Modification of Check the Box, 9220-9222 [05-3587]
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Federal Register / Vol. 70, No. 37 / Friday, February 25, 2005 / Rules and Regulations
and a continuity of business enterprise
are not required for a transaction to
qualify as a reorganization under section
368(a)(1)(E) (E reorganization) or section
368(a)(1)(F) (F reorganization). The
notice also proposed amending § 1.368–
2 to include rules regarding the
requirements for a transaction to qualify
as an F reorganization and regarding the
effects of an F reorganization.
The IRS and Treasury Department
have received oral comments urging that
the rule providing that the continuity of
interest and continuity of business
enterprise requirements do not apply to
E and F reorganizations be finalized
quickly. For the reasons expressed in
the preamble to the proposed
regulations, this Treasury decision
adopts that rule for transactions on or
after February 25, 2005. The IRS and
Treasury Department continue to study
the other issues addressed in the notice
of proposed rulemaking, and welcomes
further comment on those issues.
Effect on Other Documents
The following publications are
obsolete as of February 25, 2005:
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations, and, because these
regulations do not impose a collection
of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Code, the
proposed regulations preceding these
regulations were submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business.
Drafting Information
The principal author of these
regulations is Robert B. Gray of the
Office of Chief Counsel (Corporate).
However, other personnel from the IRS
and Treasury Department participated
in their development.
Income taxes, Reporting and
recordkeeping requirements.
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Accordingly, 26 CFR part 1 is amended
as follows:
I
PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 continues to read in part as
follows:
I
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.368–1(b) is amended
by adding a sentence after the seventh
sentence to read as follows:
I
§ 1.368–1 Purpose and scope of exception
of reorganization exchanges.
*
*
*
*
*
(b) Purpose. * * * Notwithstanding
the requirements of this paragraph (b),
for transactions occurring on or after
February 25, 2005, a continuity of the
business enterprise and a continuity of
interest are not required for the
transaction to qualify as a reorganization
under section 368(a)(1)(E) or (F). * * *
*
*
*
*
*
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
Approved: February 14, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the
Treasury.
[FR Doc. 05–3588 Filed 2–24–05; 8:45 am]
Rev. Rul. 69–516 (1969–2 C.B. 56).
Rev. Rul. 77–415 (1977–2 C.B. 311).
Rev. Rul. 77–479 (1977–2 C.B. 119).
Rev. Rul. 82–34 (1982–1 C.B. 59).
List of Subjects 26 CFR Part 1
Adoption of Amendment to the
Regulations
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[TD 9183]
RIN 1545–BA59
Modification of Check the Box
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulation.
AGENCY:
SUMMARY: This document contains final
regulations that clarify that qualified
REIT subsidiaries, qualified subchapter
S subsidiaries, and single owner eligible
entities that are disregarded as entities
separate from their owners are treated as
separate entities for purposes of any
Federal tax liability for which the entity
is liable. These regulations affect
disregarded entities that are liable for
Federal taxes with respect to tax periods
during which they were not disregarded
or because they are successors or
transferees of taxable entities.
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Effective Date: These regulations
are effective April 1, 2004.
Applicability Dates: For dates of
applicability, see §§ 1.856–9(c), 1.1361–
4(a)(6)(iii), and 301.7701–2(e).
FOR FURTHER INFORMATION CONTACT:
¨
Martin Schaffer, (202) 622–3070 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
DATES:
Background
This document contains amendments
to 26 CFR parts 1 and 301. The
amendments to 26 CFR part 1 are under
sections 856 and 1361 of the Internal
Revenue Code (Code). Section 856(i)
was added by the Tax Reform Act of
1986 (Pub. L. 99–514, 100 Stat. 2085).
Section 1361(b)(3) was added by the
Small Business Job Protection Act of
1996 (Pub. L. 104–188, 110 Stat. 1755).
The amendments to 26 CFR part 301 are
to § 301.7701–2, first promulgated by
TD 8697, 61 FR 66584 (December 18,
1996). On April 1, 2004, a notice of
proposed rulemaking (REG–106681–02)
relating to the taxation of disregarded
entities was published in the Federal
Register (69 FR 17117). A notice of
correction was published in the Federal
Register (69 FR 22463) on April 26,
2004. No comments were received from
the public in response to the notice of
proposed rulemaking. No public hearing
was requested, and accordingly, no
hearing was held. This Treasury
decision adopts the language of the
proposed regulations with only minor
clarifying changes.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. It
also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations and, because the
regulations do not impose a collection
of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Code, the
proposed regulations preceding these
regulations were submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small business.
Drafting Information
The principal author of these
regulations is James M. Gergurich of the
Office of the Associate Chief Counsel
(Passthroughs & Special Industries).
However, other personnel from the IRS
and Treasury Department participated
in their development.
E:\FR\FM\25FER1.SGM
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Federal Register / Vol. 70, No. 37 / Friday, February 25, 2005 / Rules and Regulations
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301
are amended as follows:
I
PART 1—INCOME TAX
Paragraph 1. The authority citation for
part 1 continues to read, in part, as
follows:
I
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.856–9 is added to
read as follows:
I
§ 1.856–9 Treatment of certain qualified
REIT subsidiaries.
(a) In general. A qualified REIT
subsidiary, even though it is otherwise
not treated as a corporation separate
from the REIT, is treated as a separate
corporation for purposes of:
(1) Federal tax liabilities of the
qualified REIT subsidiary with respect
to any taxable period for which the
qualified REIT subsidiary was treated as
a separate corporation.
(2) Federal tax liabilities of any other
entity for which the qualified REIT
subsidiary is liable.
(3) Refunds or credits of Federal tax.
(b) Examples. The following examples
illustrate the application of paragraph
(a) of this section:
Example 1. X, a calendar year taxpayer, is
a domestic corporation 100 percent of the
stock of which is acquired by Y, a real estate
investment trust, in 2002. X was not a
member of a consolidated group at any time
during its taxable year ending in December
2001. Consequently, X is treated as a
qualified REIT subsidiary under the
provisions of section 856(i) for 2002 and later
periods. In 2004, the Internal Revenue
Service (IRS) seeks to extend the period of
limitations on assessment for X’s 2001
taxable year. Because X was treated as a
separate corporation for its 2001 taxable year,
X is the proper party to sign the consent to
extend the period of limitations.
Example 2. The facts are the same as in
Example 1, except that upon Y’s acquisition
of X, Y and X jointly elect under section
856(l) to treat X as a taxable REIT subsidiary
of Y. In 2003, Y and X jointly revoke that
election. Consequently, X is treated as a
qualified REIT subsidiary under the
provisions of section 856(i) for 2003 and later
periods. In 2004, the IRS determines that X
miscalculated and underreported its income
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tax liability for 2001. Because X was treated
as a separate corporation for its 2001 taxable
year, the deficiency may be assessed against
X and, in the event that X fails to pay the
liability after notice and demand, a general
tax lien will arise against all of X’s property
and rights to property.
Example 3. X is a qualified REIT subsidiary
of Y under the provisions of section 856(i).
In 2001, Z, a domestic corporation that
reports its taxes on a calendar year basis,
merges into X in a state law merger. Z was
not a member of a consolidated group at any
time during its taxable year ending in
December 2000. Under the applicable state
law, X is the successor to Z and is liable for
all of Z’s debts. In 2004, the IRS seeks to
extend the period of limitations on
assessment for Z’s 2000 taxable year. Because
X is the successor to Z and is liable for Z’s
2000 taxes that remain unpaid, X is the
proper party to sign the consent to extend the
period of limitations.
(c) Effective date. This section applies
on or after April 1, 2004.
I Par. 3. Section 1.1361–4 is amended as
follows:
I 1. In paragraph (a)(1) introductory text,
the first sentence is amended by
removing the language ‘‘paragraph
(a)(3)’’ and adding ‘‘paragraphs (a)(3) and
(a)(6)’’ in its place.
I 2. Paragraph (a)(6) is added.
The additions read as follows:
§ 1.1361–4
Effect of QSub election.
(a) * * *
(6) Treatment of certain QSubs—(i) In
general. A QSub, even though it is
generally not treated as a corporation
separate from the S corporation, is
treated as a separate corporation for
purposes of:
(A) Federal tax liabilities of the QSub
with respect to any taxable period for
which the QSub was treated as a
separate corporation.
(B) Federal tax liabilities of any other
entity for which the QSub is liable.
(C) Refunds or credits of Federal tax.
(ii) Examples. The following
examples illustrate the application of
paragraph (a)(6)(i) of this section:
Example 1. X has owned all of the
outstanding stock of Y, a domestic
corporation that reports its taxes on a
calendar year basis, since 2001. X and Y do
not report their taxes on a consolidated basis.
For 2003, X makes a timely S election and
simultaneously makes a QSub election for Y.
In 2004, the Internal Revenue Service (IRS)
seeks to extend the period of limitations on
assessment for Y’s 2001 taxable year. Because
Y was treated as a separate corporation for its
2001 taxable year, Y is the proper party to
sign the consent to extend the period of
limitations.
Example 2. The facts are the same as in
Example 1, except that in 2004, the IRS
determines that Y miscalculated and
underreported its income tax liability for
2001. Because Y was treated as a separate
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9221
corporation for its 2001 taxable year, the
deficiency for Y’s 2001 taxable year may be
assessed against Y and, in the event that Y
fails to pay the liability after notice and
demand, a general tax lien will arise against
all of Y’s property and rights to property.
Example 3. X is a QSub of Y. In 2001, Z,
a domestic corporation that reports its taxes
on a calendar year basis, merges into X in a
state law merger. Z was not a member of a
consolidated group at any time during its
taxable year ending in December 2000. Under
the applicable state law, X is the successor
to Z and is liable for all of Z’s debts. In 2003,
the IRS seeks to extend the period of
limitations on assessment for Z’s 2000
taxable year. Because X is the successor to Z
and is liable for Z’s 2000 taxes that remain
unpaid, X is the proper party to execute the
consent to extend the period of limitations on
assessment.
(iii) Effective date. This paragraph
(a)(6) applies on or after April 1, 2004.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 4. The authority citation for part
301 continues to read, in part, as follows:
I
Authority: 26 U.S.C. 7805 * * *
Par. 5. Section 301.7701–2 is amended
as follows:
I 1. Paragraph (c)(2)(iii) is added.
I 2. Paragraph (e) is revised.
The addition and revision read as
follows:
I
§ 301.7701–2
definitions.
Business entities;
*
*
*
*
*
(c) * * *
(2) * * *
(iii) Tax liabilities of certain
disregarded entities—(A) In general. An
entity that is otherwise disregarded as
separate from its owner is treated as an
entity separate from its owner for
purposes of:
(1) Federal tax liabilities of the entity
with respect to any taxable period for
which the entity was not disregarded.
(2) Federal tax liabilities of any other
entity for which the entity is liable.
(3) Refunds or credits of Federal tax.
(B) Examples. The following
examples illustrate the application of
paragraph (c)(2)(iii)(A) of this section:
Example 1. In 2001, X, a domestic
corporation that reports its taxes on a
calendar year basis, merges into Z, a
domestic LLC wholly owned by Y that is
disregarded as an entity separate from Y, in
a state law merger. X was not a member of
a consolidated group at any time during its
taxable year ending in December 2000. Under
the applicable state law, Z is the successor
to X and is liable for all of X’s debts. In 2004,
the Internal Revenue Service (IRS) seeks to
extend the period of limitations on
assessment for X’s 2000 taxable year. Because
Z is the successor to X and is liable for X’s
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Federal Register / Vol. 70, No. 37 / Friday, February 25, 2005 / Rules and Regulations
2000 taxes that remain unpaid, Z is the
proper party to sign the consent to extend the
period of limitations.
Example 2. The facts are the same as in
Example 1, except that in 2002, the IRS
determines that X miscalculated and
underreported its income tax liability for
2000. Because Z is the successor to X and is
liable for X’s 2000 taxes that remain unpaid,
the deficiency may be assessed against Z and,
in the event that Z fails to pay the liability
after notice and demand, a general tax lien
will arise against all of Z’s property and
rights to property.
DEPARTMENT OF THE TREASURY
*
SUMMARY: This document contains final
regulations amending the regulations
under the gift tax special valuation rules
to provide that a unitrust or annuity
interest payable for a specified term of
years to the grantor, or to the grantor’s
estate if the grantor dies prior to the
expiration of the term, is a qualified
interest for the specified term. The final
regulations also clarify that the
exception treating a spouse’s revocable
successor interest as a retained qualified
interest applies only if the spouse’s
annuity or unitrust interest, standing
alone, would constitute a qualified
interest that meets the requirements of
§ 25.2702–3(d)(3), but for the grantor’s
revocation power.
DATES: The regulations are effective July
26, 2004.
FOR FURTHER INFORMATION CONTACT: Juli
Ro Kim (202) 622–3090 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
*
*
*
*
(e) Effective date. (1) Except as
otherwise provided in this paragraph
(e), the rules of this section apply as of
January 1, 1997, except that paragraph
(b)(6) of this section applies on or after
January 14, 2002, to a business entity
wholly owned by a foreign government
regardless of any prior entity
classification, and paragraph (c)(2)(ii) of
this section applies to taxable years
beginning after January 12, 2001. The
reference to the Finnish, Maltese, and
Norwegian entities in paragraph (b)(8)(i)
of this section is applicable on
November 29, 1999. The reference to the
Trinidadian entity in paragraph (b)(8)(i)
of this section applies to entities formed
on or after November 29, 1999. Any
Maltese or Norwegian entity that
becomes an eligible entity as a result of
paragraph (b)(8)(i) of this section in
effect on November 29, 1999, may elect
by February 14, 2000, to be classified for
Federal tax purposes as an entity other
than a corporation retroactive to any
period from and including January 1,
1997. Any Finnish entity that becomes
an eligible entity as a result of paragraph
(b)(8)(i) of this section in effect on
November 29, 1999, may elect by
February 14, 2000, to be classified for
Federal tax purposes as an entity other
than a corporation retroactive to any
period from and including September 1,
1997. However, paragraph (d)(3)(i)(D) of
this section applies on or after October
22, 2003.
(2) Paragraph (c)(2)(iii) of this section
applies on or after April 1, 2004.
Mark E. Matthews,
Deputy Commissioner for Services and
Enforcement.
Approved: February 15, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the
Treasury.
[FR Doc. 05–3587 Filed 2–24–05; 8:45 am]
BILLING CODE 4830–01–P
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Internal Revenue Service
26 CFR Part 25
[TD 9181]
RIN 1545–BB72
Qualified Interests
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations.
AGENCY:
Background
On July 26, 2004, the IRS published
in the Federal Register (69 FR 44476) a
notice of proposed rulemaking (REG–
163679–02) conforming the gift tax
regulations defining a qualified interest
for purposes of section 2702 to the Tax
Court’s decision in Walton v.
Commissioner, 115 T.C. 589 (2000), acq.
in result, Notice 2003–72, 2003–2 C.B.
964. In Walton, the court declared
Example 5 of § 25.2702–3(e) to be
invalid. The notice of proposed
rulemaking also clarifies those parts of
the regulations under section 2702
addressing revocable spousal interests
that were at issue in Schott v.
Commissioner, 319 F.3d 1203 (9th Cir.
2003), rev’g and remanding T.C.M.
2001–110, and Cook v. Commissioner,
269 F.3d 854 (7th Cir. 2001), aff’g 115
T.C. 15 (2000).
No public hearing was requested or
held, but one written comment and
some telephone comments were
received. After consideration of all the
comments, the proposed regulations are
adopted as amended by this Treasury
decision, and the corresponding
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proposed regulations are removed. The
comments and revisions to the proposed
regulations are discussed below.
Summary of Comments
Generally, the commentators agreed
with the amendments conforming the
regulations to the Walton decision.
Several commentators requested that the
regulations address the amount
includible in the grantor’s gross estate
with respect to a Walton-type grantor
retained annuity trust (GRAT), if the
grantor dies during the GRAT term,
including the application of Rev. Rul.
82–105 (1982–1 C.B. 133). In addition,
several commentators requested
guidance regarding the application of
section 2035 if the grantor dies within
three years after termination of the term
of the GRAT (or grantor retained
unitrust (GRUT)). These suggestions
were not adopted. The determination of
the amount includable in the grantor’s
gross estate is an issue different from
and governed by different Code sections
than the definition of a qualified interest
for purposes of section 2702, and is thus
beyond the scope of this project.
However, Treasury and IRS will
consider addressing that issue in future
guidance.
Regarding the proposed regulations
addressing revocable spousal interests,
commentators suggested that section
2702 was enacted to avoid valuation
problems and that, because the value of
the contingent revocable spousal
interest at issue in Schott v.
Commissioner is readily determinable
using actuarial tables, such an interest
should be a qualified interest (as the
Ninth Circuit concluded in Schott).
Treasury and the IRS continue to
believe that the proposed regulations
properly implement section 2702 and
the policy underlying the statute.
Uncertainty in valuation is not the only
valuation inaccuracy that the statute
was intended to correct. A valuation
inaccuracy is also present when the
value of a retained interest is increased
through the use of a joint and survivor
(or two-life) annuity or unitrust interest
if there is no certainty that the
survivorship interest will ever be paid.
The revocable spousal interest involved
in Schott may best be described as
speculative, because it takes effect, if at
all, only if the grantor fails to survive
the term of the trust, and the duration
of the interest, if it takes effect at all, is
dependent on the portion of the term
remaining at the grantor’s death. The
existing regulations make it clear that
the ability to actuarially determine an
interest is not sufficient to secure
recognition of that interest as a qualified
interest for purposes of section 2702.
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]]>Agencies
[Federal Register Volume 70, Number 37 (Friday, February 25, 2005)]
[Rules and Regulations]
[Pages 9220-9222]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-3587]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[TD 9183]
RIN 1545-BA59
Modification of Check the Box
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulation.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations that clarify that
qualified REIT subsidiaries, qualified subchapter S subsidiaries, and
single owner eligible entities that are disregarded as entities
separate from their owners are treated as separate entities for
purposes of any Federal tax liability for which the entity is liable.
These regulations affect disregarded entities that are liable for
Federal taxes with respect to tax periods during which they were not
disregarded or because they are successors or transferees of taxable
entities.
DATES: Effective Date: These regulations are effective April 1, 2004.
Applicability Dates: For dates of applicability, see Sec. Sec.
1.856-9(c), 1.1361-4(a)(6)(iii), and 301.7701-2(e).
FOR FURTHER INFORMATION CONTACT: Martin Sch[auml]ffer, (202) 622-3070
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to 26 CFR parts 1 and 301. The
amendments to 26 CFR part 1 are under sections 856 and 1361 of the
Internal Revenue Code (Code). Section 856(i) was added by the Tax
Reform Act of 1986 (Pub. L. 99-514, 100 Stat. 2085). Section 1361(b)(3)
was added by the Small Business Job Protection Act of 1996 (Pub. L.
104-188, 110 Stat. 1755). The amendments to 26 CFR part 301 are to
Sec. 301.7701-2, first promulgated by TD 8697, 61 FR 66584 (December
18, 1996). On April 1, 2004, a notice of proposed rulemaking (REG-
106681-02) relating to the taxation of disregarded entities was
published in the Federal Register (69 FR 17117). A notice of correction
was published in the Federal Register (69 FR 22463) on April 26, 2004.
No comments were received from the public in response to the notice of
proposed rulemaking. No public hearing was requested, and accordingly,
no hearing was held. This Treasury decision adopts the language of the
proposed regulations with only minor clarifying changes.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations and, because the
regulations do not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. Pursuant to section 7805(f) of the Code, the proposed
regulations preceding these regulations were submitted to the Chief
Counsel for Advocacy of the Small Business Administration for comment
on its impact on small business.
Drafting Information
The principal author of these regulations is James M. Gergurich of
the Office of the Associate Chief Counsel (Passthroughs & Special
Industries). However, other personnel from the IRS and Treasury
Department participated in their development.
[[Page 9221]]
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR parts 1 and 301 are amended as follows:
PART 1--INCOME TAX
0
Paragraph 1. The authority citation for part 1 continues to read, in
part, as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.856-9 is added to read as follows:
Sec. 1.856-9 Treatment of certain qualified REIT subsidiaries.
(a) In general. A qualified REIT subsidiary, even though it is
otherwise not treated as a corporation separate from the REIT, is
treated as a separate corporation for purposes of:
(1) Federal tax liabilities of the qualified REIT subsidiary with
respect to any taxable period for which the qualified REIT subsidiary
was treated as a separate corporation.
(2) Federal tax liabilities of any other entity for which the
qualified REIT subsidiary is liable.
(3) Refunds or credits of Federal tax.
(b) Examples. The following examples illustrate the application of
paragraph (a) of this section:
Example 1. X, a calendar year taxpayer, is a domestic
corporation 100 percent of the stock of which is acquired by Y, a
real estate investment trust, in 2002. X was not a member of a
consolidated group at any time during its taxable year ending in
December 2001. Consequently, X is treated as a qualified REIT
subsidiary under the provisions of section 856(i) for 2002 and later
periods. In 2004, the Internal Revenue Service (IRS) seeks to extend
the period of limitations on assessment for X's 2001 taxable year.
Because X was treated as a separate corporation for its 2001 taxable
year, X is the proper party to sign the consent to extend the period
of limitations.
Example 2. The facts are the same as in Example 1, except that
upon Y's acquisition of X, Y and X jointly elect under section
856(l) to treat X as a taxable REIT subsidiary of Y. In 2003, Y and
X jointly revoke that election. Consequently, X is treated as a
qualified REIT subsidiary under the provisions of section 856(i) for
2003 and later periods. In 2004, the IRS determines that X
miscalculated and underreported its income tax liability for 2001.
Because X was treated as a separate corporation for its 2001 taxable
year, the deficiency may be assessed against X and, in the event
that X fails to pay the liability after notice and demand, a general
tax lien will arise against all of X's property and rights to
property.
Example 3. X is a qualified REIT subsidiary of Y under the
provisions of section 856(i). In 2001, Z, a domestic corporation
that reports its taxes on a calendar year basis, merges into X in a
state law merger. Z was not a member of a consolidated group at any
time during its taxable year ending in December 2000. Under the
applicable state law, X is the successor to Z and is liable for all
of Z's debts. In 2004, the IRS seeks to extend the period of
limitations on assessment for Z's 2000 taxable year. Because X is
the successor to Z and is liable for Z's 2000 taxes that remain
unpaid, X is the proper party to sign the consent to extend the
period of limitations.
(c) Effective date. This section applies on or after April 1, 2004.
0
Par. 3. Section 1.1361-4 is amended as follows:
0
1. In paragraph (a)(1) introductory text, the first sentence is amended
by removing the language ``paragraph (a)(3)'' and adding ``paragraphs
(a)(3) and (a)(6)'' in its place.
0
2. Paragraph (a)(6) is added.
The additions read as follows:
Sec. 1.1361-4 Effect of QSub election.
(a) * * *
(6) Treatment of certain QSubs--(i) In general. A QSub, even though
it is generally not treated as a corporation separate from the S
corporation, is treated as a separate corporation for purposes of:
(A) Federal tax liabilities of the QSub with respect to any taxable
period for which the QSub was treated as a separate corporation.
(B) Federal tax liabilities of any other entity for which the QSub
is liable.
(C) Refunds or credits of Federal tax.
(ii) Examples. The following examples illustrate the application of
paragraph (a)(6)(i) of this section:
Example 1. X has owned all of the outstanding stock of Y, a
domestic corporation that reports its taxes on a calendar year
basis, since 2001. X and Y do not report their taxes on a
consolidated basis. For 2003, X makes a timely S election and
simultaneously makes a QSub election for Y. In 2004, the Internal
Revenue Service (IRS) seeks to extend the period of limitations on
assessment for Y's 2001 taxable year. Because Y was treated as a
separate corporation for its 2001 taxable year, Y is the proper
party to sign the consent to extend the period of limitations.
Example 2. The facts are the same as in Example 1, except that
in 2004, the IRS determines that Y miscalculated and underreported
its income tax liability for 2001. Because Y was treated as a
separate corporation for its 2001 taxable year, the deficiency for
Y's 2001 taxable year may be assessed against Y and, in the event
that Y fails to pay the liability after notice and demand, a general
tax lien will arise against all of Y's property and rights to
property.
Example 3. X is a QSub of Y. In 2001, Z, a domestic corporation
that reports its taxes on a calendar year basis, merges into X in a
state law merger. Z was not a member of a consolidated group at any
time during its taxable year ending in December 2000. Under the
applicable state law, X is the successor to Z and is liable for all
of Z's debts. In 2003, the IRS seeks to extend the period of
limitations on assessment for Z's 2000 taxable year. Because X is
the successor to Z and is liable for Z's 2000 taxes that remain
unpaid, X is the proper party to execute the consent to extend the
period of limitations on assessment.
(iii) Effective date. This paragraph (a)(6) applies on or after
April 1, 2004.
PART 301--PROCEDURE AND ADMINISTRATION
0
Par. 4. The authority citation for part 301 continues to read, in part,
as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 5. Section 301.7701-2 is amended as follows:
0
1. Paragraph (c)(2)(iii) is added.
0
2. Paragraph (e) is revised.
The addition and revision read as follows:
Sec. 301.7701-2 Business entities; definitions.
* * * * *
(c) * * *
(2) * * *
(iii) Tax liabilities of certain disregarded entities--(A) In
general. An entity that is otherwise disregarded as separate from its
owner is treated as an entity separate from its owner for purposes of:
(1) Federal tax liabilities of the entity with respect to any
taxable period for which the entity was not disregarded.
(2) Federal tax liabilities of any other entity for which the
entity is liable.
(3) Refunds or credits of Federal tax.
(B) Examples. The following examples illustrate the application of
paragraph (c)(2)(iii)(A) of this section:
Example 1. In 2001, X, a domestic corporation that reports its
taxes on a calendar year basis, merges into Z, a domestic LLC wholly
owned by Y that is disregarded as an entity separate from Y, in a
state law merger. X was not a member of a consolidated group at any
time during its taxable year ending in December 2000. Under the
applicable state law, Z is the successor to X and is liable for all
of X's debts. In 2004, the Internal Revenue Service (IRS) seeks to
extend the period of limitations on assessment for X's 2000 taxable
year. Because Z is the successor to X and is liable for X's
[[Page 9222]]
2000 taxes that remain unpaid, Z is the proper party to sign the
consent to extend the period of limitations.
Example 2. The facts are the same as in Example 1, except that
in 2002, the IRS determines that X miscalculated and underreported
its income tax liability for 2000. Because Z is the successor to X
and is liable for X's 2000 taxes that remain unpaid, the deficiency
may be assessed against Z and, in the event that Z fails to pay the
liability after notice and demand, a general tax lien will arise
against all of Z's property and rights to property.
* * * * *
(e) Effective date. (1) Except as otherwise provided in this
paragraph (e), the rules of this section apply as of January 1, 1997,
except that paragraph (b)(6) of this section applies on or after
January 14, 2002, to a business entity wholly owned by a foreign
government regardless of any prior entity classification, and paragraph
(c)(2)(ii) of this section applies to taxable years beginning after
January 12, 2001. The reference to the Finnish, Maltese, and Norwegian
entities in paragraph (b)(8)(i) of this section is applicable on
November 29, 1999. The reference to the Trinidadian entity in paragraph
(b)(8)(i) of this section applies to entities formed on or after
November 29, 1999. Any Maltese or Norwegian entity that becomes an
eligible entity as a result of paragraph (b)(8)(i) of this section in
effect on November 29, 1999, may elect by February 14, 2000, to be
classified for Federal tax purposes as an entity other than a
corporation retroactive to any period from and including January 1,
1997. Any Finnish entity that becomes an eligible entity as a result of
paragraph (b)(8)(i) of this section in effect on November 29, 1999, may
elect by February 14, 2000, to be classified for Federal tax purposes
as an entity other than a corporation retroactive to any period from
and including September 1, 1997. However, paragraph (d)(3)(i)(D) of
this section applies on or after October 22, 2003.
(2) Paragraph (c)(2)(iii) of this section applies on or after April
1, 2004.
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
Approved: February 15, 2005.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 05-3587 Filed 2-24-05; 8:45 am]
BILLING CODE 4830-01-P
