Guidance Regarding the Treatment of Stock of a Controlled Corporation Under Section 355(a)(3)(B), 65110-65112 [2011-27240]
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§ 558.342
Federal Register / Vol. 76, No. 203 / Thursday, October 20, 2011 / Rules and Regulations
[Amended]
2. In § 558.342, in the table in
paragraph (e)(1), remove and reserve
paragraph (e)(1)(vii); and in paragraph
(e)(1)(xi), in the ‘‘Sponsor’’ column, add
‘‘021641’’.
■
Dated: October 14, 2011.
Steven D. Vaughn,
Director, Office of New Animal Drug
Evaluation, Center for Veterinary Medicine.
[FR Doc. 2011–27139 Filed 10–19–11; 8:45 am]
BILLING CODE 4160–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9548]
RIN 1545–BH49
Guidance Regarding the Treatment of
Stock of a Controlled Corporation
Under Section 355(a)(3)(B)
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
AGENCY:
This document contains final
regulations regarding the distribution of
stock of a controlled corporation
acquired in a transaction described in
section 355(a)(3)(B) of the Internal
Revenue Code (Code). This action is
necessary in light of amendments to
section 355(b). These final regulations
will affect corporations and their
shareholders.
SUMMARY:
Effective Date: These final
regulations are effective on October 20,
2011.
Applicability Date: For dates of
applicability, see § 1.355–2(i).
FOR FURTHER INFORMATION CONTACT:
Russell P. Subin, (202) 622–7790 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
DATES:
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Background
This document contains amendments
to 26 CFR part 1 regarding section
355(a)(3)(B).
Section 355(a) provides that, under
certain circumstances, a corporation
may distribute stock and securities in a
corporation it controls to its
shareholders and security holders
without causing either the distributing
corporation (distributing) or its
shareholders and security holders to
recognize income, gain, or loss.
Sections 355(a)(1)(C) and 355(b)(1)
generally require that distributing and
the controlled corporation (controlled)
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each be engaged, immediately after the
distribution, in the active conduct of a
trade or business. Section 355(b)(2)(A)
provides that a corporation shall be
treated as engaged in the active conduct
of a trade or business if and only if it
is engaged in the active conduct of a
trade or business.
Section 355(b)(2)(B) requires that the
trade or business have been actively
conducted throughout the five-year
period ending on the date of the
distribution (pre-distribution period).
Section 355(b)(2)(C) provides that the
trade or business must not have been
acquired in a transaction in which gain
or loss was recognized in whole or in
part (taxable transaction) within the predistribution period. Section 355(b)(2)(D)
provides that control of a corporation
that (at the time of acquisition of
control) was conducting the trade or
business must not have been directly or
indirectly acquired by any distributee
corporation or by distributing during the
pre-distribution period in a taxable
transaction.
Section 355(b)(3)(A) provides that for
purposes of determining whether a
corporation meets the requirements of
section 355(b)(2)(A), all members of
such corporation’s separate affiliated
group (SAG) shall be treated as one
corporation. Section 355(b)(3)(B)
provides that for purposes of section
355(b)(3), the term SAG means, with
respect to any corporation, the affiliated
group that would be determined under
section 1504(a) if such corporation were
the common parent and section 1504(b)
did not apply. Section 355(b)(3)(C)
provides that if a corporation became a
SAG member as a result of one or more
taxable transactions, any trade or
business conducted by such corporation
(at the time that such corporation
became such a member) shall be treated
for purposes of section 355(b)(2) as
acquired in a taxable transaction.
Section 355(a)(3)(B) provides that for
purposes of section 355 (other than
section 355(a)(1)(D)) and so much of
section 356 as relates to section 355,
stock of controlled acquired by
distributing by reason of any transaction
(i) which occurs within five years of the
distribution of such stock, and (ii)
which is a taxable transaction, shall not
be treated as stock of controlled, but as
other property.
Section 355(b)(3)(D) provides that the
Secretary shall prescribe such
regulations as are necessary or
appropriate to carry out the purposes of
section 355(b)(3), including regulations
that provide for the proper application
of section 355(b)(2)(B), (C), and (D), and
modify the application of section
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355(a)(3)(B), in connection with the
application of section 355(b)(3).
Pursuant to section 355(b)(3)(D) and
section 7805, temporary regulations (TD
9435) under section 355(a)(3)(B) were
published in the Federal Register (73
FR 75946) on December 15, 2008. A
notice of proposed rulemaking (REG–
150670–07) cross-referencing the
temporary regulation was published in
the Federal Register on the same day
(73 FR 75979). The temporary
regulations were intended to harmonize
the application of section 355(a)(3)(B)
with section 355(b). Generally, the
temporary regulations: (1) Disregarded
transfers of controlled stock between
members of the distributing
corporation’s SAG (DSAG), (2) did not
treat controlled stock as other property
if controlled became a DSAG member,
and (3) retained the exception of prior
regulation § 1.355–2(g) as contained in
26 CFR part 1, revised as of April 1,
2008, for acquisitions from affiliates
described in § 1.355–3(b)(4)(iii).
The preamble to the temporary
regulations requested comments
regarding a variety of issues under
section 355(a)(3)(B). One written
comment responding to the request was
received. No public hearing was
requested or held.
Summary of Comment and Guidance
The comment generally agreed with
the text of the temporary regulations. In
addition, the comment addressed,
among other things, the treatment of
cash paid to acquire controlled stock in
lieu of fractional shares, indirect
acquisitions and acquisitions of
controlled stock by a predecessor to a
member of the DSAG, issuances of
controlled stock, and redemptions of
controlled stock. After considering the
comment, the IRS and Treasury
Department have decided not to expand
the scope of the final regulation to cover
additional situations at this time. These
final regulations adopt the substantive
rules of the temporary regulations
without change.
The IRS and Treasury Department
continue to study the interrelationship
between section 355(a)(3)(B) and section
355(b). No inference regarding the
content of future section 355(b)
guidance should be drawn from these
final regulations. In addition, further
guidance may be issued under section
355(a)(3)(B) in connection with future
section 355(b) guidance if it is necessary
to harmonize the two provisions.
Special Analyses
It has been determined that this
Treasury Decision is not a significant
regulatory action as defined in
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Executive Order 12866, as
supplemented by Executive Order
13563. Therefore, a regulatory
assessment is not required. It is hereby
certified that these final regulations will
not have a significant economic impact
on a substantial number of small
entities. This certification is based on
the fact that section 355(a)(3)(B)
generally applies to parent-subsidiary
groups of corporations, which tend to be
larger businesses, and that these
regulations primarily grant relief from
the application of section 355(a)(3)(B) in
certain situations. Therefore, 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, the
proposed regulations were submitted to
the Chief Counsel for Advocacy of the
Small Business Administration for
comment on their impact on small
business.
Drafting Information
The principal author of these
regulations is Russell P. Subin 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.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding an entry
in numerical order to read in part as
follows:
■
Authority: 26 U.S.C. 7805. * * *
Section 1.355–2(g) and (i) also issued
under 26 U.S.C. 355(b)(3)(D). * * *
Par. 2. Section 1.355–0 is amended by
revising the entries under § 1.355–2(g)
and (i) to read as follows:
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■
§ 1.355–0 Outline of sections.
*
*
*
*
*
§ 1.355–2 Limitations.
*
*
*
*
*
(g) Recently acquired controlled stock
under section 355(a)(3)(B).
(1) Other property.
(2) Exceptions.
(3) DSAG.
(4) Taxable transaction.
(5) Examples.
*
*
*
*
*
(i) Effective/applicability date.
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Par. 3. Section 1.355–1 is amended by
revising paragraph (a) to read as follows:
■
§ 1.355–1 Distribution of stock and
securities of a controlled corporation.
(a) Effective/applicability date of
certain sections. Except as otherwise
provided, this section and §§ 1.355–2
through 1.355–4 apply to transactions
occurring after February 6, 1989. For
transactions occurring on or before that
date, see 26 CFR 1.355–1 through 1.355–
4 (revised as of April 1, 1987). This
section and §§ 1.355–2 through 1.355–4,
other than § 1.355–2(g) and (i), do not
reflect the amendments to section 355
made by the Revenue Act of 1987, the
Technical and Miscellaneous Revenue
Act of 1988, and the Tax Technical
Corrections Act of 2007. For the
applicability date of §§ 1.355–2(g),
1.355–5, 1.355–6, and 1.355–7, see
§§ 1.355–2(i), 1.355–5(e), 1.355–6(g),
and 1.355–7(k), respectively.
*
*
*
*
*
■ Par. 4. Section 1.355–2 is amended by
revising paragraphs (g) and (i) to read as
follows:
§ 1.355–2
Limitations.
*
*
*
*
*
(g) Recently acquired controlled stock
under section 355(a)(3)(B)—(1) Other
property. Except as provided in
paragraph (g)(2) of this section, for
purposes of section 355(a)(1)(A), section
355(c), and so much of section 356 as
relates to section 355, stock of a
controlled corporation acquired by the
DSAG in a taxable transaction (as
defined in paragraph (g)(4) of this
section) within the five-year period
ending on the date of the distribution
(pre-distribution period) shall not be
treated as stock of the controlled
corporation but shall be treated as
‘‘other property.’’ Transfers of
controlled corporation stock that is
owned by the DSAG immediately before
and immediately after the transfer are
disregarded and are not acquisitions for
purposes of this paragraph (g)(1).
(2) Exceptions. Paragraph (g)(1) of this
section does not apply to an acquisition
of stock of the controlled corporation—
(i) If the controlled corporation is a
DSAG member at any time after the
acquisition (but prior to the
distribution); or
(ii) Described in § 1.355–3(b)(4)(iii).
(3) DSAG. For purposes of this
paragraph (g), a DSAG is the distributing
corporation’s separate affiliated group
(the affiliated group which would be
determined under section 1504(a) if
such corporation were the common
parent and section 1504(b) did not
apply) that consists of the distributing
corporation as the common parent and
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all corporations affiliated with the
distributing corporation through stock
ownership described in section
1504(a)(1)(B) (regardless of whether the
corporations are includible corporations
under section 1504(b)). For purposes of
paragraph (g)(1) of this section, any
reference to the DSAG is a reference to
the distributing corporation if it is not
the common parent of a separate
affiliated group.
(4) Taxable transaction—(i) Generally.
For purposes of this paragraph (g), a
taxable transaction is a transaction in
which gain or loss was recognized in
whole or in part.
(ii) Dunn Trust and predecessor
issues. [Reserved].
(5) Examples. The following examples
illustrate this paragraph (g). Assume
that C, D, P, and S are corporations, X
is an unrelated individual, each of the
transactions is unrelated to any other
transaction and, but for the issue of
whether C stock is treated as ‘‘other
property’’ under section 355(a)(3)(B),
the distributions satisfy all of the
requirements of section 355. No
inference should be drawn from any of
these examples as to whether any
requirements of section 355 other than
section 355(a)(3)(B), as specified, are
satisfied. Furthermore, the following
definitions apply:
(i) Purchase is an acquisition that is
a taxable transaction.
(ii) Section 368(c) stock is stock
constituting control within the meaning
of section 368(c).
(iii) Section 1504(a)(2) stock is stock
meeting the requirements of section
1504(a)(2).
Example 1. Hot stock. For more than five
years, D has owned section 368(c) stock but
not section 1504(a)(2) stock of C. In year 6,
D purchases additional C stock from X.
However, D does not own section 1504(a)(2)
stock of C after the year 6 purchase. If D
distributes all of its C stock within five years
after the year 6 purchase, for purposes of
section 355(a)(1)(A), section 355(c), and so
much of section 356 as relates to section 355,
the C stock purchased in year 6 would be
treated as ‘‘other property.’’ See paragraph
(g)(1) of this section.
Example 2. C becomes a DSAG member.
For more than five years, D has owned
section 368(c) stock but not section
1504(a)(2) stock of C. In year 6, D purchases
additional C stock from X such that D’s total
ownership of C is section 1504(a)(2) stock. If
D distributes all of its C stock within five
years after the year 6 purchase, the
distribution of the C stock purchased in year
6 would not be treated as ‘‘other property’’
because C becomes a DSAG member. See
paragraph (g)(2)(i) of this section. The result
would be the same if D did not own any C
stock prior to year 6 and D purchased all of
the C stock in year 6. See paragraph (g)(2)(i)
of this section. Similarly, if D did not own
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Federal Register / Vol. 76, No. 203 / Thursday, October 20, 2011 / Rules and Regulations
any C stock prior to year 6, D purchased 20
percent of the C stock in year 6, and then
acquired all of the remaining C stock in year
7, the C stock purchased in year 6 and the
C stock acquired in year 7 (even if purchased)
would not be treated as ‘‘other property’’
because C becomes a DSAG member. See
paragraph (g)(2)(i) of this section.
Example 3. Intra-SAG transaction. For
more than five years, D has owned all of the
stock of S. D and S, in the aggregate, have
owned section 368(c) stock but not section
1504(a)(2) stock of C. Therefore, D and S are
DSAG members, but C is not. In year 6, D
purchases S’s C stock. If D distributes all of
its C stock within five years after the year 6
purchase, the distribution of the C stock
purchased in year 6 would not be treated as
‘‘other property.’’ D’s purchase of the C stock
from S is disregarded for purposes of
paragraph (g)(1) of this section because that
C stock was owned by the DSAG
immediately before and immediately after the
purchase. See paragraph (g)(1) of this section.
Example 4. Affiliate exception. For more
than five years, P has owned 90 percent of
the sole outstanding class of the stock of D
and a portion of the stock of C, and X has
owned the remaining 10 percent of the D
stock. Throughout this period, D has owned
section 368(c) stock but not section
1504(a)(2) stock of C. In year 6, D purchases
P’s C stock. However, D does not own section
1504(a)(2) stock of C after the year 6
purchase. If D distributes all of its C stock to
X in exchange for X’s D stock within five
years after the year 6 purchase, the
distribution of the C stock purchased in year
6 would not be treated as ‘‘other property’’
because the C stock was purchased from a
member (P) of the affiliated group (as defined
in § 1.355–3(b)(4)(iv)) of which D is a
member, and P did not purchase that C stock
within the pre-distribution period. See
paragraph (g)(2)(ii) of this section.
*
*
*
*
*
(i) Effective/applicability date.
Paragraphs (g)(1) through (g)(5) of this
section apply to distributions occurring
after October 20, 2011. For rules
regarding distributions occurring on or
before October 20, 2011, see § 1.355–
2T(i), as contained in 26 CFR part 1,
revised as of April 1, 2011.
§ 1.355–0T
■
Par. 5. Section 1.355–0T is removed.
§ 1.355–2T
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■
[Removed]
[Removed]
Par. 6. Section 1.355–2T is removed.
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
Approved: October 14, 2011.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury
(Tax Policy).
[FR Doc. 2011–27240 Filed 10–19–11; 8:45 am]
BILLING CODE 4830–01–P
VerDate Mar<15>2010
14:45 Oct 19, 2011
Jkt 226001
DEPARTMENT OF JUSTICE
28 CFR Part 104
[Docket No. CIV 151]
RIN 1105–AB39
James Zadroga 9/11 Health and
Compensation Act of 2010
Department of Justice.
Final rule; correction.
AGENCY:
ACTION:
The Department of Justice is
correcting a final rule that appeared in
the Federal Register of August 31, 2011
(76 FR 54112). That document issued
regulations implementing the
amendments made by the James
Zadroga 9/11 Health and Compensation
Act of 2010 (Zadroga Act) with respect
to the September 11th Victim
Compensation Fund of 2001.
DATES: Effective October 3, 2011.
FOR FURTHER INFORMATION CONTACT:
Kenneth L. Zwick, Director, Office of
Management Programs, Civil Division,
U.S. Department of Justice, Main
Building, Room 3140, 950 Pennsylvania
Avenue, NW., Washington, DC 20530,
telephone 855–885–1555 (TTY 855–
885–1558).
SUPPLEMENTARY INFORMATION: In FR Doc.
2011–22160 appearing on page 54112 in
the Federal Register on Wednesday,
August 31, 2011, the following
correction is made:
1. On page 54119, in the third
column, the paragraph following the
heading ‘‘Small Business Regulatory
Enforcement Fairness Act of 1996’’ is
revised to read as follows:
‘‘The Office of Management and
Budget has determined that this rule is
a major rule as defined by section 251
of the Small Business Regulatory
Enforcement Fairness Act of 1996
(Congressional Review Act), 5 U.S.C.
804. This rule will not result in a major
increase in costs or prices, or significant
adverse effects on competition,
employment, investment, productivity,
innovation, or on the ability of United
States-based companies to compete with
foreign-based companies in domestic
and export markets. However, the
compensation benefits awarded to
eligible claimants will have an annual
beneficial impact on the economy of
$100,000,000 or more in certain years
until the amounts authorized and
appropriated for the Victims
Compensation Fund are fully
distributed.
‘‘Title II of the Zadroga Act reactivates
the September 11th Victim
Compensation Fund of 2001 and
requires a Special Master, appointed by
SUMMARY:
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the Attorney General, to provide
compensation to any individual (or a
personal representative of a deceased
individual) who suffered physical harm
or was killed as a result of the terroristrelated aircraft crashes of September 11,
2001, or the debris removal efforts that
took place in the immediate aftermath of
those crashes. In view of the need to
begin processing compensation claims
as soon as possible, it is impracticable
for the Department to comply with the
requirements of section 801 of the
Congressional Review Act, 5 U.S.C. 801,
pertaining to delayed effective dates of
major rules without unduly delaying the
processing of claims. Section 808(2) of
the Congressional Review Act, 5 U.S.C.
808(2), provides: ‘‘Notwithstanding
section 801—* * * (2) any rule which
an agency for good cause finds (and
incorporates the finding and a brief
statement of reasons therefor in the rule
issued) that notice and public procedure
thereon are impracticable, unnecessary,
or contrary to the public interest, shall
take effect at such time as the Federal
agency promulgating the rule
determines.’’ Were the Department not
to invoke the exception provided in
section 808(2) of the Congressional
Review Act, eligible claimants would
have to wait substantially longer to
begin filing their claims, thereby
impairing Congress’s goal of providing
compensation in as expeditious a
manner as possible (as evidenced by the
short statutory deadline for
implementation). Such a delay in
implementing the compensation process
would be clearly contrary to the public
interest. For the foregoing reasons, the
Special Master finds pursuant to section
808(2) of the Congressional Review Act,
5 U.S.C. 808, that good cause exists to
make this final rule effective October 3,
2011.’’
Dated: October 12, 2011.
Sheila L. Birnbaum,
Special Master.
[FR Doc. 2011–27121 Filed 10–19–11; 8:45 am]
BILLING CODE 4410–12–P
DEPARTMENT OF DEFENSE
Office of the Secretary
32 CFR Part 211
[Docket ID: DOD–2011–OS–0054; RIN 0790–
AI69]
Mission Compatibility Evaluation
Process
Office of the Under Secretary of
Defense for Acquisition, Technology,
and Logistics, DoD.
AGENCY:
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]]>Agencies
[Federal Register Volume 76, Number 203 (Thursday, October 20, 2011)]
[Rules and Regulations]
[Pages 65110-65112]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-27240]
=======================================================================
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9548]
RIN 1545-BH49
Guidance Regarding the Treatment of Stock of a Controlled
Corporation Under Section 355(a)(3)(B)
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations regarding the
distribution of stock of a controlled corporation acquired in a
transaction described in section 355(a)(3)(B) of the Internal Revenue
Code (Code). This action is necessary in light of amendments to section
355(b). These final regulations will affect corporations and their
shareholders.
DATES: Effective Date: These final regulations are effective on October
20, 2011.
Applicability Date: For dates of applicability, see Sec. 1.355-
2(i).
FOR FURTHER INFORMATION CONTACT: Russell P. Subin, (202) 622-7790 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to 26 CFR part 1 regarding
section 355(a)(3)(B).
Section 355(a) provides that, under certain circumstances, a
corporation may distribute stock and securities in a corporation it
controls to its shareholders and security holders without causing
either the distributing corporation (distributing) or its shareholders
and security holders to recognize income, gain, or loss.
Sections 355(a)(1)(C) and 355(b)(1) generally require that
distributing and the controlled corporation (controlled) each be
engaged, immediately after the distribution, in the active conduct of a
trade or business. Section 355(b)(2)(A) provides that a corporation
shall be treated as engaged in the active conduct of a trade or
business if and only if it is engaged in the active conduct of a trade
or business.
Section 355(b)(2)(B) requires that the trade or business have been
actively conducted throughout the five-year period ending on the date
of the distribution (pre-distribution period). Section 355(b)(2)(C)
provides that the trade or business must not have been acquired in a
transaction in which gain or loss was recognized in whole or in part
(taxable transaction) within the pre-distribution period. Section
355(b)(2)(D) provides that control of a corporation that (at the time
of acquisition of control) was conducting the trade or business must
not have been directly or indirectly acquired by any distributee
corporation or by distributing during the pre-distribution period in a
taxable transaction.
Section 355(b)(3)(A) provides that for purposes of determining
whether a corporation meets the requirements of section 355(b)(2)(A),
all members of such corporation's separate affiliated group (SAG) shall
be treated as one corporation. Section 355(b)(3)(B) provides that for
purposes of section 355(b)(3), the term SAG means, with respect to any
corporation, the affiliated group that would be determined under
section 1504(a) if such corporation were the common parent and section
1504(b) did not apply. Section 355(b)(3)(C) provides that if a
corporation became a SAG member as a result of one or more taxable
transactions, any trade or business conducted by such corporation (at
the time that such corporation became such a member) shall be treated
for purposes of section 355(b)(2) as acquired in a taxable transaction.
Section 355(a)(3)(B) provides that for purposes of section 355
(other than section 355(a)(1)(D)) and so much of section 356 as relates
to section 355, stock of controlled acquired by distributing by reason
of any transaction (i) which occurs within five years of the
distribution of such stock, and (ii) which is a taxable transaction,
shall not be treated as stock of controlled, but as other property.
Section 355(b)(3)(D) provides that the Secretary shall prescribe
such regulations as are necessary or appropriate to carry out the
purposes of section 355(b)(3), including regulations that provide for
the proper application of section 355(b)(2)(B), (C), and (D), and
modify the application of section 355(a)(3)(B), in connection with the
application of section 355(b)(3).
Pursuant to section 355(b)(3)(D) and section 7805, temporary
regulations (TD 9435) under section 355(a)(3)(B) were published in the
Federal Register (73 FR 75946) on December 15, 2008. A notice of
proposed rulemaking (REG-150670-07) cross-referencing the temporary
regulation was published in the Federal Register on the same day (73 FR
75979). The temporary regulations were intended to harmonize the
application of section 355(a)(3)(B) with section 355(b). Generally, the
temporary regulations: (1) Disregarded transfers of controlled stock
between members of the distributing corporation's SAG (DSAG), (2) did
not treat controlled stock as other property if controlled became a
DSAG member, and (3) retained the exception of prior regulation Sec.
1.355-2(g) as contained in 26 CFR part 1, revised as of April 1, 2008,
for acquisitions from affiliates described in Sec. 1.355-3(b)(4)(iii).
The preamble to the temporary regulations requested comments
regarding a variety of issues under section 355(a)(3)(B). One written
comment responding to the request was received. No public hearing was
requested or held.
Summary of Comment and Guidance
The comment generally agreed with the text of the temporary
regulations. In addition, the comment addressed, among other things,
the treatment of cash paid to acquire controlled stock in lieu of
fractional shares, indirect acquisitions and acquisitions of controlled
stock by a predecessor to a member of the DSAG, issuances of controlled
stock, and redemptions of controlled stock. After considering the
comment, the IRS and Treasury Department have decided not to expand the
scope of the final regulation to cover additional situations at this
time. These final regulations adopt the substantive rules of the
temporary regulations without change.
The IRS and Treasury Department continue to study the
interrelationship between section 355(a)(3)(B) and section 355(b). No
inference regarding the content of future section 355(b) guidance
should be drawn from these final regulations. In addition, further
guidance may be issued under section 355(a)(3)(B) in connection with
future section 355(b) guidance if it is necessary to harmonize the two
provisions.
Special Analyses
It has been determined that this Treasury Decision is not a
significant regulatory action as defined in
[[Page 65111]]
Executive Order 12866, as supplemented by Executive Order 13563.
Therefore, a regulatory assessment is not required. It is hereby
certified that these final regulations will not have a significant
economic impact on a substantial number of small entities. This
certification is based on the fact that section 355(a)(3)(B) generally
applies to parent-subsidiary groups of corporations, which tend to be
larger businesses, and that these regulations primarily grant relief
from the application of section 355(a)(3)(B) in certain situations.
Therefore, 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, the proposed regulations were submitted to
the Chief Counsel for Advocacy of the Small Business Administration for
comment on their impact on small business.
Drafting Information
The principal author of these regulations is Russell P. Subin 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.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding an
entry in numerical order to read in part as follows:
Authority: 26 U.S.C. 7805. * * *
Section 1.355-2(g) and (i) also issued under 26 U.S.C.
355(b)(3)(D). * * *
0
Par. 2. Section 1.355-0 is amended by revising the entries under Sec.
1.355-2(g) and (i) to read as follows:
Sec. 1.355-0 Outline of sections.
* * * * *
Sec. 1.355-2 Limitations.
* * * * *
(g) Recently acquired controlled stock under section 355(a)(3)(B).
(1) Other property.
(2) Exceptions.
(3) DSAG.
(4) Taxable transaction.
(5) Examples.
* * * * *
(i) Effective/applicability date.
0
Par. 3. Section 1.355-1 is amended by revising paragraph (a) to read as
follows:
Sec. 1.355-1 Distribution of stock and securities of a controlled
corporation.
(a) Effective/applicability date of certain sections. Except as
otherwise provided, this section and Sec. Sec. 1.355-2 through 1.355-4
apply to transactions occurring after February 6, 1989. For
transactions occurring on or before that date, see 26 CFR 1.355-1
through 1.355-4 (revised as of April 1, 1987). This section and
Sec. Sec. 1.355-2 through 1.355-4, other than Sec. 1.355-2(g) and
(i), do not reflect the amendments to section 355 made by the Revenue
Act of 1987, the Technical and Miscellaneous Revenue Act of 1988, and
the Tax Technical Corrections Act of 2007. For the applicability date
of Sec. Sec. 1.355-2(g), 1.355-5, 1.355-6, and 1.355-7, see Sec. Sec.
1.355-2(i), 1.355-5(e), 1.355-6(g), and 1.355-7(k), respectively.
* * * * *
0
Par. 4. Section 1.355-2 is amended by revising paragraphs (g) and (i)
to read as follows:
Sec. 1.355-2 Limitations.
* * * * *
(g) Recently acquired controlled stock under section 355(a)(3)(B)--
(1) Other property. Except as provided in paragraph (g)(2) of this
section, for purposes of section 355(a)(1)(A), section 355(c), and so
much of section 356 as relates to section 355, stock of a controlled
corporation acquired by the DSAG in a taxable transaction (as defined
in paragraph (g)(4) of this section) within the five-year period ending
on the date of the distribution (pre-distribution period) shall not be
treated as stock of the controlled corporation but shall be treated as
``other property.'' Transfers of controlled corporation stock that is
owned by the DSAG immediately before and immediately after the transfer
are disregarded and are not acquisitions for purposes of this paragraph
(g)(1).
(2) Exceptions. Paragraph (g)(1) of this section does not apply to
an acquisition of stock of the controlled corporation--
(i) If the controlled corporation is a DSAG member at any time
after the acquisition (but prior to the distribution); or
(ii) Described in Sec. 1.355-3(b)(4)(iii).
(3) DSAG. For purposes of this paragraph (g), a DSAG is the
distributing corporation's separate affiliated group (the affiliated
group which would be determined under section 1504(a) if such
corporation were the common parent and section 1504(b) did not apply)
that consists of the distributing corporation as the common parent and
all corporations affiliated with the distributing corporation through
stock ownership described in section 1504(a)(1)(B) (regardless of
whether the corporations are includible corporations under section
1504(b)). For purposes of paragraph (g)(1) of this section, any
reference to the DSAG is a reference to the distributing corporation if
it is not the common parent of a separate affiliated group.
(4) Taxable transaction--(i) Generally. For purposes of this
paragraph (g), a taxable transaction is a transaction in which gain or
loss was recognized in whole or in part.
(ii) Dunn Trust and predecessor issues. [Reserved].
(5) Examples. The following examples illustrate this paragraph (g).
Assume that C, D, P, and S are corporations, X is an unrelated
individual, each of the transactions is unrelated to any other
transaction and, but for the issue of whether C stock is treated as
``other property'' under section 355(a)(3)(B), the distributions
satisfy all of the requirements of section 355. No inference should be
drawn from any of these examples as to whether any requirements of
section 355 other than section 355(a)(3)(B), as specified, are
satisfied. Furthermore, the following definitions apply:
(i) Purchase is an acquisition that is a taxable transaction.
(ii) Section 368(c) stock is stock constituting control within the
meaning of section 368(c).
(iii) Section 1504(a)(2) stock is stock meeting the requirements of
section 1504(a)(2).
Example 1. Hot stock. For more than five years, D has owned
section 368(c) stock but not section 1504(a)(2) stock of C. In year
6, D purchases additional C stock from X. However, D does not own
section 1504(a)(2) stock of C after the year 6 purchase. If D
distributes all of its C stock within five years after the year 6
purchase, for purposes of section 355(a)(1)(A), section 355(c), and
so much of section 356 as relates to section 355, the C stock
purchased in year 6 would be treated as ``other property.'' See
paragraph (g)(1) of this section.
Example 2. C becomes a DSAG member. For more than five years, D
has owned section 368(c) stock but not section 1504(a)(2) stock of
C. In year 6, D purchases additional C stock from X such that D's
total ownership of C is section 1504(a)(2) stock. If D distributes
all of its C stock within five years after the year 6 purchase, the
distribution of the C stock purchased in year 6 would not be treated
as ``other property'' because C becomes a DSAG member. See paragraph
(g)(2)(i) of this section. The result would be the same if D did not
own any C stock prior to year 6 and D purchased all of the C stock
in year 6. See paragraph (g)(2)(i) of this section. Similarly, if D
did not own
[[Page 65112]]
any C stock prior to year 6, D purchased 20 percent of the C stock
in year 6, and then acquired all of the remaining C stock in year 7,
the C stock purchased in year 6 and the C stock acquired in year 7
(even if purchased) would not be treated as ``other property''
because C becomes a DSAG member. See paragraph (g)(2)(i) of this
section.
Example 3. Intra-SAG transaction. For more than five years, D
has owned all of the stock of S. D and S, in the aggregate, have
owned section 368(c) stock but not section 1504(a)(2) stock of C.
Therefore, D and S are DSAG members, but C is not. In year 6, D
purchases S's C stock. If D distributes all of its C stock within
five years after the year 6 purchase, the distribution of the C
stock purchased in year 6 would not be treated as ``other
property.'' D's purchase of the C stock from S is disregarded for
purposes of paragraph (g)(1) of this section because that C stock
was owned by the DSAG immediately before and immediately after the
purchase. See paragraph (g)(1) of this section.
Example 4. Affiliate exception. For more than five years, P has
owned 90 percent of the sole outstanding class of the stock of D and
a portion of the stock of C, and X has owned the remaining 10
percent of the D stock. Throughout this period, D has owned section
368(c) stock but not section 1504(a)(2) stock of C. In year 6, D
purchases P's C stock. However, D does not own section 1504(a)(2)
stock of C after the year 6 purchase. If D distributes all of its C
stock to X in exchange for X's D stock within five years after the
year 6 purchase, the distribution of the C stock purchased in year 6
would not be treated as ``other property'' because the C stock was
purchased from a member (P) of the affiliated group (as defined in
Sec. 1.355-3(b)(4)(iv)) of which D is a member, and P did not
purchase that C stock within the pre-distribution period. See
paragraph (g)(2)(ii) of this section.
* * * * *
(i) Effective/applicability date. Paragraphs (g)(1) through (g)(5)
of this section apply to distributions occurring after October 20,
2011. For rules regarding distributions occurring on or before October
20, 2011, see Sec. 1.355-2T(i), as contained in 26 CFR part 1, revised
as of April 1, 2011.
Sec. 1.355-0T [Removed]
0
Par. 5. Section 1.355-0T is removed.
Sec. 1.355-2T [Removed]
0
Par. 6. Section 1.355-2T is removed.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Approved: October 14, 2011.
Emily S. McMahon,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2011-27240 Filed 10-19-11; 8:45 am]
BILLING CODE 4830-01-P
