Section 1.721(c)-6 - Procedural and reporting requirements(a)Scope. This section provides procedural and reporting requirements that must be satisfied under § 1.721(c)-3(b)(3) of the gain deferral method. Paragraph (b) of this section describes the procedural and reporting requirements of a U.S. transferor. Paragraph (c) of this section describes information required to be reported with respect to related foreign persons and partnerships. Paragraph (d) of this section describes the procedural and reporting requirements of a section 721(c) partnership with a section 6031 filing obligation. Paragraph (e) of this section provides the proper signatory for the information provided under this section. Paragraph (f) of this section provides relief for certain failures to comply that are not willful. Paragraph (g) of this section provides the dates of applicability. For definitions that apply for purposes of this section, see § 1.721(c)-1(b) .(b)Procedural and reporting requirements of a U.S. transferor - (1)In general. This paragraph (b) describes the procedural and reporting requirements that a U.S. transferor (as defined § 1.721(c)-1(b)(18)(i) ) must satisfy in applying the gain deferral method. The information required under this paragraph (b) must be included with the U.S. transferor's timely filed return on (or attached to) the appropriate forms or schedules (or their successors) and must be submitted in the form and manner and to the extent prescribed by the forms and schedules (and their accompanying instructions).(2)Reporting of a gain deferral contribution. A U.S. transferor must report the following information with respect to a gain deferral contribution: (i) On Schedule A-1, Certain Foreign Partners, Schedule A-2, Foreign Partners of Section 721(c) Partnership, Schedule G, Statement of Application of the Gain Deferral Method Under Section 721(c), and Schedule H, Acceleration Events and Exceptions Reporting Relating to Gain Deferral Method Under Section 721(c) (for each such Schedule, with respect to Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships), as applicable, the following information with respect to the section 721(c) property-(A) A description of the property and recovery period (or periods) for the property;(B) Whether the property is an intangible described in section 197(f)(9);(C) A calculation of the built-in gain, the basis, and fair market value on the date of the contribution, including the amount of gain recognized by the U.S. transferor, if any, on the gain deferral contribution;(D) The name, U.S. taxpayer identification number (if any), address, and country of organization (if any) of each direct or indirect partner in the section 721(c) partnership that is a related person with respect to the U.S. transferor, and a description of each partner's interest in capital and profits immediately after the gain deferral contribution; and(E) When the section 721(c) property is a partnership interest, the information described in paragraphs (b)(2)(i)(A) through (D) of this section with respect to each property of a lower-tier partnership to which the gain deferral method is applied under § 1.721(c)-3(d)(1) ;(ii) On Form 8838-P, Consent To Extend the Time To Assess Tax Pursuant to the Gain Deferral Method (Section 721(c)), an extension of the period of limitations on the assessment of tax as described in paragraph (b)(5) of this section;(iii) A copy of the waiver of treaty benefits described in paragraph (c)(1) of this section (if any);(iv) On Schedule A-1, Schedule A-2, and Schedule G (for each such Schedule, with respect to Form 8865), as applicable, information relating to the section 721(c) partnership described in paragraph (c)(2) of this section (if any);(v) On, Schedule O, Transfer of Property to a Foreign Partnership (Form 8865) with respect to any foreign partnership, (or partnership treated as foreign under paragraph (b)(4) of this section), the information required under § 1.6038B-2(c)(1) through (7) ; and(vi) The information required under paragraph (b)(3) of this section.(3)Annual reporting relating to gain deferral method. A U.S. transferor must annually report information for each gain deferral contribution. The information reported must be with respect to the partnership taxable year that ends with, or within, the taxable year of the U.S. transferor, beginning with the partnership's taxable year that includes the date of the gain deferral contribution and ending with the last taxable year in which the gain deferral method is applied to the section 721(c) property. The information reported must include: (i) For each deferral contribution, the U.S. transferor must report the following information on Schedule G and Schedule H (for each Schedule, with respect to Form 8865), as applicable: (A) The amount of book income, gain, deduction, and loss and tax items allocated to the U.S. transferor with respect to the section 721(c) property, including a description of any regulatory allocations;(B) The proportion (expressed as a percentage) in which the book income, gain, deduction, and loss with respect to the section 721(c) property was allocated among the U.S. transferor and related persons that are partners in the section 721(c) partnership under the consistent allocation method;(C) The amount of remaining built-in gain at the beginning of the taxable year, the remedial income allocated to the U.S. transferor under the remedial allocation method, the amount of built-in gain taken into account by reason of an acceleration event or partial acceleration event (if any), the partnership's adjustment to its tax basis in the section 721(c) property, and the remaining built-in gain at the end of the taxable year;(D) A declaration stating whether an acceleration event or partial acceleration event occurred during the taxable year, the date of the event, and a description of the event (including a citation to the relevant paragraph of § 1.721(c)-5(d) in the case of a partial acceleration event, and whether the acceleration event is described in § 1.721(c)-4(b)(4) );(E) A description of a termination event or any successor event that occurred during the taxable year with a citation to the relevant paragraph of § 1.721(c)-5(b) or (c) , the date of the event, and, in the case of a successor event, the name, address, and U.S. taxpayer identification number (if any) of any successor partnership, lower-tier partnership, upper-tier partnership, or U.S. corporation (as applicable);(F) A description of all transfers of section 721(c) property to a foreign corporation described in § 1.721(c)-5(e) that occurred during the taxable year, and for each transfer, the date of the transfer, the section 721(c) property transferred, and the name, address, and U.S. taxpayer identification number (if any) of the foreign transferee corporation; and(G) With respect to section 721(c) property for which a waiver of treaty benefits was filed under paragraph (b)(2)(iii) of this section, a declaration that, after exercising reasonable diligence, to the best of the U.S. transferor's knowledge and belief, all income from the section 721(c) property allocated to the partners during the taxable year remained subject to taxation as income effectively connected with the conduct of a trade or business within the United States (under either section 871 or 882) for all direct or indirect partners that are related foreign persons with respect to the U.S. transferor (regardless of whether any such partner was a partner at the time of the gain deferral contribution), and, that neither the partnership nor any such partner has made any claim under any income tax convention to an exemption from U.S. income tax or a reduced rate of U.S. income taxation on income derived from the use of the section 721(c) property;(ii) On Form 8838-P, an extension of the period of limitations on the assessment of tax, in the case of a gain deferral contribution, as described in paragraph (b)(5)(ii) of this section, and, in the case of certain contributions on which gain is recognized, as described in paragraph (b)(5)(iii) of this section;(iii) If the section 721(c) partnership is a partnership that does not have a filing obligation under section 6031, the information described in § 1.6038-3(g) (contents of information returns required of certain United States persons with respect to controlled foreign partnerships), if not already reported elsewhere, without regard to whether the section 721(c) partnership is a controlled foreign partnership within the meaning of section 6038. If the U.S. transferor is not a controlling fifty-percent partner (as defined in § 1.6038-3(a) ), the U.S. transferor complies with the requirement of this paragraph (b)(3)(iii) by providing the information described in § 1.6038-3(g)(1) ;(iv) On Schedule O (Form 8865), a description of all section 721(c) property contributed by the U.S. transferor to the section 721(c) partnership (including pursuant to a contribution described in § 1.721(c)-2(d)(1) ) during the taxable year to which the gain deferral method is not applied; and(v) The information required in paragraphs (c)(2) and (3) of this section for related foreign persons that are direct or indirect partners in the section 721(c) partnership and the section 721(c) partnership itself (if any).(4)Domestic partnerships treated as foreign. Solely for purposes of this section, a U.S. transferor must treat a domestic section 721(c) partnership as a foreign partnership if the partnership was formed on or after January 18, 2017. If the section 721(c) partnership has an information return filing obligation under section 6031, that requirement is not affected by the requirement of this paragraph (b)(4) that the U.S. transferor treat the partnership as a foreign partnership.(5)Extension of period of limitations on assessment of tax. In order to comply with the gain deferral method, a U.S. transferor must extend the period of limitations on the assessment of tax using Form 8838-P: (i) With respect to the gain realized but not recognized on a gain deferral contribution, through the date that is 96 months after the close of the U.S. transferor's taxable year that includes the date of the gain deferral contribution;(ii) With respect to all book and tax items with respect to the section 721(c) property allocated to the U.S. transferor in the partnership's taxable year that includes the date of the gain deferral contribution and the subsequent two years, through the date that is 72 months after the close of such taxable year with which, or within which, the partnership's taxable year ends; and(iii) With respect to the gain recognized on a contribution of section 721(c) property to a section 721(c) partnership for which the gain deferral method is not applied, if the contribution occurs within five partnership taxable years following a partnership taxable year that includes the date of a gain deferral contribution, through the date that is 60 months after the close of the U.S. transferor's taxable year that includes the date of the contribution on which gain is recognized.(c)Information with respect to section 721(c) partnerships and related foreign persons - (1)Effectively connected income. If the gain deferral method is applied with respect to a contribution of section 721(c) property that satisfies the condition in § 1.721(c)-3(b)(1)(ii) , the U.S. transferor must obtain a statement from the section 721(c) partnership and from each related foreign person that is a direct or indirect partner in the section 721(c) partnership, titled "Statement of Waiver of Treaty Benefits under § 1.721(c)-6 ," pursuant to which the partner and the partnership waive any claim under any income tax convention (whether or not currently in force at the time of the contribution) to an exemption from U.S. income tax or a reduced rate of U.S. income taxation on income derived from the use of the section 721(c) property for the period during which the section 721(c) property is subject to the gain deferral method.(2)Partnerships in tiered-partnership structures applying the gain deferral method. If the gain deferral method is applied as a result of a transaction described in § 1.721(c)-3(d) , the U.S. transferor must supply all the information that a section 721(c) partnership would be required to report under paragraph (b) of this section if the section 721(c) partnership were a U.S. transferor.(3)Schedules K-1 for related foreign partners. If a section 721(c) partnership does not have a filing obligation under section 6031, the U.S. transferor must obtain a Schedule K-1 (Form 8865), Partner's Share of Income, Deduction, Credits, etc., for all related foreign persons that are direct or indirect partners in the section 721(c) partnership.(d)Reporting and procedural requirements of a section 721(c) partnership with a section 6031 filing obligation - (1)Waiver of treaty benefits. A section 721(c) partnership with a return filing obligation under section 6031 must include its waiver of treaty benefits described in paragraph (c)(1) of this section with its tax return for the taxable year that includes the date of the gain deferral contribution.(2)Information on Schedule K-1. A section 721(c) partnership with a return filing obligation under section 6031 must provide the relevant information necessary for the U.S. transferor to comply with the requirements in paragraphs (b)(2) and (3) of this section (using the Forms and Schedules specified in paragraphs (b)(2) and (3) of this section) with the U.S. transferor's Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. The partnership must also attach a Schedule K-1 (Form 1065) to its Form 1065 for each direct or indirect partner that is a related foreign person with respect to the U.S. transferor.(e)Signatory. Any statements required in this section must be signed under penalties of perjury by an agent of the U.S. transferor, the related foreign person that is a direct or indirect partner in the section 721(c) partnership, or the section 721(c) partnership, as applicable, that is authorized to sign under a general or specific power of attorney, or by an appropriate party. For the U.S. transferor, an appropriate party is a person described in § 1.367(a)-8(e)(1) . For a partnership with a section 6031 filing obligation, an appropriate party is any party authorized to sign Form 1065.(f)Relief for certain failures to file or failures to comply that are not willful - (1)In general. This paragraph (f)(1) provides relief from the failure to comply with the procedural and reporting requirements of the gain deferral method prescribed by § 1.721(c)-3(b)(3) and provided in paragraph (b) of this section if there is a failure to file or to include information required by this section (failure to comply). A failure to comply will be deemed not to have occurred for purposes of § 1.721(c)-3(b)(3) if the U.S. transferor demonstrates that the failure was not willful using the procedure provided in this paragraph (f). For purposes of this paragraph (f), willful is to be interpreted consistent with the meaning of that term in the context of other civil penalties, which would include a failure due to gross negligence, reckless disregard, or willful neglect. Whether a failure to comply was willful will be determined by the Director of Field Operations, Cross Border Activities Practice Area of Large Business & International (or any successor to the roles and responsibilities of such position, as appropriate) (Director) based on all the facts and circumstances. The U.S. transferor must submit a request for relief and an explanation as provided in paragraph (f)(2) of this section. A U.S. transferor whose failure to comply is determined not to be willful under this paragraph (f) will be subject to a penalty under section 6038B if it fails to satisfy the applicable reporting requirements under that section and does not demonstrate that the failure was due to reasonable cause and not willful neglect. See § 1.6038B-2(h) . The determination of whether the failure to comply was willful under this section has no effect on any request for relief made under § 1.6038B-2(h) .(2)Procedures for establishing that a failure to comply was not willful - (i)Time and manner of submission. A U.S. transferor's statement that a failure to comply was not willful will be considered only if, promptly after the U.S. transferor becomes aware of the failure, an amended return is filed for the taxable year to which the failure relates that includes the information that should have been included with the original return for such taxable year or that otherwise complies with the rules of this section as well as a written statement explaining the reasons for the failure to comply. The U.S. transferor also must file, with the amended return, a Schedule O (Form 8865) and Form 8838-P (as described in paragraph (b)(5) of this section), completed and executed as prescribed in forms and instructions, consenting to extend the period of limitations on assessment of tax with respect to the gain realized but not recognized on the gain deferral contribution to the later of the date that is 96 months after the close of the U.S. transferor's taxable year that includes the date of the gain deferral contribution (date one), or the date that is 36 months after the date on which the required information is provided to the Director (date two). However, the U.S. transferor is not required to file a Schedule O (Form 8865), with the amended return if both date one is later than date two and a consent to extend the period of limitations on assessment of tax with respect to the gain realized but not recognized on the gain deferral contribution for the U.S. transferor's taxable year that includes the date of the contribution was previously submitted with a Schedule O (Form 8865). The amended return and either a Schedule O (Form 8865) or a copy of the previously filed Schedule O (Form 8865), as the case may be, must be filed with the Internal Revenue Service at the location where the U.S. transferor filed its original return. The U.S. transferor may submit a request for relief from the penalty under section 6038B as part of the same submission. See § 1.6038B-2(h)(3) .(ii)Notice requirement. In addition to the requirements of paragraph (f)(2)(i) of this section, the U.S. transferor must comply with the notice requirements of this paragraph (f)(2)(ii). If any taxable year of the U.S. transferor is under examination when the amended return is filed, a copy of the amended return must be delivered to the Internal Revenue Service personnel conducting the examination. If no taxable year of the U.S. transferor is under examination when the amended return is filed, a copy of the amended return must be delivered to the Director.(g)Applicability dates -(1)In general. Except as provided in paragraphs (g)(2) and (3) of this section, this section applies with respect to contributions occurring on or after January 18, 2017, and with respect to contributions that occurred before January 18, 2017 resulting from an entity classification election made under § 301.7701-3 of this chapter that was effective on or before January 18, 2017 but was filed on or after January 18, 2017.(2)Reporting relating to effectively connected income. Paragraphs (b)(2)(iii), (b)(3)(i)(G), and (d)(1) of this section apply to a contribution occurring on or after August 6, 2015, and to a contribution that occurred before August 6, 2015 resulting from an entity classification election made under § 301.7701-3 of this chapter that was effective on or before August 6, 2015 but was filed on or after August 6, 2015, and, in either case, provided § 1.721(c)-3(b)(1)(ii) applies to the contribution. To the extent that a previously filed return did not comply with paragraph (b)(2)(iii), (b)(3)(i)(G), or (d)(1) of this section, an amended return complying with such paragraphs must have been filed no later than July 18, 2017.(3)Transition rules - (i)Reporting under sections 6038, 6038B, and 6046A. For transfers occurring on or after August 6, 2015, and for transfers that occurred before August 6, 2015 resulting from an entity classification election made under § 301.7701-3 of this chapter that was effective on or before August 6, 2015 but was filed on or after August 6, 2015, a U.S. transferor (or a domestic partnership in which a U.S. transferor is a direct or indirect partner) must fulfill any reporting requirements imposed under sections 6038, 6038B, and 6046A with respect to the contribution of the section 721(c) property to the section 721(c) partnership.(ii)Reporting using statements instead of prescribed forms and schedules. For tax returns filed before July 17, 2020, reporting that met the requirements of § 1.721(c)-6T (see 26 CFR part 1, revised as of April 1, 2019) as in effect before January 1, 2020, will be deemed to satisfy the corresponding requirements of this section.T.D. 9891, 85 FR 3846 , Jan. 23, 2020; 85 FR 8726 , Feb. 18, 2020 T.D. 9891, 85 FR 3844 , 1/23/2020; 85 FR 8726 , 2/18/2020