Rp 2001-37

(2) Each Feeder Fund contributes
only cash and/or a portfolio of diversified
stocks and securities that satisfies the 25
and 50 percent tests of § 368(a)(2)(F)(ii)
in exchange for beneficial interests in the
Master Portfolio;
(3) Each partner in the Master Portfolio that is an investment advisor, principal
underwriter, or manager, contributes only
cash and/or services in exchange for beneficial interests in the Master Portfolio;
(4) The Master Portfolio is treated as
a partnership for federal tax purposes and
qualifies as a securities partnership under
§ 1.704–3(e)(3)(iii);
(5) Each Feeder Fund is a publicly
offered regulated investment company, as
defined in § 67(c)(2)(B) and § 1.67–2T
(g)(3)(iii);
(6) The Master Portfolio is registered
as an investment company under the 1940
Act.
(7) The Master Portfolio makes
§ 704(c) and reverse § 704(c) allocations
under the partial netting approach or the
full netting approach as described in
§ 1.704–3(e)(3)(iv) or § 1.704–3(e)(3)(v),
respectively, and;
(8) The contributions to the Master
Portfolio and the corresponding allocations of tax items with respect to the property contributed to the Master Portfolio
are not made with a view to shifting the
tax consequences of built-in gain or loss
among the partners in a manner that substantially reduces the present value of the
partners’ aggregate tax liability.
SECTION 5. INFORMATION
REQUIRED FOR RULING REQUESTS
BY SECURITIES PARTNERSHIPS
THAT DO NOT QUALIFY FOR
AUTOMATIC PERMISSION
.01 In general. This section describes
the information and representations that a
securities partnership not described in
section 4 of this revenue procedure must
submit when requesting a ruling permitting the aggregation of built-in gains and
losses from contributed property for purposes of making § 704(c) and reverse
§ 704(c) allocations. Taxpayers should be
aware that additional information may be
required. See also section 8 of Rev. Proc.
2001–1, 2001–1 I.R.B. 1 (or its successor), which outlines the general requirements concerning the information to be
submitted as part of a ruling request.

2001–23 I.R.B.

.02 Representations. The ruling request
must include the following representations:
(1) The partnership qualifies as a
“securities partnership” as defined in
§ 1.704–3(e)(3)(iii);
(2) The partnership will make revaluations at least annually in accordance
with § 1.704–3(e)(3)(iii)(B)(2)(ii);
(3) The burden of making § 704(c)
allocations separately from reverse
§ 704(c) allocations is substantial; and
(4) The partnership’s contributions,
revaluations, and the corresponding allocations of tax items are not made with a
view to shifting the tax consequences of
built-in gain or loss among the partners in
a manner that would substantially reduce
the present value of the partners’ aggregate tax liability.
.03 Information. The following information must be submitted with the ruling
request:
(1) An explanation of the business
and tax reasons for the formation of the
partnership;
(2) A detailed description of each
partner;
(3) A detailed description of each
type of property to be contributed including its fair market value and adjusted
basis;
(4) The aggregate fair market value
and adjusted basis of the property to be
contributed;
(5) The aggregate gross built-in
gains and aggregate gross built-in losses
in the property to be contributed;
(6) A representation that the partner
is contributing all of its assets to the partnership or an explanation as to how the
assets to be contributed to the partnership
were chosen;
(7) A description of the aggregation
method that the partnership will use;
(8) Copies of the partnership’s organizational documents, if available; and
(9) Copies of any proxy statements,
information statements, marketing materials, or prospectuses filed, distributed, or
prepared by the partnership or any of its
partners in connection with the formation
of, or contribution of property to, the partnership.
SECTION 6. EFFECTIVE DATE
.01 In general. Section 4 of this revenue procedure applies to all contribu-

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tions of property as part of a QMFS on or
after June 4, 2001. Section 5 of this revenue procedure applies to all ruling requests pending in the National Office on
June 4, 2001, and to requests received
thereafter.
.02 Transition rule for pending ruling
requests. If a QMFS has filed a request
for a ruling allowing it to aggregate contributed securities for purposes of making
§ 704(c) and reverse § 704(c) allocations
and that ruling request is pending in the
national office on June 4, 2001, the
QMFS may withdraw that ruling request
and receive a refund of its user fee. However, the national office will process ruling requests pending on June 4, 2001, unless, prior to the earlier of July 19, 2001,
or the issuance of the letter ruling, the
QMFS notifies the national office that it
will withdraw its ruling request.
DRAFTING INFORMATION
The principal author of this revenue
procedure is Horace Howells of the Office of Associate Chief Counsel
(Passthroughs and Special Industries).
For further information regarding this
revenue procedure, contact Horace Howells at (202) 622-3050 (not a toll-free
call).
26 CFR 601.105: Examination of returns and
claims for refund; determination of correcttax
liability.
(Also Part I, sections 942, 943.)

Rev. Proc. 2001–37
SECTION 1. PURPOSE
This revenue procedure provides guidance to taxpayers regarding certain elections made pursuant to the FSC Repeal
and Extraterritorial Income Exclusion Act
of 2000 (the “Act”). Pub. L. No.
106–519, 114 Stat. 2423 (Nov. 15, 2000).
Specifically, this revenue procedure includes guidance with respect to the election to exclude gross receipts from foreign trading gross receipts under
§ 942(a)(3) of the Internal Revenue Code
(“Code”), the election (and revocation of
such election) by a foreign corporation to
be treated as a domestic corporation under
§ 943(e)(1), and the election (and revocation of such election) by a taxpayer to
apply the extraterritorial income exclu-

June 4, 2001

sion (the “ETI exclusion”) in lieu of the
foreign sales corporation (“FSC”) provisions to certain transactions under
§ 5(c)(2) of the Act.
SEC. 2. BACKGROUND
.01 On November 15, 2000, the Act
was signed into law, repealing the FSC
provisions of §§ 921 through 927 effective October 1, 2000, and amending the
definition of gross income to exclude certain extraterritorial income.
.02 The amendments to the Code made
by the Act apply to all transactions entered into after September 30, 2000. Section 943(b)(1) defines the term “transaction” as “any sale, exchange, or other
disposition . . . any lease or rental, and . . .
any furnishing of services.”
.03 Section 5(c)(1) of the Act provides
a transition rule for FSCs in existence on
September 30, 2000, whereby the FSC
provisions remain applicable to FSC
transactions for a limited transition period.
.04 The Act contains several taxpayer
elections. First, a taxpayer may elect to
exclude the gross receipts from a transaction or transactions from its “foreign trading gross receipts” in any taxable year
under § 942(a)(3). Second, certain foreign corporations may elect to be treated
as domestic corporations under § 943
(e)(1). Third, a taxpayer may elect under
§ 5(c)(2) of the Act to apply the ETI exclusion provisions in lieu of the FSC provisions to certain transactions otherwise
covered by the transition rules.
SEC. 3. FORM 8873
(“EXTRATERRITORIAL INCOME
EXCLUSION”)
A taxpayer that reports extraterritorial
income on its income tax return calculates
its ETI exclusion with respect to that income on Form 8873 (“Extraterritorial Income Exclusion”). Such taxpayer must
attach a completed Form 8873 to its income tax return.
SEC. 4. ELECTION TO EXCLUDE
CERTAIN GROSS RECEIPTS FROM
FOREIGN TRADING GROSS
RECEIPT
A taxpayer may elect to exclude gross
receipts from its “foreign trading gross receipts” in any taxable year under

June 4, 2001

§ 942(a)(3). A taxpayer makes a § 942
(a)(3) election on a transaction-by-transaction basis. A taxpayer makes such election by checking the box on line 1 in Part
I of Form 8873 and attaching the completed form to its income tax return. In
the case of a partnership, each partner
may make this election with respect to
any transaction for which the partnership
maintains separate accounts. A taxpayer
that excludes some, but not all, of its
gross receipts from foreign trading gross
receipts must attach to its Form 8873 a
tabular schedule that identifies the gross
receipts that are excluded from foreign
trading gross receipts.
SEC. 5. ELECTION BY A FOREIGN
CORPORATION TO BE TREATED AS
A DOMESTIC CORPORATION
.01 Generally. Section 943(e)(1) allows an “applicable foreign corporation”
to elect to be treated as a domestic corporation for all purposes of the Code if that
corporation waives all benefits granted to
it by the United States under any treaty.
Making the election is a prerequisite to
the ETI exclusion under § 943(a)(2) with
respect to property manufactured, produced, grown, or extracted outside the
United States by a foreign corporation. A
corporation that makes a § 943(e)(1) election may not elect to be an S corporation
under § 1362(a).
.02 Who may elect. Pursuant to
§ 943(e)(2), an applicable foreign corporation is any foreign corporation if either:
(1) it manufactures, produces,
grows, or extracts property in the ordinary
course of the corporation’s trade or business, or
(2) substantially all of its gross receipts are foreign trading gross receipts.
03 Period of election. A § 943(e)(1)
election applies to the taxable year for
which made and to all subsequent years
unless revoked by the taxpayer pursuant
to § 943(e)(3)(A) or terminated pursuant
to § 943(e)(3)(B). A § 943(e)(1) election
may be filed after September 30, 2000,
but cannot be effective for any taxable
year beginning before October 1, 2000.
.04 Method of election. A corporation
makes a § 943(e)(1) election by checking
the box on line 3 in Part I of Form 8873
and attaching the completed form to a
timely filed Form 1120 (“U.S. Corporation Income Tax Return”) (including ex-

1328

tensions) for the first taxable year of the
election.
.05 Where return is filed. A foreign
corporation that makes a § 943(e)(1) election but does not become a member of a
consolidated group under § 1501 as a result of such election shall file its Form
1120 at the applicable Service Center address listed in the “Where To File” section
of the instructions for Form 1120. If a
foreign corporation makes a § 943(e)(1)
election and becomes a member of a consolidated group under § 1501 as a result
of such election, the common parent of
such group shall include the corporation
that made the § 943(e)(1) election in its
consolidated return (Form 1120) for the
group.
.06 Revocation of election. A corporation may revoke a § 943(e)(1) election by
filing a statement that the election is revoked. The revocation statement shall be
entitled “Revocation of Election under
Section 943(e)(1) to be Treated as a Domestic Corporation – Filed Pursuant to
[citation of this revenue procedure]”
and shall include the corporation’s name,
address, employer identification number,
and contact phone number, and a statement that the taxpayer revokes its election
under § 943(e)(1). The revocation statement shall be signed by any person authorized to sign a corporate return under
§ 6062. The corporation shall file such
revocation statement with the same Service Center (“Attn: Entity Control”) with
which the corporation files its income tax
return as determined under § 5.05 of this
revenue procedure. Once properly filed,
the revocation of a § 943(e)(1) election is
automatic and applies to taxable years beginning on or after the date the revocation
statement is filed.
.07 Termination of election. If a corporation that made a § 943(e)(1) election in
any taxable year meets neither of the requirements described in § 5.02 of this revenue procedure for any subsequent taxable year, the election will not apply to
taxable years beginning after such subsequent taxable year.
.08 Effect of termination or revocation.
If a corporation that made a § 943(e)(1)
election revokes the election or the election is terminated, that corporation (and
any successor corporation) may not make
another § 943(e)(1) election for five taxable years beginning with the first taxable

2001–23 I.R.B.

year for which the original election is not
in effect as a result of the revocation or
termination.
.09 Effect of election by FSCs. A FSC
that elects to be treated as a domestic corporation under § 943(e)(1) is not treated
as a FSC for any year for which such election applies and for all subsequent years.
.10 Effect of election for purposes of
section 367.
(1) Except as provided in § 5.10(2)
of this revenue procedure, a foreign corporation that makes a § 943(e)(1) election
is treated, for purposes of § 367, as transferring, on the first day of the first taxable
year to which the election applies, all of
its assets to a domestic corporation in
connection with an exchange described in
§ 354.
(2) In the case of a foreign corporation described in § 5(c)(3) of the Act that
makes a § 943(e)(1) election, earnings
and profits (“E&P”) accumulated in taxable years ending before October 1, 2000,
are not included in the gross income of its
shareholders by reason of such election.
This rule does not apply to E&P acquired
by the foreign corporation in a transaction
after September 30, 2000, that is subject
to § 381, unless the E&P would have
qualified for the exclusion under § 5(c)(3)
of the Act in the hands of the transferor or
distributor. Rules similar to rules under
§ 953(d)(4)(B)(ii) through (iv) shall apply
to E&P not included in gross income
under § 5(c)(3) of the Act.
.11 Effect of revocation or termination
for purpose of section 367. If a corporation’s § 943(e)(1) election ceases to apply
because it is revoked or terminated, then,
for purposes of § 367, such corporation
shall be treated as a domestic corporation
transferring all of its assets to a foreign
corporation in connection with an exchange to which § 354 applies on the first
day of the first taxable year to which the
election ceases to apply.
SEC. 6. TRANSITION RULES;
ELECTION TO APPLY
EXTRATERRITORIAL INCOME
EXCLUSION PROVISIONS IN LIEU
OF FSC PROVISIONS
.01 FSC elections. After September 30,
2000, no corporation may elect to be a
FSC under § 922(a)(2). For purposes of
the transition rule, a FSC election is
deemed to occur upon the formation of an

2001–23 I.R.B.

otherwise eligible electing corporation,
provided that the corporation makes the
election within 90 days of formation pursuant to the requirements of § 1.921–1T
(b)(1) of the Income Tax Regulations.
.02 Termination of inactive FSCs. If a
FSC has no foreign trade income (as defined in former § 923(b)) for any period
of five consecutive taxable years beginning after December 31, 2001, such FSC
will no longer be treated as a FSC for any
taxable year beginning after such fiveyear period.
.03 Transition period for existing
FSCs. In general, the Act repeals the
FSC provisions for transactions entered
into after September 30, 2000. However,
§ 5(c)(1) of the Act provides that the
FSC provisions continue to apply for a
limited time period with respect to certain transactions entered into in the ordinary course of business involving a FSC
in existence on September 30, 2000.
Specifically, the FSC provisions continue to apply to transactions involving a
FSC and occurring:
(1) before January 1, 2002, or
(2) after December 31, 2001, pursuant to a binding contract which is in effect on September 30, 2000, and thereafter, and which is between the FSC (or a
person related to the FSC) and a person
other than a related person.
.04 Election to apply extraterritorial
income provisions. In the case of transactions occurring after September 30, 2000,
for which the FSC provisions continue to
apply pursuant to § 5(c)(1) of the Act, a
taxpayer may elect under § 5(c)(2) of the
Act to apply the ETI exclusion provisions
in lieu of the FSC provisions. A taxpayer
makes a § 5(c)(2) election on a transaction-by-transaction basis. Such election
with respect to a transaction is effective
for the taxable year for which made and
all subsequent taxable years.
.05 Method of election. A § 5(c)(2)
election is made by checking the box on
line 2 in Part I of Form 8873 on which the
taxpayer determines its ETI exclusion and
attaching the completed form to the taxpayer’s timely filed income tax return (including extensions) for the first taxable
year of the election. As set forth in Form
8873 and the accompanying instructions,
the taxpayer shall attach to Form 8873 a
tabular schedule that identifies the transactions for which the taxpayer has elected

1329

ETI exclusion treatment pursuant to
§ 5(c)(2) of the Act.
.06 Method of revocation. A taxpayer
may revoke a § 5(c)(2) election with respect to a transaction only with the consent of the Secretary of the Treasury. To
request consent for a § 5(c)(2) revocation,
the taxpayer shall file a statement entitled
“Revocation of Election under Section
5(c)(2) of the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 –
Filed Pursuant to [citation of this revenue procedure]” requesting revocation
of the § 5(c)(2) election. Until regulations are issued, such statement shall include the name, address, taxpayer identification number, and contact phone
number of the taxpayer, the Service Center with which the taxpayer filed its last
income tax return, the first taxable year of
the taxpayer for which the revocation is to
be effective, and reasons justifying the
granting of consent for the § 5(c)(2) revocation. In addition, the statement shall indicate the transactions to which the request for consent to revoke the § 5(c)(2)
election applies. The statement shall be
signed by, or on behalf of, the taxpayer requesting consent by an individual with
authority to bind the taxpayer in such
matters. The taxpayer shall file such
statement with Internal Revenue Service,
1111 Constitution Ave. NW, LMSB Mint
Bldg., Room M3-333 LM:PFT:I, Washington, DC 20224. A § 5(c)(2) revocation
applies to taxable years beginning after
the year in which such revocation is requested.
SEC. 7. EFFECTIVE DATE
This revenue procedure is effective October 1, 2000.
SEC. 8. DRAFTING INFORMATION
The principal author of this revenue
procedure is Christopher J. Bello of the
Office of Associate Chief Counsel (International). For further information regarding this revenue procedure, contact Mr.
Bello at (202) 874-1490 (not a toll-free
call).
SEC. 9. PAPERWORK REDUCTION
ACT
The collections of information contained in this revenue procedure have
been reviewed and approved by the Of-

June 4, 2001

fice of Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1731.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the collection of information displays a valid
OMB control number.
The collections of information in this
revenue procedure are in §§ 3, 4, 5, and 6.
The collections in §§ 4, 5 and 6 are required for a taxpayer that elects to exclude some, but not all, of its gross receipts from foreign trading gross receipts
for purposes of the ETI exclusion provisions; for a corporation subject to an elec-

June 4, 2001

tion to be treated as a domestic corporation to revoke such election; for a taxpayer that elects to apply the ETI exclusion provisions to its transactions in lieu
of the FSC provisions; and for a taxpayer
subject to an election to apply the ETI exclusion provisions, in lieu of the FSC provisions, to revoke such election. The
likely respondents are businesses.
The estimated total annual reporting
burden in §§ 5.06 and 6.06 with respect to
the revocation of the above elections is 19
hours. The estimated annual burden per
respondent is 20 minutes. The estimated
number of respondents is 56. The estimated annual frequency of responses is
once.

1330

The estimated average annual burden
per respondent required in §§ 3, 4, 5.04,
and 6.05 is reflected in the burden of
Form 8873.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.

2001–23 I.R.B.