[Code of Federal Regulations]
[Title 26, Volume 13]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR]

[Page 193-194]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
Procedure and Administration--Table of Contents
 
Sec.  1.6038A-7  Noncompliance.

    (a) In general. In the case of any failure described in Sec.  
1.6038A-5 or Sec.  1.6038A-6, the rules of this Sec.  1.6038A-7 apply to 
the reporting corporation. In such a case--
    (1) 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
    (2) 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, may be determined 
by the District Director.
    (b) Determination of the amount. The amount of the deduction or the 
cost to the reporting corporation shall be the amount determined by the 
District Director (in the District Director's sole discretion) from the 
District Director's

[[Page 194]]

own knowledge or from such information as the District Director may 
choose to obtain through testimony or otherwise. The District Director 
shall consider any information or materials that have been submitted by 
the reporting corporation or a foreign related party. The District 
Director, however, may disregard any information, documents, or records 
submitted by the reporting corporation or the related party if (in the 
District Director's sole discretion) the District Director deems that 
they are insufficiently probative of the relevant facts.
    (c) Separate application. If the noncompliance penalty of this 
section applies with respect to transactions with a related party of the 
reporting corporation, it will not be applied with respect to any other 
related parties of the reporting corporation solely upon the basis of 
that failure. Thus, for example, if a reporting corporation engages in 
transactions with related party A and related party B, and the reporting 
corporation does not respond to a summons for records related to the 
transactions between the reporting corporation and related party A, the 
noncompliance penalty imposed as a result of such failure will not apply 
to the transactions between the reporting corporation and related party 
B. If a separate summons is issued for records relating to the 
transactions between the reporting corporation and related party B and 
the reporting corporation does not produce such records, the 
noncompliance penalty may be applied to those transactions.
    (d) Effective dates. For effective dates for this section, see Sec.  
1.6038A-1(n).

[T.D. 8353, 56 FR 28075, June 19, 1991]