Application of Section 338 to Insurance Companies, 18053-18055 [06-3321]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 71, Number 68 (Monday, April 10, 2006)]
[Proposed Rules]
[Pages 18053-18055]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-3321]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-146384-05]
RIN 1545-BF02


Application of Section 338 to Insurance Companies

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulation.

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SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations that provide 
guidance under section 197 that apply to the treatment of certain 
insurance contracts assumed in an assumption reinsurance transaction 
and section 338 that apply to a deemed sale or acquisition of an 
insurance company's assets pursuant to an election under section 338 of 
the Internal Revenue Code, to a sale or acquisition of an insurance 
trade or

[[Page 18054]]

business subject to section 1060, and to the acquisition of insurance 
contracts through assumption reinsurance. The text of those regulations 
also serve as the text of these proposed regulations.

DATES: Written or electronic comments, and a request for a public 
hearing, must be received by July 10, 2006.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-138879-05), room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
138879-05), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically, via the IRS 
Internet site at https://www.irs.gov/regs or via the Federal eRulemaking 
Portal at https://www.regulations.gov (IRS and REG-146384-05).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulation, 
Mark J. Weiss, (202) 622-7790, concerning submissions of comments, 
Richard Hurst, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    Temporary Regulations in the Rules and Regulations section of this 
issue of the Federal Register amend 26 CFR part 1 relating to section 
338. The temporary regulations add Sec. Sec.  1.197-2T(g)(5)(ii), 
1.338-11T(d), and 1.338-11T(e). The texts of those regulations also 
serve as the text of these proposed regulations. The preamble to the 
temporary regulations explain the amendments included in these proposed 
regulations.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. Further, it 
is hereby certified that these proposed regulations will not have a 
significant economic impact on a substantial number of small entities. 
This certification is based on the fact that these regulations do not 
have a substantial economic impact because they merely provide guidance 
about the operation of the tax law in the context of acquisitions of 
insurance companies and businesses. Moreover, they are expected to 
apply predominantly to transactions involving larger businesses. 
Accordingly, a Regulatory Flexibility Analysis under the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to 
section 7805(f) of the Code, this notice of proposed rulemaking will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight copies) that are submitted timely to the IRS. Alternatively, 
taxpayers may submit comments electronically via the IRS Internet site 
at https://www.irs.gov/regs or via the Federal eRulemaking Portal at 
https://www.regulations.gov. The IRS and Treasury Department request 
comments on the clarity of the proposed rules and how they can be made 
easier to understand. All comments will be available for public 
inspection and copying. A public hearing may be scheduled if requested 
in writing by any person who timely submits written comments. If a 
public hearing is scheduled, notice of the date, time, and place of the 
hearing will be published in the Federal Register.

Drafting Information

    The principal author of these regulations is Mark J. Weiss of the 
Office of Associate Chief Counsel (Corporate). Other personnel from 
Treasury and the IRS participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

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 * * *

    Section 1.197-2 also issued under 26 U.S.C. 197. * * *
    Section 1.338-11 also issued under 26 U.S.C. 338. * * *

    Par. 2. Section 1.197-2 is amended by revising paragraph (g)(5)(ii) 
to read as follows:


Sec.  1.197-2T  Amortization of goodwill and certain other intangibles 
(temporary).

* * * * *
    (g) * * *
    (5)(ii) [The text of the proposed Sec.  1.197-2(g)(5) is the same 
as the text for Sec.  1.197-2T(g)(5) published elsewhere in this issue 
of the Federal Register].
* * * * *
    Par. 3. Section 1.338-1 is amended by redesignating existing 
paragraph (b)(2)(vii) as paragraph (b)(2)(viii) and adding new 
paragraph (b)(2)(vii) to read as follows:


Sec.  1.338-1  General principles; status of old target and new target.

* * * * *
    (b) * * *
    (2) * * *
    (vii) [The text of the proposed Sec.  1.338-1(b)(2)(vii) is the 
same as the text for Sec.  1.338-1T(b)(2)(vii) published elsewhere in 
this issue of the Federal Register].
* * * * *
    Par. 4. Section 1.338-11 is amended by revising paragraphs (d) and 
(e) to read as follows:


Sec.  1.338-11  Effect of section 338 election on insurance company 
targets.

* * * * *
    (d) Reserve increases by new target after the deemed asset sale.
    [The text of the proposed Sec.  1.338-11(d) is the same as the text 
for Sec.  1.338-11T(d) published elsewhere in this issue of the Federal 
Register].
    (e) Effect of section 338 election on section 846(e) election.
    [The text of the proposed Sec.  1.338-11(e) is the same as the text 
for Sec.  1.338-11T(e) published elsewhere in this issue of the Federal 
Register].
* * * * *
    Par. 5. Section 1.846-2 as amended by adding new paragraph (d) to 
read is follows:


Sec.  1.846-2  Election by taxpayer to use its own historical loss 
payment pattern.

* * * * *
    (d) Effect of section 338 election on section 846(e) election.
    [The text of the proposed Sec.  1.846-2(d) is the same as the text 
for Sec.  1.846-2T(d) published elsewhere in this issue of the Federal 
Register].
* * * * *
    Par. 6. Section 1.846-4 is amended by:
    1. The section heading is revised.
    2. Redesignating the existing text as paragraph (a).
    3. Adding new paragraph (b).
    The revision and addition read as follows:


Sec.  1.846-4  Effective dates.

* * * * *
    (b) Section 338 election.
    [The text of the proposed Sec.  1.846-4(b) is the same as the text 
for Sec.  1.846-4T(b)

[[Page 18055]]

published elsewhere in this issue of the Federal Register].
* * * * *

Mark E. Matthews,
 Deputy Commissioner for Services and Enforcement.
[FR Doc. 06-3321 Filed 4-7-06; 8:45 am]
BILLING CODE 4830-01-P