Modification to Consolidated Return Regulation Permitting an Election To Treat a Liquidation of a Target, Followed by a Recontribution to a New Target, as a Cross-Chain Reorganization, 45789-45791 [E9-21323]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 74, Number 171 (Friday, September 4, 2009)]
[Proposed Rules]
[Pages 45789-45791]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-21323]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-139068-08]
RIN 1545-BI31


Modification to Consolidated Return Regulation Permitting an 
Election To Treat a Liquidation of a Target, Followed by a 
Recontribution to a New Target, as a Cross-Chain Reorganization

AGENCY: Internal Revenue Service (IRS), Treasury.

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

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SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations under 
section 1502 of the Internal Revenue Code (Code). The temporary 
regulations modify the election under which a consolidated group can 
avoid immediately taking into account an intercompany item after the 
liquidation of a target corporation. This modification was made 
necessary in light of the regulations under section 368 that were 
issued in October 2007 addressing transfers of assets or stock 
following a reorganization. The temporary regulations apply to 
corporations filing consolidated returns. The text of those temporary 
regulations also serves as the text of these proposed regulations.

[[Page 45790]]


DATES: Written comments and requests for a public hearing must be 
received by December 4, 2009.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-139068-08), Room 5203, 
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday to CC:PA:LPD:PR (REG-139068-08), Courier's Desk, Internal 
Revenue Service, 1111 Constitution Avenue, NW., Washington, DC or sent 
electronically via the Federal eRulemaking Portal at https://www.regulations.gov (IRS REG-139068-08).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Mary W. 
Lyons, (202) 622-7930; concerning submission of comments and the 
hearing, Oluwafunmilayo (Funmi) Taylor, (202) 622-7180 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION: 

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP, 
Washington, DC 20224. Comments on the collection of information should 
be received by December 4, 2009. Comments are specifically requested 
concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collections of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs of operation, maintenance, 
and purchase of service to provide information.
    The collection of information in this proposed regulation is in 
Sec.  1.1502-13(f)(5)(ii)(E) as contained in 26 CFR part 1, revised 
April 1, 2009, and proposed Sec.  1.1502-13(f)(5)(ii)(B)(2). This 
information is required by the IRS to allow certain parties to make an 
election to apply Sec.  1.1502-13(f)(5)(ii)(B). The likely 
recordkeepers are corporations filing consolidated income tax returns. 
No additional burden is anticipated with respect to these proposed 
regulations over that already required in the regulations currently in 
effect (CO-11-91 Final and CO-24-95 Final).
    Estimated total annual reporting burden: 100 hours.
    Estimated average annual burden hours per respondent: 2 hours.
    Estimated number of respondents: 50.
    Estimated annual frequency of responses: Once.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number assigned by the Office of 
Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    The temporary regulations published in the Rules and Regulations 
section of this issue of the Federal Register amend the Income Tax 
Regulations (26 CFR part 1) under section 1502. The temporary 
regulations provide that if the election to apply Sec.  1.1502-
13(f)(5)(ii)(B) is made for a transaction in which old T liquidates 
into B on or after the effective date of the regulations under Sec.  
1.368-2(k), issued in October 2007, followed by B's transfer of 
substantially all of old T's assets to new T, then, for all Federal 
income tax purposes, old T's liquidation into B and B's transfer of 
substantially all of old T's assets to new T will be disregarded and, 
instead, the transaction will be treated as if old T transferred 
substantially all of its assets to new T in exchange for new T stock in 
a reorganization described in section 368(a). This election is 
available only if a direct transfer of the old T assets to new T would 
qualify as a reorganization. Thus, S's gain from the sale of the T 
stock to B is not taken into account upon the liquidation of T but 
instead is taken into account with respect to the new T stock, the 
successor asset to the old T stock.
    The text of those temporary regulations also serves as the text of 
these proposed regulations. The preamble to the temporary regulations 
explains the reasons for the modifications to the final regulations 
contained in the temporary 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 for an 
election in the context of a taxpayer that has triggered deferred gain 
on subsidiary stock upon the liquidation of the subsidiary. Moreover, 
the regulations apply only to transactions involving consolidated 
groups which tend to be 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 has been submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on its impact on small business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are submitted timely 
to the IRS. In addition to the specific requests for comments made 
elsewhere in this preamble or the preamble to the temporary 
regulations, 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.

[[Page 45791]]

Drafting Information

    The principal author of these proposed regulations is Mary W. Lyons 
of the Office of Associate Chief Counsel (Corporate). However, other 
personnel from the IRS and Treasury Department 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 1.1502-13 also issued under 26 U.S.C. 1502 * * *

    Par. 2. Section 1.1502-13 is amended by revising paragraphs 
(f)(5)(ii)(B) and adding paragraph (f)(5)(ii)(F) to read as follows:


Sec.  1.1502-13  Intercompany transactions.

* * * * *
    (f) * * *
    (5) * * *
    (ii) * * *
    (B)(1) [The text of the proposed amendments to Sec.  1.1502-
13(B)(1) is the same as the text of Sec.  1.1502-13T(B)(1) published 
elsewhere in this issue of the Federal Register.
    (2) [The text of the proposed amendments to Sec.  1.1502-13(B)(2) 
is the same as the text of Sec.  1.1502-13T(B)(2) published elsewhere 
in this issue of the Federal Register.
* * * * *
    (F) [The text of the proposed amendments to Sec.  1.1502-13(F) is 
the same as the text of Sec.  1.1502-13T(F) published elsewhere in this 
issue of the Federal Register.
* * * * *

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E9-21323 Filed 9-3-09; 8:45 am]
BILLING CODE 4830-01-P