Guidance Under Section 108(a) Concerning the Exclusion of Section 61(a)(12) Discharge of Indebtedness Income of a Grantor Trust or a Disregarded Entity, 20593-20594 [2011-8758]
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Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Proposed Rules
and irregular, in the employment of
defense articles. Technical assistance
agreements must be submitted in such
cases. In exceptional cases, the
Directorate of Defense Trade Controls,
upon written request, will consider
approving the provision of defense
services described in § 120.9(a) of this
subchapter by granting a license under
part 125 of this subchapter.
*
*
*
*
*
6. In § 124.2, paragraph (a) is removed
and reserved and paragraph (c)
introductory text is revised to read as
follows:
§ 124.2 Exemptions for training and
military service.
(a) [Reserved]
*
*
*
*
(c) For NATO countries, Australia,
Japan and Sweden, in addition to the
basic maintenance information
exemption in § 125.4(b)(5) of this
subchapter, no technical assistance
agreement is required for maintenance
training or the performance of
maintenance, including the export of
supporting technical data, when the
following criteria can be met:
*
*
*
*
*
*
Dated: April 5, 2011.
Ellen O. Tauscher,
Under Secretary, Arms Control and
International Security, Department of State.
[FR Doc. 2011–8998 Filed 4–12–11; 8:45 am]
BILLING CODE 4710–25–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–154159–09]
RIN 1545–BJ14
Guidance Under Section 108(a)
Concerning the Exclusion of Section
61(a)(12) Discharge of Indebtedness
Income of a Grantor Trust or a
Disregarded Entity
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
This document contains
proposed regulations relating to the
exclusion from gross income under
section 108(a) of discharge of
indebtedness income of a grantor trust
or an entity that is disregarded as an
entity separate from its owner. The
proposed regulations provide rules
regarding the term ‘‘taxpayer’’ for
purposes of applying section 108 to
srobinson on DSKHWCL6B1PROD with PROPOSALS
SUMMARY:
VerDate Mar<15>2010
18:03 Apr 12, 2011
Jkt 223001
20593
discharge of indebtedness income of a
grantor trust or a disregarded entity. The
proposed regulations affect grantor
trusts, disregarded entities, and their
owners.
DATES: Written or electronic comments
and requests for a public hearing must
be received by July 12, 2011.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–154159–09), 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–154159–
09), 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–154159–
09).
FOR FURTHER INFORMATION CONTACT:
Bryan A. Rimmke or Benjamin H.
Weaver, (202) 622–3050 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
statute; examples of statutory
disregarded entities include a
corporation that is a qualified REIT
subsidiary (within the meaning of
section 856(i)(2)), and a corporation that
is a qualified subchapter S subsidiary
(within the meaning of section
1361(b)(3)(B)).
The activities of an entity that is a
disregarded entity are treated in the
same manner as a sole proprietorship,
branch, or division of the owner (except
for certain employment and excise tax
rules). Accordingly, for Federal income
tax purposes, all assets, liabilities, and
items of income, deduction, and credit
of a disregarded entity are treated as
assets, liabilities, and such items (as the
case may be) of the owner of the
disregarded entity.
A grantor trust is any portion of a
trust that is treated (under subpart E of
part I of subchapter J of chapter 1) as
being owned by the grantor or another
person. In the case of any grantor trust,
items of income, deductions, and credits
attributable to the trust are includable in
computing the taxable income and
credits of the owner.
Background
Section 61(a)(12) of the Internal
Revenue Code (the Code) provides that
income from the discharge of
indebtedness is includable in gross
income. However, such income may be
excludable from gross income under
section 108 in certain circumstances.
Section 108(a)(1)(A) and (B) excludes
from gross income any amount that
would be includible in gross income by
reason of the discharge of indebtedness
of the taxpayer if the discharge occurs
in a Title 11 case or to the extent the
taxpayer is insolvent when the
discharge occurs. Section 108(d)(1)
through (3) provides the meaning of the
terms ‘‘indebtedness of the taxpayer,’’
‘‘Title 11 case,’’ and ‘‘insolvent,’’ for
purposes of applying section 108, and
each definition uses the term ‘‘taxpayer.’’
Section 7701(a)(14) defines a taxpayer
as any person subject to any internal
revenue tax.
Several types of disregarded entities
exist under the Code and regulations.
For instance, § 301.7701–2(a) of the
Procedure and Administration
Regulations provides that the term
business entity includes an entity with
a single owner that may be disregarded
as an entity separate from its owner
under § 301.7701–3; an example of a
disregarded entity under this provision
is a domestic single member limited
liability company that does not elect to
be classified as a corporation for Federal
income tax purposes. Additionally,
some disregarded entities are created by
Explanation of Provisions
The proposed regulations provide
that, for purposes of applying section
108(a)(1)(A) and (B) to discharge of
indebtedness income of a grantor trust
or a disregarded entity, the term
taxpayer, as used in section 108(a)(1)
and (d)(1) through (3), refers to the
owner(s) of the grantor trust or
disregarded entity. The proposed
regulations further provide that grantor
trusts and disregarded entities
themselves will not be considered
owners for this purpose. Finally, the
proposed regulations provide that, in
the case of a partnership, the owner
rules apply at the partner level to the
partners of the partnership to whom the
discharge of indebtedness income is
allocable. Thus, for example, if a
partnership holds an interest in a
grantor trust or disregarded entity, the
applicability of section 108(a)(1)(A) and
(B) to discharge of indebtedness income
of the grantor trust or disregarded entity
is tested by looking to the partners to
whom the income is allocable. If any
partner is itself a grantor trust or
disregarded entity, the applicability of
section 108(a)(1)(A) and (B) is
determined by looking through such
grantor trust or disregarded entity to the
ultimate owner(s) of such partner.
Some taxpayers have taken the
position that the insolvency exception is
available to the extent a grantor trust or
disregarded entity is insolvent, even if
its owner is not. The IRS and the
Treasury Department do not believe this
PO 00000
Frm 00026
Fmt 4702
Sfmt 4702
E:\FR\FM\13APP1.SGM
13APP1
20594
Federal Register / Vol. 76, No. 71 / Wednesday, April 13, 2011 / Proposed Rules
is an appropriate application of the
relevant statutory provisions. The
proposed regulations clarify that,
subject to the special rule for
partnerships under section 108(d)(6),
the insolvency exception is available
only to the extent the owner is
insolvent, as owner is determined as
described in this preamble.
Some taxpayers have taken the
position that the bankruptcy exception
is available if a grantor trust or
disregarded entity is under the
jurisdiction of a bankruptcy court, even
if its owner is not. These taxpayers may
argue that because, for Federal income
tax purposes, the disregarded entity is
disregarded and the ‘‘taxpayer’’ is the
owner of the disregarded entity’s assets
and liabilities, the taxpayer is properly
seen as being subject to the bankruptcy
court’s jurisdiction. Under the proposed
regulations, it is insufficient for the
grantor trust or disregarded entity to be
subject to the bankruptcy court’s
jurisdiction. The proposed regulations
clarify that, subject to the special rule
for partnerships under section 108(d)(6),
the bankruptcy exception is available
only if the owner of the grantor trust or
disregarded entity is subject to the
bankruptcy court’s jurisdiction, as
owner is determined as described in this
preamble.
srobinson on DSKHWCL6B1PROD with PROPOSALS
Proposed Effective/Applicability Date
These regulations are proposed to
apply to discharge of indebtedness
income occurring on or after the date
final regulations are published in the
Federal Register. No inference is
intended that the provisions set forth in
these proposed regulations are not
current law.
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
has also 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, 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 the proposed regulations are
adopted as final regulations,
VerDate Mar<15>2010
18:03 Apr 12, 2011
Jkt 223001
consideration will be given to any
written (a signed original and eight (8)
copies) or electronic comments that are
submitted timely to the IRS. 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 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 authors of these
regulations are Bryan A. Rimmke and
Benjamin H. Weaver, Office of the
Associate Chief Counsel (Passthroughs
& Special Industries). However, other
personnel from the IRS and Treasury
Department participated in its
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 1.108–9 is added to
read as follows:
§ 1.108–9 Application of insolvency and
bankruptcy provisions of section 108 to
disregarded entities and grantor trusts.
(a) General rule. For purposes of
applying section 108(a)(1)(A) and (B) to
discharge of indebtedness income of a
grantor trust or disregarded entity,
neither the grantor trust nor the
disregarded entity shall be considered to
be the ‘‘taxpayer,’’ as that term is used
in section 108(a)(1) and (d)(1) through
(3). Rather, for purposes of section
108(a)(1) and (d)(1) through (3) and
subject to section 108(d)(6), the owner
of the grantor trust or disregarded entity
is the taxpayer. If indebtedness of a
grantor trust or disregarded entity is
discharged in a Title 11 case, section
108(a)(1)(A) will apply only to an owner
of the grantor trust or disregarded entity
that is under the jurisdiction of the
court in a Title 11 case. If the grantor
trust or disregarded entity is under the
jurisdiction of the court in a Title 11
PO 00000
Frm 00027
Fmt 4702
Sfmt 9990
case, but the owner of the grantor trust
or disregarded entity is not, section
108(a)(1)(A) will not apply to the
discharge of indebtedness income. If
indebtedness of a grantor trust or
disregarded entity is otherwise
discharged, section 108(a)(1)(B) will
apply only to the extent the owner of
the grantor trust or disregarded entity is
insolvent. If the grantor trust or
disregarded entity is insolvent, but the
owner of the grantor trust or disregarded
entity is not, section 108(a)(1)(B) will
not apply to the discharge of
indebtedness income.
(b) Application to partnerships. Under
section 108(d)(6), in the case of a
partnership, section 108(a)(1)(A) and (B)
applies at the partner level.
Accordingly, in the case of a
partnership, paragraph (a) of this section
applies to the partners of such
partnership to whom the discharge of
indebtedness income is allocable.
(c) Definitions—(1) Disregarded
entities. For purposes of this section, a
disregarded entity is an entity that is
disregarded as an entity separate from
its owner for Federal income tax
purposes. Examples of disregarded
entities include a domestic single
member limited liability company that
does not elect to be classified as a
corporation for Federal income tax
purposes, a corporation that is a
qualified REIT subsidiary (within the
meaning of section 856(i)(2)), and a
corporation that is a qualified
subchapter S subsidiary (within the
meaning of section 1361(b)(3)(B)).
(2) Grantor trust. For purposes of this
section, a grantor trust is any portion of
a trust that is treated under subpart E of
part I of subchapter J of chapter 1 as
being owned by the grantor or another
person.
(3) Owner. Notwithstanding any other
provision of this section to the contrary,
neither a grantor trust nor a disregarded
entity shall be considered an owner for
purposes of this section.
(d) Effective/applicability date. The
rules of this section are proposed to
apply to discharge of indebtedness
income occurring on or after the date
final regulations are published in the
Federal Register.
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2011–8758 Filed 4–12–11; 8:45 am]
BILLING CODE 4830–01–P
E:\FR\FM\13APP1.SGM
13APP1
]]>Agencies
[Federal Register Volume 76, Number 71 (Wednesday, April 13, 2011)]
[Proposed Rules]
[Pages 20593-20594]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-8758]
=======================================================================
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-154159-09]
RIN 1545-BJ14
Guidance Under Section 108(a) Concerning the Exclusion of Section
61(a)(12) Discharge of Indebtedness Income of a Grantor Trust or a
Disregarded Entity
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations relating to the
exclusion from gross income under section 108(a) of discharge of
indebtedness income of a grantor trust or an entity that is disregarded
as an entity separate from its owner. The proposed regulations provide
rules regarding the term ``taxpayer'' for purposes of applying section
108 to discharge of indebtedness income of a grantor trust or a
disregarded entity. The proposed regulations affect grantor trusts,
disregarded entities, and their owners.
DATES: Written or electronic comments and requests for a public hearing
must be received by July 12, 2011.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-154159-09), 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-
154159-09), 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-154159-09).
FOR FURTHER INFORMATION CONTACT: Bryan A. Rimmke or Benjamin H. Weaver,
(202) 622-3050 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
Section 61(a)(12) of the Internal Revenue Code (the Code) provides
that income from the discharge of indebtedness is includable in gross
income. However, such income may be excludable from gross income under
section 108 in certain circumstances. Section 108(a)(1)(A) and (B)
excludes from gross income any amount that would be includible in gross
income by reason of the discharge of indebtedness of the taxpayer if
the discharge occurs in a Title 11 case or to the extent the taxpayer
is insolvent when the discharge occurs. Section 108(d)(1) through (3)
provides the meaning of the terms ``indebtedness of the taxpayer,''
``Title 11 case,'' and ``insolvent,'' for purposes of applying section
108, and each definition uses the term ``taxpayer.'' Section
7701(a)(14) defines a taxpayer as any person subject to any internal
revenue tax.
Several types of disregarded entities exist under the Code and
regulations. For instance, Sec. 301.7701-2(a) of the Procedure and
Administration Regulations provides that the term business entity
includes an entity with a single owner that may be disregarded as an
entity separate from its owner under Sec. 301.7701-3; an example of a
disregarded entity under this provision is a domestic single member
limited liability company that does not elect to be classified as a
corporation for Federal income tax purposes. Additionally, some
disregarded entities are created by statute; examples of statutory
disregarded entities include a corporation that is a qualified REIT
subsidiary (within the meaning of section 856(i)(2)), and a corporation
that is a qualified subchapter S subsidiary (within the meaning of
section 1361(b)(3)(B)).
The activities of an entity that is a disregarded entity are
treated in the same manner as a sole proprietorship, branch, or
division of the owner (except for certain employment and excise tax
rules). Accordingly, for Federal income tax purposes, all assets,
liabilities, and items of income, deduction, and credit of a
disregarded entity are treated as assets, liabilities, and such items
(as the case may be) of the owner of the disregarded entity.
A grantor trust is any portion of a trust that is treated (under
subpart E of part I of subchapter J of chapter 1) as being owned by the
grantor or another person. In the case of any grantor trust, items of
income, deductions, and credits attributable to the trust are
includable in computing the taxable income and credits of the owner.
Explanation of Provisions
The proposed regulations provide that, for purposes of applying
section 108(a)(1)(A) and (B) to discharge of indebtedness income of a
grantor trust or a disregarded entity, the term taxpayer, as used in
section 108(a)(1) and (d)(1) through (3), refers to the owner(s) of the
grantor trust or disregarded entity. The proposed regulations further
provide that grantor trusts and disregarded entities themselves will
not be considered owners for this purpose. Finally, the proposed
regulations provide that, in the case of a partnership, the owner rules
apply at the partner level to the partners of the partnership to whom
the discharge of indebtedness income is allocable. Thus, for example,
if a partnership holds an interest in a grantor trust or disregarded
entity, the applicability of section 108(a)(1)(A) and (B) to discharge
of indebtedness income of the grantor trust or disregarded entity is
tested by looking to the partners to whom the income is allocable. If
any partner is itself a grantor trust or disregarded entity, the
applicability of section 108(a)(1)(A) and (B) is determined by looking
through such grantor trust or disregarded entity to the ultimate
owner(s) of such partner.
Some taxpayers have taken the position that the insolvency
exception is available to the extent a grantor trust or disregarded
entity is insolvent, even if its owner is not. The IRS and the Treasury
Department do not believe this
[[Page 20594]]
is an appropriate application of the relevant statutory provisions. The
proposed regulations clarify that, subject to the special rule for
partnerships under section 108(d)(6), the insolvency exception is
available only to the extent the owner is insolvent, as owner is
determined as described in this preamble.
Some taxpayers have taken the position that the bankruptcy
exception is available if a grantor trust or disregarded entity is
under the jurisdiction of a bankruptcy court, even if its owner is not.
These taxpayers may argue that because, for Federal income tax
purposes, the disregarded entity is disregarded and the ``taxpayer'' is
the owner of the disregarded entity's assets and liabilities, the
taxpayer is properly seen as being subject to the bankruptcy court's
jurisdiction. Under the proposed regulations, it is insufficient for
the grantor trust or disregarded entity to be subject to the bankruptcy
court's jurisdiction. The proposed regulations clarify that, subject to
the special rule for partnerships under section 108(d)(6), the
bankruptcy exception is available only if the owner of the grantor
trust or disregarded entity is subject to the bankruptcy court's
jurisdiction, as owner is determined as described in this preamble.
Proposed Effective/Applicability Date
These regulations are proposed to apply to discharge of
indebtedness income occurring on or after the date final regulations
are published in the Federal Register. No inference is intended that
the provisions set forth in these proposed regulations are not current
law.
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 has also
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, 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 the proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comments that are submitted timely to the
IRS. 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 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 authors of these regulations are Bryan A. Rimmke and
Benjamin H. Weaver, Office of the Associate Chief Counsel (Passthroughs
& Special Industries). However, other personnel from the IRS and
Treasury Department participated in its 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 1.108-9 is added to read as follows:
Sec. 1.108-9 Application of insolvency and bankruptcy provisions of
section 108 to disregarded entities and grantor trusts.
(a) General rule. For purposes of applying section 108(a)(1)(A) and
(B) to discharge of indebtedness income of a grantor trust or
disregarded entity, neither the grantor trust nor the disregarded
entity shall be considered to be the ``taxpayer,'' as that term is used
in section 108(a)(1) and (d)(1) through (3). Rather, for purposes of
section 108(a)(1) and (d)(1) through (3) and subject to section
108(d)(6), the owner of the grantor trust or disregarded entity is the
taxpayer. If indebtedness of a grantor trust or disregarded entity is
discharged in a Title 11 case, section 108(a)(1)(A) will apply only to
an owner of the grantor trust or disregarded entity that is under the
jurisdiction of the court in a Title 11 case. If the grantor trust or
disregarded entity is under the jurisdiction of the court in a Title 11
case, but the owner of the grantor trust or disregarded entity is not,
section 108(a)(1)(A) will not apply to the discharge of indebtedness
income. If indebtedness of a grantor trust or disregarded entity is
otherwise discharged, section 108(a)(1)(B) will apply only to the
extent the owner of the grantor trust or disregarded entity is
insolvent. If the grantor trust or disregarded entity is insolvent, but
the owner of the grantor trust or disregarded entity is not, section
108(a)(1)(B) will not apply to the discharge of indebtedness income.
(b) Application to partnerships. Under section 108(d)(6), in the
case of a partnership, section 108(a)(1)(A) and (B) applies at the
partner level. Accordingly, in the case of a partnership, paragraph (a)
of this section applies to the partners of such partnership to whom the
discharge of indebtedness income is allocable.
(c) Definitions--(1) Disregarded entities. For purposes of this
section, a disregarded entity is an entity that is disregarded as an
entity separate from its owner for Federal income tax purposes.
Examples of disregarded entities include a domestic single member
limited liability company that does not elect to be classified as a
corporation for Federal income tax purposes, a corporation that is a
qualified REIT subsidiary (within the meaning of section 856(i)(2)),
and a corporation that is a qualified subchapter S subsidiary (within
the meaning of section 1361(b)(3)(B)).
(2) Grantor trust. For purposes of this section, a grantor trust is
any portion of a trust that is treated under subpart E of part I of
subchapter J of chapter 1 as being owned by the grantor or another
person.
(3) Owner. Notwithstanding any other provision of this section to
the contrary, neither a grantor trust nor a disregarded entity shall be
considered an owner for purposes of this section.
(d) Effective/applicability date. The rules of this section are
proposed to apply to discharge of indebtedness income occurring on or
after the date final regulations are published in the Federal Register.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2011-8758 Filed 4-12-11; 8:45 am]
BILLING CODE 4830-01-P
