Internal Revenue Code Section 6038A:
Information reporting with respect to certain foreign-owned corporations
Location in U.S. Code: Title 26F, Chapter 61-A, Part III-A
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.