# Carryover of earnings and profits and foreign income taxes in certain foreign-to-foreign non-recognition transactions.
**AGENCY:**
Internal Revenue Service (IRS), Treasury.
**ACTION:**
Correcting amendments.
**SUMMARY:**
This document contains correction to final regulations (TD 9273) that were published in the *Federal Register* on Tuesday, August 8, 2006 (71 FR 44887) addressing the carryover of certain tax attributes, such as earnings and profits and foreign income tax accounts, when two corporations combine in a corporate reorganization or liquidation that is described in both section 367(b) and section 381 of the Internal Revenue Code.
**DATES:**
The correction is effective August 8, 2006.
**FOR FURTHER INFORMATION CONTACT:**
Jeffrey L. Parry, (202) 622-3850 (not a toll-free number).
**SUPPLEMENTARY INFORMATION:**
**Background**
The final regulations that are the subject of this correction are under sections 367(b) and 381 of the Internal Revenue Code.
**Need for Correction**
As published, final regulations (TD 9273) contain errors that may prove to be misleading and are in need of clarification.
**List of Subjects in 26 CFR Part 1**
Income taxes, Reporting and recordkeeping requirements.
**26 CFR Part 1**
**Correction of Publication**
Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments:
**PART 1—INCOME TAXES**
*Paragraph 1.* The authority citation for part 1 continues to read, in part, as follows:
**Authority:**
26 U.S.C. 7805 * * *
**26 CFR Part 1**
*Par. 7.* Section 1.367(b)-7(f)(1)(iii)
*Example 1* (iii) is amended by revising the last sentence of paragraph (A) and paragraph (B) to read as follows:
§ 1.367(b)-7
(f) * * *
(1) * * *
(iii) * * *
*Example 1* * * *
(A) * * * The 100u offset under section 952(c)(1)(B) does not result in a reduction of the hovering deficit for purposes of section 316 or section 902.
(B) Foreign surviving corporation A's 100u of subpart F income not included in income by USP will accumulate and be added to its post-1986 undistributed earnings as of the beginning of 2009. This 100u of post-transaction earnings will be offset by the (100u) hovering deficit. Because the amount of earnings offset by the hovering deficit is 100% of the total amount of the hovering deficit, all $25 of the related taxes are added to the post-1986 foreign income taxes pool as well. Accordingly, foreign surviving corporation A has the following post-1986 undistributed earnings and post-1986 foreign income taxes on January 1, 2009:
| Separate category | Earnings & profits | Positive E&P | Hovering deficit | Foreign taxes | Foreign taxes | Foreign taxes associated with hovering deficit |
| --- | --- | --- | --- | --- | --- | --- |
| General | 0u | (0u) | $45 | $0 | | |
LaNita Van Dyke,
Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration).