, 98 Stat. 963; Pub. L. 99-514, title XII,
Sec. 1245(a), (b)(1)-(4), Oct. 22, 1986, 100 Stat. 2581; Pub. L.
101-239, title VII, Sec. 7403(a)-(d), Dec. 19, 1989, 103 Stat.
2358, 2359; Pub. L. 101-508, title XI, Sec. 11315(b)(1),
11704(a)(23), Nov. 5, 1990, 104 Stat. 1388-457, 1388-519; Pub. L.
104-188, title I, Sec. 1702(c)(5), 1704(f)(5)(B), Aug. 20, 1996,
110 Stat. 1869, 1880.)
Miscellaneous
AMENDMENTS
1996 - Subsec. (b)(2) to (4). Pub. L. 104-188, Sec.
1704(f)(5)(B), inserted ''and'' at end of par. (2), substituted a
period for '', and'' at end of par. (3), and struck out par. (4)
which read as follows: ''such information as the Secretary may
require for purposes of carrying out the provisions of section
453C.''
Subsec. (e)(4)(D). Pub. L. 104-188, Sec. 1702(c)(5), substituted
''any affected taxable year'' for ''any transaction to which the
summons relates'' and inserted at end ''For purposes of this
subparagraph, the term 'affected taxable year' means any taxable
year if the determination of the amount of tax imposed for such
taxable year is affected by the treatment of the transaction to
which the summons relates.''
1990 - Subsec. (a)(1). Pub. L. 101-508, Sec. 11315(b)(1), struck
out ''or is a foreign corporation engaged in trade or business
within the United States'' after ''corporation''.
Subsec. (c)(3) to (6). Pub. L. 101-508, Sec. 11704(a)(23),
redesignated pars. (4) to (6) as (3) to (5), respectively.
1989 - Subsec. (a). Pub. L. 101-239, Sec. 7403(b), inserted
before period at end ''and such corporation shall maintain (in the
location, in the manner, and to the extent prescribed in
regulations) such records as may be appropriate to determine the
correct treatment of transactions with related parties as the
Secretary shall by regulations prescribe (or shall cause another
person to so maintain such records)''.
Subsec. (a)(2). Pub. L. 101-239, Sec. 7403(a)(1), amended par.
(2) generally, substituting ''is 25-percent foreign-owned,'' for
''is controlled by a foreign person,''.
Subsec. (c). Pub. L. 101-239, Sec. 7403(a)(2), amended subsec.
(c) generally, substituting pars. (1) to (6) for former pars. (1)
to (3) defining ''control'', ''related party'', and ''foreign
person''.
Subsec. (d). Pub. L. 101-239, Sec. 7403(c), inserted ''or
maintain records'' after ''information'' in heading and amended
text generally, making changes in substance and structure of pars.
(1) to (3).
Subsecs. (e), (f). Pub. L. 101-239, Sec. 7403(d), added subsec.
(e) and redesignated former subsec. (e) as (f).
1986 - Subsec. (b)(1). Pub. L. 99-514, Sec. 1245(a), substituted
''each person'' for ''each corporation'' in introductory provisions
and amended subpar. (A) generally, substituting ''related party to
the reporting corporation'' for ''member of the same controlled
group as the reporting corporation''.
Subsec. (b)(2). Pub. L. 99-514, Sec. 1245(b)(1), substituted
''each person'' for ''each corporation''.
Subsec. (b)(3). Pub. L. 99-514, Sec. 1245(b)(2), (3), amended
par. (3) generally, substituting ''foreign person which is a
related party to the reporting corporation, and'' for ''foreign
corporation which is a member of the same controlled group as the
reporting corporation.''
Subsec. (b)(4). Pub. L. 99-514, Sec. 1245(b)(3), added par. (4).
Subsec. (c)(2). Pub. L. 99-514, Sec. 1245(b)(4), amended par. (2)
generally. Prior to amendment, par. (2), controlled group, read as
follows: ''The term 'controlled group' means any controlled group
of corporations within the meaning of section 1563(a); except that
-
''(A) 'at least 50 percent' shall be substituted -
''(i) for 'at least 80 percent' each place it appears in
section 1563(a)(1), and
''(ii) for 'more than 50 percent' each place it appears in
section 1563(a)(2)(B), and
''(B) the determination shall be made without regard to
subsections (a)(4), (b)(2)(C), and (e)(3)(C) of section 1563.''
1984 - Subsec. (c)(1). Pub. L. 98-369 substituted section
''6038(e)(1)'' for ''6038(d)(1)''.
1983 - Subsec. (c)(2)(B). Pub. L. 97-448 inserted '',
(b)(2)(C),'' after ''(a)(4)''.
EFFECTIVE DATE OF 1996 AMENDMENT
Amendment by section 1702(c)(5) of Pub. L. 104-188 effective,
except as otherwise expressly provided, as if included in the
provision of the Revenue Reconciliation Act of 1990, Pub. L.
101-508, title XI, to which such amendment relates, see section
1702(i) of Pub. L. 104-188, set out as a note under section 38 of
this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Section 11315(c) of Pub. L. 101-508 provided that: ''The
amendments made by this section (enacting section 6038C of this
title and amending this section) shall apply to -
''(1) any requirement to furnish information under section
6038C(a) of the Internal Revenue Code of 1986 (as added by this
section) if the time for furnishing such information under such
section is after the date of the enactment of this Act (Nov. 5,
1990),
''(2) any requirement under such section 6038C(a) to maintain
records which were in existence on or after March 20, 1990,
''(3) any requirement to authorize a corporation to act as a
limited agent under section 6038C(d)(1) of such Code (as so
added) if the time for authorizing such action is after the date
of the enactment of this Act, and
''(4) any summons issued after such date of enactment,
without regard to when the taxable year (to which the information,
records, authorization, or summons relates) began.''
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7403(e) of Pub. L. 101-239 provided that: ''The
amendments made by this section (amending this section) shall apply
to taxable years beginning after July 10, 1989.''
EFFECTIVE DATE OF 1986 AMENDMENT
Section 1245(c) of Pub. L. 99-514 provided that: ''The amendments
made by this section (amending this section and section 6038 of
this title) shall apply to taxable years beginning after December
31, 1986.''
EFFECTIVE DATE OF 1984 AMENDMENT
Amendment by Pub. L. 98-369 effective as if included in the
provision of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 715 of
Pub. L. 98-369, set out as a note under section 31 of this title.
EFFECTIVE DATE OF 1983 AMENDMENT
Amendment by Pub. L. 97-448 effective as if included in the
provisions of the Tax Equity and Fiscal Responsibility Act of 1982,
Pub. L. 97-248, to which such amendment relates, see section 311(d)
of Pub. L. 97-448, set out as a note under section 31 of this
title.
EFFECTIVE DATE
Section 339(c) of Pub. L. 97-248 provided that: ''The amendments
made by this section (enacting this section) shall apply to taxable
years beginning after December 31, 1982.''
APPLICABILITY OF 1989 AMENDMENT
Section 11314 of Pub. L. 101-508 provided that:
''(a) General Rule. - The amendments made by section 7403 of the
Revenue Reconciliation Act of 1989 (Pub. L. 101-239, amending this
section) shall apply to -
''(1) any requirement to furnish information under section
6038A(a) of the Internal Revenue Code of 1986 (as amended by such
section 7403) if the time for furnishing such information under
such section is after the date of the enactment of this Act (Nov.
5, 1990),
''(2) any requirement under such section 6038A(a) to maintain
records which were in existence on or after March 20, 1990,
''(3) any requirement to authorize a corporation to act as a
limited agent under section 6038A(e)(1) of such Code (as so
amended) if the time for authorizing such action is after the
date of the enactment of this Act, and
''(4) any summons issued after such date of enactment,
without regard to when the taxable year (to which the information,
records, authorization, or summons relates) began. Such amendments
shall also apply in any case to which they would apply without
regard to this section.
''(b) Continuation of Old Failures. - In the case of any failure
with respect to a taxable year beginning on or before July 10,
1989, which first occurs on or before the date of the enactment of
this Act (Nov. 5, 1990) but which continues after such date of
enactment, section 6038A(d)(2) of the Internal Revenue Code of 1986
(as amended by subsection (c) of such section 7403) shall apply for
purposes of determining the amount of the penalty imposed for
30-day periods referred to in such section 6038A(d)(2) which begin
after the date of the enactment of this Act.''
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 6038C, 6048, 6501 of this
title.
