The TEI stated in a recent letter to Eric Solomon, Assistant Secretary of the Treasury for Tax Policy, and Donald L. Korb, IRS Chief Counsel, that while the recent Treasury and IRS notices 88-108 and 2008-91 are both "welcome and appropriate" in the context of the financial liquidity crisis, they believe that additional action is warranted.

On section 956, the letter had this to say:

“Section 956 of the Code generally provides that a US shareholder of a CFC will be taxed on an amount equal to the lesser of (i) the US shareholder’s pro rata share of the average amount of US property held (directly or indirectly) by the CFC as of the close of each quarter of the taxable year, less that portion of the CFC’s earnings and profits previously included in the shareholder’s gross income, or (ii) the shareholder’s pro rata share of the CFC’s applicable earnings. Subsection (c) defines US property to include an obligation of a US person.”

The letter continues, on Notice 88-108:

“Notice 88-108, 1988-2 C.B. 445, provides an exception to section 956 treatment for an obligation that would otherwise be US property if held at the end of the CFC’s quarter in each taxable year.1 This exception for obligations that are collected within 30 days from the time incurred, however, is only available if the CFC did not hold for more than 60 days during the year obligations that would qualify as U.S. property. The notice was issued to accommodate the situation in which a U.S. parent corporation borrows from its foreign affiliates at the end of each quarter to pay down external debt, a practice that permits the US parent to reflect its debt/equity ratio in its financial statement balance sheets more accurately than if it had large amounts of borrowed funds matched by excess funds held by affiliates.”

The letter goes on to discuss Notice 2008-91:

“On October 3, 2008, the IRS issued Notice 2008-91, which permits US shareholders to borrow for up to 60 days from their CFCs without running afoul of section 956, so long as the CFC does not hold the obligations for 180 days or more during its taxable year. Although the notice originally applied in respect of the first two taxable years of a CFC ending after October 3, 2008, yesterday the government added that the notice will not apply to taxable years of CFCs beginning after December 31, 2009.”

The TEI explained that it believes extra relief is warranted.

"Although TEI appreciates the government’s concern, the time limit on the applicability of Notice 2008-91 minimizes any potential abuse. Therefore, TEI recommends that the one-year rule of the prior regulations be reinstated. Alternatively, the 60-day rule in Notice 2008-91 should be eliminated altogether. Thus, only the 180-day rule should apply whereby a CFC may hold obligations from domestic affiliates for up to 180 days in a year," the letter stated.

The letter added, "the relief provided by Notice 2008-91 represents a good first step, but ongoing events require that further relief be provided."

The TEI also wants the Treasury to issue additional guidance further expanding the period of time funds may be lent back to the United States without running afoul of section 956.

"Guidance on the mechanics of the notices is needed. Under the new guidance, a taxpayer may apply either Notice 88-108 or 2008-91, but not both. The notices are silent, however, on how taxpayers elect (and document) that they are claiming the benefits of these notices (or, indeed, not claiming the benefits), as well as whether a taxpayer may elect one notice in the first year and the other notice in the next year," the TEI stated.