[Code of Federal Regulations]
[Title 26, Volume 11]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.1248-7]

[Page 407-409]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.1248-7  Taxpayer to establish earnings and profits and foreign taxes.

    (a) In general. (1) If a taxpayer sells or exchanges stock in a 
foreign corporation which was a controlled foreign corporation and the 
Commissioner determines that the taxpayer has not established the amount 
of the earnings and profits of the corporation attributable to the stock 
under Sec. 1.1248-2 or Sec. 1.1248-3, whichever is applicable, all the 
gain from such sale or exchange shall be treated as a dividend under 
section 1248(a). See section 1248(g). A taxpayer shall be considered to 
have established such amount if:
    (i) He attaches to his income tax return, filed on or before the 
last day prescribed by law (including extensions thereof) for his 
taxable year in which he sold or exchanged the stock, the schedule 
prescribed by paragraph (b) of this section or, if such last day is 
before April 1, 1965, he files such schedule before such date with the 
district director with whom such return was filed, and
    (ii) He establishes in the manner prescribed by paragraph (d) of 
this section the correctness of each amount shown on such schedule.
    (2) Notwithstanding an omission of information from, or an error 
with respect to an amount shown on, the schedule referred to in 
subparagraph (1)(i) of this paragraph, a taxpayer shall be considered to 
have complied with such subparagraph (1)(i) if:
    (i) He establishes that such omission or error was inadvertent, or 
due to reasonable cause and not due to willful neglect, and that he has 
substantially complied with the requirements of this section, and
    (ii) The taxpayer corrects such omission or error at the time when 
he complies with paragraph (d) of this section.
    (3) For the requirement to establish the amount of foreign taxes to 
be taken into account for purposes of section 1248(b), see paragraph (c) 
of this section.
    (b) Schedule attached to return. (1) The taxpayer shall attach to 
his income tax return for his taxable year in which he sold or exchanged 
the stock, a schedule showing his name, address, and identifying number. 
Except to the extent provided in paragraph (e) of this section, the 
schedule shall also show the amount of the earnings and profits 
attributable under paragraph (a) of Sec. 1.1248-2 or paragraph (a) of 
Sec. 1.1248-3 (as the case may be) to the stock, and, in order to 
support the computation of such amount, any additional information 
required by subparagraphs (2), (3), (4), and (5) of this paragraph.
    (2) The schedule shall also show for the first tier corporation, and 
for each lower tier corporation as to which information is required 
under subparagraph (4) of this paragraph, (i) the name of the 
corporation, (ii) the country under whose laws the corporation is 
created or organized, and (iii) the last day of the taxable year which 
the corporation regularly uses in computing its income.
    (3) If the amount of earnings and profits attributable to a block of 
stock

[[Page 408]]

sold or exchanged are computed under Sec. 1.1248-2, the schedule shall 
also show:
    (i) For each taxable year of the corporation, beginning after 
December 31, 1962, during the period the taxpayer held (or was 
considered to have held by reason of the application of section 1223) 
the block, (a) the earnings and profits accumulated for each such 
taxable year computed under paragraph (d) of Sec. 1.1248-2, and (b) the 
sum thereof computed under paragraph (e) (1)(i) and (2) of Sec. 1.1248-
2,
    (ii) The number of shares in the block and the total number of 
shares of the corporation outstanding during such period,
    (iii) If during the period the person held (or is considered to have 
held by reason of the application of section 1223) the block any amount 
was included under section 951 in the gross income of such person (or 
another person) in respect of the block, the computation of the excess 
referred to in paragraph (e)(3)(ii) of Sec. 1.1248-2, and
    (iv) If the amount of earnings and profits of a lower tier 
corporation attributable to the block are computed under paragraph 
(a)(3) of Sec. 1.1248-2, (a) the number of shares in the lower tier 
corporation which the taxpayer owns within the meaning of section 
958(a)(2)(b) the total number of shares of such lower tier corporation 
outstanding during such period, and (c) in respect of such lower tier 
corporation, the information prescribed in subdivisions (i) and (iii) of 
this subparagraph.
    (4) If the amount of earnings and profits attributable to a share 
(or block) sold or exchanged are computed under Sec. 1.1248-3, the 
schedule shall also show for each taxable year of the corporation 
beginning after December 31, 1962, any day of which falls in a period or 
periods the taxpayer held (or was considered to have held by reason of 
the application of section 1223) the stock while the corporation was a 
controlled foreign corporation:
    (i) The number of days in such period or periods, but only if such 
number is less than the total number of days in such taxable year,
    (ii) The earnings and profits accumulated for the taxable year 
computed under paragraph (b) of Sec. 1.1248-3,
    (iii) The number of shares in the corporation outstanding, or deemed 
under paragraph (c)(2) of Sec. 1.1248-3 to be outstanding, on each day 
of the taxable year,
    (iv) The taxpayer's tentative ratable share computed under paragraph 
(c) or (d) (as the case may be) of Sec. 1.1248-3,
    (v) The amount of, and a short description of each adjustment to, 
the tentative ratable share under paragraph (e) of Sec. 1.1248-3, and
    (vi) The amount of the ratable share referred to in paragraph (e)(1) 
of Sec. 1.1248-3.
    (5) In respect of a taxable year referred to in subparagraph (4) of 
this paragraph of a first tier corporation, if the taxpayer is required 
to compute under paragraph (f)(5) of Sec. 1.1248-3 his ratable share of 
the earnings and profits for a taxable year of the lower tier 
corporation attributable to such taxable year of such first tier 
corporation, then for such taxable year of the lower tier corporation 
the schedule shall show:
    (i) The earnings and profits accumulated for the taxable year of the 
lower tier corporation, computed under paragraph (b) of Sec. 1.1248-3,
    (ii) Each percentage described in paragraph (f)(2) (ii), (iii), and 
(iv) of Sec. 1.1248-3,
    (iii) The amount of the taxpayer's tentative ratable share computed 
under paragraph (f) (2) or (4) (as the case may be) of Sec. 1.1248-3,
    (iv) The amount of, and a short description of each adjustment to, 
the tentative ratable share under paragraph (f)(5) of Sec. 1.1248-3, 
and
    (v) The amount of the ratable share referred to in paragraph 
(f)(5)(i) of Sec. 1.1248-3.
    (c) Foreign taxes. (1) If the taxpayer fails to establish any 
portion of the amount of any foreign taxes which he is required to 
establish by subparagraph (2) of this paragraph, then such portion shall 
not be taken into account under section 1248(b)(1)(B):
    (2) The taxpayer shall establish in respect of the stock he sells or 
exchanges the amount of the foreign taxes described in section 
1248(b)(1)(B) paid by the first tier corporation for each taxable year 
of such corporation for which

[[Page 409]]

the information is required under paragraph (b) (3) or (4) of this 
section, and the amount of such taxes paid by each lower tier 
corporation for each taxable year (as to which information is required 
under paragraph (b) (3)(iv) or (5) of this section) of each such lower 
tier corporation. A taxpayer shall be considered to have established the 
amount of such foreign taxes if:
    (i) He attaches to the schedule described in paragraph (b) of this 
section a supplementary schedule which, except to the extent provided in 
paragraph (e) of this section, sets forth the amount of such foreign 
taxes for each taxable year (of the first tier corporation and of each 
such lower tier corporation) as to which such amount must be established 
under this subparagraph, and
    (ii) He establishes in the manner prescribed by paragraph (d)(2) of 
this section the correctness of each amount shown on such supplementary 
schedule.
    (d) Establishing amounts on schedules. (1) A taxpayer shall be 
considered to have established, in respect of the stock he sold or 
exchanged, the correctness of an amount shown on a schedule described in 
paragraph (b) of this section only if he produces or provides within 180 
days after demand by the district director (or within such longer period 
to which such director consents):
    (i) The books of original entry, or similar systematic accounting 
records maintained by any person or persons on a current basis as 
supplements to such books, which establish to the satisfaction of the 
district director the correctness of each such amount, and
    (ii) In respect of any such books or records which are not in the 
English language, either an accurate English translation of any such 
records as are demanded, or the services of a qualified interpreter 
satisfactory to such director.
    (2) A shareholder shall be considered to have established in respect 
of such stock the correctness of an amount shown on a supplementary 
schedule described in paragraph (c) of this section only if he produces 
or provides within 180 days after demand by the district director (or 
within such longer period to which such director consents):
    (i) Evidence described in paragraph (a)(2) of Sec. 1.905-2 of such 
amount, or
    (ii) Secondary evidence of such amount, in the same manner and to 
the same extent as would be permissible under paragraph (b) of Sec. 
1.905-2 in the case of a taxpayer who claimed the benefits of the 
foreign tax credit in respect of such amount.
    (e) Insufficient information at time return is filed. If stock in a 
foreign corporation, which was a controlled foreign corporation, is sold 
or exchanged by a taxpayer during a taxable year of the corporation (or 
of a lower tier corporation) which ends after the last day of the 
taxpayer's taxable year in which the sale or exchange occurs, and if:
    (1) For the taxpayer's taxable year, the last day referred to in 
paragraph (a)(1) of this section for filing his income tax return with a 
schedule prescribed in paragraph (b) of this section, and, if 
applicable, with a supplemental schedule prescribed in paragraph (c) of 
this section, or
    (2) The last day referred to in paragraph (a)(1) of this section 
(that is, April 1, 1965) for filing any such schedule or schedules with 
the district director with whom such return was filed,

Is not later than 90 days after the close of such taxable year of any 
such corporation, then such return with such schedule or schedules may 
be filed, or any such schedule or schedules may be filed, on the basis 
of estimates of amounts or percentages (for any such taxable year of any 
such corporation) required to be shown on any such schedule or 
schedules. If any such estimate differs from the actual amount or 
percentage, the taxpayer shall, within 90 days after the close of any 
such taxable year of any such corporation, file (or attach to a claim 
for refund or amended return filed) at the office of the district 
director with whom he filed the return a new schedule or schedules 
showing the actual amounts or percentages.

[T.D. 6779, 29 FR 18143, Dec. 22, 1964]

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