In response to the liquidity crisis, which has made it difficult for taxpayers to fund their operations, the IRS issued Notice 2008-91 on October 3, 2008, temporarily expanding the short-term financing exception to Sec. 956, which will permit corporations to access cash from their controlled foreign corporations (CFCs) without having an income inclusion for U.S. tax purposes. Since the Service did this to facilitate liquidity in the near term, the new exclusion rules apply only for the first two tax years of a foreign corporation ending after October 3, 2008. For calendar-year corporations, the notice is applicable to tax years 2008 and 2009.
Generally, a loan from a CFC to its U.S. shareholder is treated as the acquisition of an obligation of a U.S. person by the CFC—that is, an investment in U.S. property that may result in an income inclusion by the U.S. shareholder under Sec. 951. Notice 88-108 provided an exception for short-term loans repaid within 30 days, as long as the CFC does not hold obligations that would be investments for more than 60 days during the year.
Notice 2008-91 expands the earlier notice by providing for two tax years (generally 2008 and 2009) the short-term financing exception to (and allowing the CFC to elect to exclude under Sec. 956 from the definition of "obligation") loans held by the CFC that are repaid within 60 days from the time incurred, as long as the CFC does not hold obligations that would be investments in U.S. property for 180 days or more during the tax year.
The latest rules do not otherwise affect the application of Notice 88-108. A CFC may rely on either notice—applying either the new relaxed rules of Notice 2008-91 or the prior rules contained in Notice 88-108—but not both.