Use of Controlled Corporations To Avoid the Application of Section 304, 69043 [E9-30863]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 74, Number 249 (Wednesday, December 30, 2009)]
[Proposed Rules]
[Page 69043]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-30863]



[[Page 69043]]

=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-132232-08]
RIN 1545-BI13


Use of Controlled Corporations To Avoid the Application of 
Section 304

AGENCY: Internal Revenue Service (IRS), Treasury.

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

-----------------------------------------------------------------------

SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS and the Treasury Department are issuing 
temporary regulations under section 304 of the Internal Revenue Code 
(Code). The temporary regulations apply to certain transactions that 
are subject to section 304 but that are entered into with a principal 
purpose of avoiding the application of section 304 to a corporation 
controlled by the issuing corporation in the transaction, or to a 
corporation that controls the acquiring corporation in the transaction. 
The temporary regulations affect shareholders treated as receiving 
distributions in redemption of stock by reason of section 304. The text 
of temporary regulations published in this issue of the Federal 
Register serves as the text of these proposed regulations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by March 30, 2010.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-132232-08), 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-
132232-08), 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-132232-08).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Sean W. Mullaney, (202) 622-3860; concerning submissions of comments or 
requests for a public hearing, Richard Hurst at (202) 622-7180 (not 
toll-free numbers) or Richard.A.Hurst@irscounsel.treas.gov.

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating to section 304 of the Code. The text of the temporary 
regulations serves as the text of these proposed regulations. The 
preamble to the temporary regulations explains the temporary 
regulations and 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. It is hereby 
certified that the collections of information contained in these 
regulations will not have a significant economic impact on a 
substantial number of small entities. Accordingly, a regulatory 
flexibility analysis is not required. These regulations primarily will 
affect United States persons that are large corporations engaged in 
corporate transactions among their controlled corporations. Thus, the 
number of affected small entities--in whichever of the three categories 
defined in the Regulatory Flexibility Act (small businesses, small 
organizations, and small governmental jurisdictions)--will not be 
substantial. The IRS and the Treasury Department estimate that small 
organizations and small governmental jurisdictions are likely to be 
affected only insofar as they transfer the stock of a controlled 
corporation to a related corporation. While a certain number of small 
entities may engage in such transactions, the IRS and the Treasury 
Department do not anticipate the number to be substantial. Pursuant to 
section 7805(f) of the Code, this regulation 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 a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any electronic or written comments (a 
signed original and eight (8) copies) that are submitted timely to the 
IRS. The IRS and the Treasury Department specifically request comments 
on the clarity of the proposed rules and how they can be made easier to 
understand. Comments are also requested as to whether the regulations 
should include factors that are indicative of a principal purpose, or 
lack of a principal purpose, to avoid the application of section 304. 
If such factors should be included, specific examples are requested. 
See, for example, Prop. Treas. Reg. Sec.  1.987-2(b)(3)(ii) and (iii).
    All comments will be available for public inspection and copying. A 
public hearing will be scheduled if requested in writing by any person 
that timely submits written comments. If a public hearing is scheduled, 
notice of the date, time, and place for the public hearing will be 
published in the Federal Register.

Drafting Information

    The principal author of these proposed regulations is Sean W. 
Mullaney of the Office of Associate Chief Counsel (International). 
However, other personnel from the IRS and the 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 * * *.

    Par. 2. Section 1.304-4 is revised to read as follows:


Sec.  1.304-4  Special rule for the use of related corporations to 
avoid the application of section 304.

    [The text of proposed Sec.  1.304-4 is the same as the text of 
Sec.  1.304-4T(a) through (d) published elsewhere in this issue of the 
Federal Register.]

 Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E9-30863 Filed 12-29-09; 8:45 am]
BILLING CODE 4830-01-P