Partnerships; Start-Up Expenditures; Organization and Syndication Fees, 73753-73756 [2013-29177]

Download as PDF Federal Register / Vol. 78, No. 236 / Monday, December 9, 2013 / Proposed Rules regulatory, aeronautical, economic, environmental, and energy-related aspects of the proposal. Communications should identify both docket numbers and be submitted in triplicate to the address listed above. Commenters wishing the FAA to acknowledge receipt of their comments on this notice must submit with those comments a self-addressed, stamped postcard on which the following statement is made: ‘‘Comments to Docket No. FAA–2013–0842/Airspace Docket No. 13–AGL–27.’’ The postcard will be date/time stamped and returned to the commenter. maindgalligan on DSK5TPTVN1PROD with PROPOSALS Availability of NPRMs An electronic copy of this document may be downloaded through the Internet at http://www.regulations.gov. Recently published rulemaking documents can also be accessed through the FAA’s Web page at http:// www.faa.gov/airports_airtraffic/air_ traffic/publications/ airspace_amendments/. You may review the public docket containing the proposal, any comments received and any final disposition in person in the Dockets Office (see ADDRESSES section for address and phone number) between 9:00 a.m. and 5:00 p.m., Monday through Friday, except Federal holidays. An informal docket may also be examined during normal business hours at the office of the Central Service Center, 2601 Meacham Blvd., Fort Worth, TX 76137. Persons interested in being placed on a mailing list for future NPRMs should contact the FAA’s Office of Rulemaking 202 267–9677, to request a copy of Advisory Circular No. 11–2A, Notice of Proposed Rulemaking Distribution System, which describes the application procedure. The Proposal This action proposes to amend Title 14, Code of Federal Regulations (14 CFR), Part 71 by establishing Class E airspace designated as a surface area within a 4.4-mile radius of Mansfield Lahm Regional Airport, Mansfield, OH, with a small segment extending from the 4.4-mile radius of the airport to 4.8 miles northwest of the airport, to accommodate military mission changes at the airport. Controlled airspace is needed for the safety and management of IFR operations that the Air National Guard units will need to conduct airdrop and other low level training during hours when the control tower is closed. Class E airspace areas are published in Paragraph 6002 of FAA Order 7400.9X, dated August 7, 2013 and VerDate Mar<15>2010 15:53 Dec 06, 2013 Jkt 232001 effective September 15, 2013, which is incorporated by reference in 14 CFR 71.1. The Class E airspace designation listed in this document would be published subsequently in the Order. The FAA has determined that this proposed regulation only involves an established body of technical regulations for which frequent and routine amendments are necessary to keep them operationally current. It, therefore, (1) is not a ‘‘significant regulatory action’’ under Executive Order 12866; (2) is not a ‘‘significant rule’’ under DOT Regulatory Policies and Procedures (44 FR 11034; February 26, 1979); and (3) does not warrant preparation of a Regulatory Evaluation as the anticipated impact is so minimal. Since this is a routine matter that will only affect air traffic procedures and air navigation, it is certified that this rule, when promulgated, will not have a significant economic impact on a substantial number of small entities under the criteria of the Regulatory Flexibility Act. The FAA’s authority to issue rules regarding aviation safety is found in Title 49 of the U.S. Code. Subtitle 1, Section 106 describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the agency’s authority. This rulemaking is promulgated under the authority described in Subtitle VII, Part A, Subpart I, Section 40103. Under that section, the FAA is charged with prescribing regulations to assign the use of airspace necessary to ensure the safety of aircraft and the efficient use of airspace. This regulation is within the scope of that authority as it would establish controlled airspace at Mansfield Lahm Regional Airport, Mansfield, OH. Environmental Review This proposal will be subject to an environmental analysis in accordance with FAA Order 1050.1E, ‘‘Environmental Impacts: Policies and Procedures’’ prior to any FAA final regulatory action. List of Subjects in 14 CFR Part 71 Airspace, Incorporation by reference, Navigation (air). The Proposed Amendment In consideration of the foregoing, the Federal Aviation Administration proposes to amend 14 CFR Part 71 as follows: PO 00000 Frm 00017 Fmt 4702 Sfmt 4702 73753 PART 71—DESIGNATION OF CLASS A, B, C, D, AND E AIRSPACE AREAS; AIR TRAFFIC SERVICE ROUTES; AND REPORTING POINTS 1. The authority citation for part 71 continues to read as follows: ■ Authority: 49 U.S.C. 106(g); 40103, 40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959– 1963 Comp., p. 389. § 71.1 [Amended] 2. The incorporation by reference in 14 CFR 71.1 of FAA Order 7400.9X, Airspace Designations and Reporting Points, dated August 7, 2013, and effective September 15, 2013, is amended as follows: ■ Paragraph 6002: Class E Airspace Designated as Surface Areas * * * * * AGL OH E2 Mansfield, OH [New] Mansfield Lahm Regional Airport, OH (Lat. 40°49′17″ N., long. 82°31′00″ W.) Mansfield VORTAC (Lat. 40°52′07″ N., long. 82°35′27″ W.) Within a 4.4-mile radius of Mansfield Lahm Regional Airport, and within 1.7 miles each side of the Mansfield VORTAC 307° radial extending from the 4.4-mile radius to 4.8 miles northwest of the airport. Issued in Fort Worth, TX, on November 25, 2013. David P. Medina, Manager, Operations Support Group, ATO Central Service Center. [FR Doc. 2013–29243 Filed 12–6–13; 8:45 am] BILLING CODE 4901–13–P DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [REG–126285–12] RIN 1545–BL06 Partnerships; Start-Up Expenditures; Organization and Syndication Fees Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking. AGENCY: This document contains proposed regulations concerning the deductibility of start-up expenditures and organizational expenses for partnerships. The proposed regulations provide guidance regarding the deductibility of start-up expenditures and organizational expenses for partnerships following a technical termination of a partnership. DATES: Written or electronic comments must be received by March 10, 2014. SUMMARY: E:\FR\FM\09DEP1.SGM 09DEP1 73754 Federal Register / Vol. 78, No. 236 / Monday, December 9, 2013 / Proposed Rules Send submissions to: CC:PA:LPD:PR (REG–126285–12), 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–126285– 12), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC, or sent electronically, via the Federal eRulemaking portal at www.regulations.gov (IRS REG–126285– 12) ADDRESSES: FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, David H. Kirk or Rachel Smith at (202) 317–6852; concerning submissions of comments or to request a hearing, Oluwafunmilayo Taylor, (202) 317–6901 (not toll-free numbers). SUPPLEMENTARY INFORMATION: Background This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 708(b) of the Internal Revenue Code (Code). maindgalligan on DSK5TPTVN1PROD with PROPOSALS 1. Section 708: Continuation of Partnership Section 708(a) generally provides that, for purposes of subchapter K of chapter 1 of subtitle A of Title 26, an existing partnership shall be considered as continuing if it is not terminated. Section 708(b)(1) provides that, for purposes of section 708(a), a partnership shall be considered as terminated only if (A) no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership, or (B) within a 12-month period there is a sale or exchange of 50 percent or more of the total interest in partnership capital and profits. Section 1.708–1(b)(4) of the Income Tax Regulations provides that if a partnership is terminated by a sale or exchange of an interest, the following is deemed to occur: the partnership contributes all of its assets and liabilities to a new partnership in exchange for an interest in the new partnership; immediately thereafter, the terminated partnership distributes interests in the new partnership to the purchasing partner and the other remaining partners in proportion to their respective interests in the terminated partnership in liquidation of the terminated partnership, either for the continuation of the business by the new partnership or for its dissolution and winding up. VerDate Mar<15>2010 15:53 Dec 06, 2013 Jkt 232001 2. Section 195 Start-Up Expenditures Section 195(a) provides that, except as otherwise provided in section 195, no deduction shall be allowed for start-up expenditures (as defined in section 195(c)(1)). Section 195(b)(1) provides that a taxpayer may elect to deduct startup expenditures as provided in section 195(b)(1)(A) and (B). Section 195(b)(1)(A) allows an electing taxpayer to deduct start-up expenditures in the taxable year in which the active trade or business begins. The amount that may be deducted under section 195(b)(1)(A) in that year is the lesser of (i) the amount of start-up expenditures with respect to the active trade or business, or (ii) $5,000, reduced (but not below zero) by the amount by which the start-up expenditures exceed $50,000. Section 195(b)(1)(B) provides that any start-up expenditures that are not deductible under section 195(b)(1)(A) shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the active trade or business begins. All start-up expenditures that relate to the active trade or business are considered in determining whether the start-up expenditures exceed $50,000, including expenditures incurred on or before October 22, 2004. Section 902(a) of the American Jobs Creation Act of 2004, Pub. L. 108–357, 118 Stat. 1418 (‘‘AJCA’’), amended section 195(b)(1) for start-up expenditures paid or incurred after October 22, 2004. Prior to the AJCA amendment, section 195(b)(1) (former section 195(b)(1)) allowed taxpayers to elect to treat such expenditures as deferred expenses deductible ratably over a period of at least 60 months. Section 1.195–1(b) provides that, for start-up expenditures paid or incurred after August 16, 2011(the effective date of § 1.195–1(b)), a taxpayer is deemed to make an election under section 195(b) to amortize start-up expenditures for the taxable year in which the active trade or business to which the expenditures relate begins. However, taxpayers may apply all provisions of § 1.195–1 to start-up expenditures paid or incurred after October 22, 2004, provided that the period of limitations on assessment of tax for the year the election under § 1.195–1(b) is deemed made has not expired. Section 195(b)(2) provides that in any case in which a trade or business is completely disposed of by the taxpayer before the end of the amortization period, any deferred expenses attributable to such trade or business that were not allowed as a deduction by reason of section 195 may be deducted PO 00000 Frm 00018 Fmt 4702 Sfmt 4702 to the extent allowable under section 165. 3. Section 709: Treatment of Organization and Syndication Fees Section 709(a) provides that, except as otherwise provided in section 709(b), no deduction shall be allowed for any amounts paid or incurred to organize a partnership or to promote the sale of (or to sell) an interest in the partnership. Section 709(b) provides that a partnership may elect to deduct organizational expenses, within the meaning of section 709(b)(3), as provided in section 709(b)(1)(A) and (B). Section 709(b)(1)(A) allows an electing partnership to deduct organizational expenses in the year in which the partnership begins business. The amount that may be deducted under section 709(b)(1)(A) in that year is the lesser of (i) the amount of the organizational expenses of the partnership, or (ii) $5,000, reduced (but not below zero) by the amount by which the organizational expenses exceed $50,000. Section 709(b)(1)(B) provides that any organizational expenses that are not deductible under section 709(b)(1)(A) shall be allowed as a deduction ratably over the 180-month period beginning with the month in which the partnership begins business. All organizational expenses incurred by the partnership are considered in determining whether the organizational expenses exceed $50,000, including expenses incurred on or before October 22, 2004. Prior to October 22, 2004, section 709(b) contained a rule similar to former section 195(b)(1). Section 1.709–1(b)(2) provides that, for organizational expenses as defined in section 709(b)(3) and § 1.709–2(a) paid or incurred after August 16, 2011 (the effective date of § 1.709–1(b)(2)), a partnership is deemed to make an election under section 709(b) to amortize organizational expenses for the taxable year in which the partnership begins business. However, taxpayers may apply all provisions of § 1.709–1 to organizational expenses paid or incurred after October 22, 2004, provided that the period of limitations on assessment of tax for the year the election under § 1.709–1(b)(2) is deemed made has not expired. Section 709(b)(2) provides that in any case in which a partnership is liquidated before the end of the amortization period, any deferred expenses attributable to the partnership that were not allowed as a deduction by reason of section 709 may be deducted to the extent allowable under section 165. See also § 1.709–1(b)(3). However, E:\FR\FM\09DEP1.SGM 09DEP1 Federal Register / Vol. 78, No. 236 / Monday, December 9, 2013 / Proposed Rules maindgalligan on DSK5TPTVN1PROD with PROPOSALS there is no partnership deduction with respect to its capitalized syndication expenses. Id. Explanation of Provisions The Treasury Department and the IRS are aware that some taxpayers are taking the position that a technical termination under section 708(b)(1)(B) entitles a partnership to deduct unamortized startup expenses and organizational expenses to the extent provided under section 165. The Treasury Department and the IRS believe this result is contrary to the congressional intent underlying sections 195, 708, and 709. Therefore, the proposed regulations amend § 1.708–1 to provide that a new partnership formed due to a transaction, or series of transactions, described in section 708(b)(1)(B) must continue amortizing the section 195 and section 709 expenses using the same amortization period adopted by the terminating partnership. The legislative purpose of sections 195 and 709 was to allow expenses incurred in the formation of a partnership to be deducted ratably over the period during which the partnership benefits from those initial expenses. Section 195 and 709 provide that this period begins with the commencement of business (which must be an active trade or business in the case of section 195) and closes after 180 months, or when the business ceases, if earlier. The Treasury Department and the IRS believe that a technical termination under section 708(b)(1)(B) should not constitute a cessation of a trade or business to which the section 195 or section 709 expenses relate, nor does it otherwise constitute the type of disposition or liquidation that should trigger deduction of deferred section 195 or section 709 expenses. Moreover, the Conference Report issued in conjunction with the enactment of AJCA treated start-up expenditures under section 195 and organizational expenditures under section 709 as analogous to other intangible business assets described in section 197, and accordingly determined that the period for the amortization of start-up expenditures and organizational expenditures should be consistent with the fifteen year amortization period for section 197 intangibles. H. Rep. No. 108–755, at 776–77 (October 07, 2004). Section 1.197–2(g)(2)(ii)(B) provides, generally, that in the case of a section 721 transaction in which an amortizable section 197 intangible is transferred to a partnership, the transferee partnership will continue to amortize its adjusted basis, to the extent it does not exceed VerDate Mar<15>2010 15:53 Dec 06, 2013 Jkt 232001 the transferor’s adjusted basis, ratably over the remainder of the transferor’s 15-year amortization period. Section 1.197–2(g)(2)(iv)(B) provides that in applying § 1.197–2(g)(2)(ii)(B) to a partnership that is terminated pursuant to section 708(b)(1)(B), the terminated partnership is treated as the transferor and the new partnership is treated as the transferee with respect to any section 197 intangible held by the terminated partnership immediately preceding the termination. Consistent with Congress’ intent of aligning the amortization of start-up and organizational expenditures with the treatment of section 197 intangibles, the new partnership resulting from a technical termination under section 708(b)(1)(B) should similarly continue to amortize the section 195 and section 709 expenses using the same amortization period adopted by the terminated partnership. Practitioners suggested guidance on this issue to alleviate uncertainty regarding the proper treatment of these items when a partnership undergoes a technical termination. One alternative to the rule set forth above would allow the terminating partnership to immediately deduct any unamortized section 195 or section 709 items to the extent provided under section 165 on the effective date of the termination (as defined in § 1.708–1(b)(3)(ii)). However, the Treasury Department and the IRS decline to adopt this alternative, which as noted above would be inconsistent with Congress’ intent to treat section 195 and section 709 items consistently with section 197 intangibles, and which might provide incentives for taxpayers to structure transactions in order to inappropriately accelerate the deduction of section 195 or section 709 expenses shortly after those expenses are incurred. Proposed Effective/Applicability Date These regulations, when published in their final form in the Federal Register, will apply to technical terminations that occur on or after December 9, 2013. Special Analyses It has been determined that these proposed regulations are not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has 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 regulation does not impose a collection of information on small entities, the PO 00000 Frm 00019 Fmt 4702 Sfmt 4702 73755 Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, these regulations have 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 written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the 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 author of these proposed regulations is David H. Kirk, IRS Office of the Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and the Treasury Department participated in their development. 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 1.195–2 is added to read as follows: ■ § 1.195–2 Technical termination of a partnership. (a) In general. If a partnership that has elected to amortize start-up expenditures under section 195(b) and § 1.195–1 terminates in a transaction (or a series of transactions) described in section 708(b)(1)(B) or § 1.708–1(b)(2), the termination shall not be treated as resulting in a disposition of the partnership’s trade or business for purposes of section 195(b)(2). See § 1.708–1(b)(6) for rules concerning the treatment of these start-up expenditures by the new partnership. E:\FR\FM\09DEP1.SGM 09DEP1 73756 Federal Register / Vol. 78, No. 236 / Monday, December 9, 2013 / Proposed Rules (b) Effective/applicability date. This section applies to a technical termination of a partnership under section 708(b)(1)(B) that occurs on or after December 9, 2013. ■ Par. 3. Section 1.708–1 is amended by adding paragraph (b)(6) to read as follows: termination of a partnership under section 708(b)(1)(B) that occurs on or after December 9, 2013. Heather C. Maloy, Deputy Commissioner for Operations Support. [FR Doc. 2013–29177 Filed 12–6–13; 8:45 am] BILLING CODE 4830–01–P § 1.708–1 Continuation of partnership. * * * * * (b) * * * (6) Treatment of certain start-up or organizational expenses following a technical termination—(i) In general. If a partnership that has elected to amortize start-up expenditures under section 195(b) or organizational expenses under section 709(b)(1) terminates in a transaction (or a series of transactions) described in section 708(b)(1)(B) or paragraph (b)(2) of this section, the new partnership must continue to amortize those expenditures using the same amortization period adopted by the terminating partnership. See section 195 and § 1.195–1 for rules concerning the amortization of start-up expenditures and section 709 and § 1.709–1 for rules concerning the amortization of organizational expenses. (ii) Effective/applicability date. This paragraph (b)(6) applies to a technical termination of a partnership under section 708(b)(1)(B) that occurs on or after December 9, 2013. * * * * * ■ Par. 4. Section 1.709–1 is amended by: ■ 1. Designating the text in paragraph (b)(3) as paragraph (b)(3)(i), adding a heading to newly designated paragraph (b)(3)(i) and adding paragraph (b)(3)(ii); ■ 2. Adding a sentence at the end of paragraph (b)(5). The additions read as follows: § 1.709–1 Treatment of organization and syndication costs. maindgalligan on DSK5TPTVN1PROD with PROPOSALS * * * * * (b) * * * (3) Liquidation of partnership—(i) In general. * * * (ii) Technical termination of a partnership. If a partnership that has elected to amortize organizational costs under section 709(b) terminates in a transaction (or a series of transactions) described in section 708(b)(1)(B) or § 1.708–1(b)(2), the termination shall not be treated as resulting in a liquidation of the partnership for purposes of section 709(b)(2). See § 1.708–1(b)(6) for rules concerning the treatment of these organizational costs by the new partnership. * * * (5) * * * Paragraph (b)(3)(ii) of this section applies to a technical VerDate Mar<15>2010 15:53 Dec 06, 2013 Jkt 232001 DEPARTMENT OF LABOR Occupational Safety and Health Administration 29 CFR Part 1910 [Docket No. OSHA–2013–0020] RIN 1218–AC82 Process Safety Management and Prevention of Major Chemical Accidents Occupational Safety and Health Administration (OSHA), Department of Labor. ACTION: Request for information. AGENCY: In response to Executive Order 13650, OSHA requests comment on potential revisions to its Process Safety Management (PSM) standard and its Explosives and Blasting Agents standard, potential updates to its Flammable Liquids standard and Spray Finishing standard, and potential changes to PSM enforcement policies. In this Request for Information (RFI), the Agency asks for information and data on specific rulemaking and policy options, and the workplace hazards they address. OSHA will use the information received in response to this RFI to determine what action, if any, it may take. DATES: Submit comments and additional material on this Request for Information March 10, 2014. All submissions must bear a postmark or provide other evidence of the submission date. The following section describes the available methods for making submissions. ADDRESSES: Submit comments and additional materials by any of the following methods: Electronically: Submit comments and attachments electronically at http:// www.regulations.gov, which is the Federal eRulemaking Portal. Follow the instructions online for making electronic submissions. Facsimile: OSHA allows facsimile transmission of comments and additional material that are 10 pages or fewer in length (including attachments). Send these documents to the OSHA Docket Office at (202) 693–1648. OSHA does not require hard copies of these SUMMARY: PO 00000 Frm 00020 Fmt 4702 Sfmt 4702 documents. Instead of transmitting facsimile copies of attachments that supplement these documents (for example, studies, journal articles), commenters must submit these attachments to the OSHA Docket Office, Technical Data Center, Room N–2625, OSHA, U.S. Department of Labor, 200 Constitution Ave. NW., Washington, DC 20210. These attachments must identify clearly the sender’s name, the date, subject, and docket number (OSHA– 2013–0020) so that the Docket Office can attach them to the appropriate document. Regular mail, express mail, hand delivery, or messenger (courier) service: Submit comments and any additional material (for example, studies, journal articles) to the OSHA Docket Office, Docket No. OSHA–2013–0020 or RIN 1218–AC82, Technical Data Center, Room N–2625, OSHA, U.S. Department of Labor, 200 Constitution Ave. NW., Washington, DC 20210; telephone: (202) 693–2350. (OSHA’s TTY number is (877) 889–5627.) Contact the OSHA Docket Office for information about security procedures concerning delivery of materials by express mail, hand delivery, and messenger service. The hours of operation for the OSHA Docket Office are 8:15 a.m. to 4:45 p.m., e.t. Instructions: All submissions must include the Agency’s name and the docket number for this Request for Information (that is, OSHA–2013–0020). OSHA will place comments and other material, including any personal information, in the public docket without revision, and these materials will be available online at http:// www.regulations.gov. Therefore, OSHA cautions commenters about submitting statements they do not want made available to the public and submitting comments that contain personal information (either about themselves or others) such as Social Security numbers, birth dates, and medical data. If you submit scientific or technical studies or other results of scientific research, OSHA requests (but is not requiring) that you also provide the following information where it is available: (1) Identification of the funding source(s) and sponsoring organization(s) of the research; (2) the extent to which the research findings were reviewed by a potentially affected party prior to publication or submission to the docket, and identification of any such parties; and (3) the nature of any financial relationships (e.g., consulting agreements, expert witness support, or research funding) between investigators who conducted the research and any organization(s) or entities having an interest in the rulemaking and policy E:\FR\FM\09DEP1.SGM 09DEP1

Agencies

[Federal Register Volume 78, Number 236 (Monday, December 9, 2013)]
[Proposed Rules]
[Pages 73753-73756]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-29177]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-126285-12]
RIN 1545-BL06


Partnerships; Start-Up Expenditures; Organization and Syndication 
Fees

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: This document contains proposed regulations concerning the 
deductibility of start-up expenditures and organizational expenses for 
partnerships. The proposed regulations provide guidance regarding the 
deductibility of start-up expenditures and organizational expenses for 
partnerships following a technical termination of a partnership.

DATES: Written or electronic comments must be received by March 10, 
2014.

[[Page 73754]]


ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-126285-12), 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-
126285-12), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically, via the Federal 
eRulemaking portal at www.regulations.gov (IRS REG-126285-12)

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
David H. Kirk or Rachel Smith at (202) 317-6852; concerning submissions 
of comments or to request a hearing, Oluwafunmilayo Taylor, (202) 317-
6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed amendments to the Income Tax 
Regulations (26 CFR part 1) under section 708(b) of the Internal 
Revenue Code (Code).

1. Section 708: Continuation of Partnership

    Section 708(a) generally provides that, for purposes of subchapter 
K of chapter 1 of subtitle A of Title 26, an existing partnership shall 
be considered as continuing if it is not terminated.
    Section 708(b)(1) provides that, for purposes of section 708(a), a 
partnership shall be considered as terminated only if (A) no part of 
any business, financial operation, or venture of the partnership 
continues to be carried on by any of its partners in a partnership, or 
(B) within a 12-month period there is a sale or exchange of 50 percent 
or more of the total interest in partnership capital and profits.
    Section 1.708-1(b)(4) of the Income Tax Regulations provides that 
if a partnership is terminated by a sale or exchange of an interest, 
the following is deemed to occur: the partnership contributes all of 
its assets and liabilities to a new partnership in exchange for an 
interest in the new partnership; immediately thereafter, the terminated 
partnership distributes interests in the new partnership to the 
purchasing partner and the other remaining partners in proportion to 
their respective interests in the terminated partnership in liquidation 
of the terminated partnership, either for the continuation of the 
business by the new partnership or for its dissolution and winding up.

2. Section 195 Start-Up Expenditures

    Section 195(a) provides that, except as otherwise provided in 
section 195, no deduction shall be allowed for start-up expenditures 
(as defined in section 195(c)(1)). Section 195(b)(1) provides that a 
taxpayer may elect to deduct start-up expenditures as provided in 
section 195(b)(1)(A) and (B).
    Section 195(b)(1)(A) allows an electing taxpayer to deduct start-up 
expenditures in the taxable year in which the active trade or business 
begins. The amount that may be deducted under section 195(b)(1)(A) in 
that year is the lesser of (i) the amount of start-up expenditures with 
respect to the active trade or business, or (ii) $5,000, reduced (but 
not below zero) by the amount by which the start-up expenditures exceed 
$50,000.
    Section 195(b)(1)(B) provides that any start-up expenditures that 
are not deductible under section 195(b)(1)(A) shall be allowed as a 
deduction ratably over the 180-month period beginning with the month in 
which the active trade or business begins. All start-up expenditures 
that relate to the active trade or business are considered in 
determining whether the start-up expenditures exceed $50,000, including 
expenditures incurred on or before October 22, 2004. Section 902(a) of 
the American Jobs Creation Act of 2004, Pub. L. 108-357, 118 Stat. 1418 
(``AJCA''), amended section 195(b)(1) for start-up expenditures paid or 
incurred after October 22, 2004. Prior to the AJCA amendment, section 
195(b)(1) (former section 195(b)(1)) allowed taxpayers to elect to 
treat such expenditures as deferred expenses deductible ratably over a 
period of at least 60 months.
    Section 1.195-1(b) provides that, for start-up expenditures paid or 
incurred after August 16, 2011(the effective date of Sec.  1.195-1(b)), 
a taxpayer is deemed to make an election under section 195(b) to 
amortize start-up expenditures for the taxable year in which the active 
trade or business to which the expenditures relate begins. However, 
taxpayers may apply all provisions of Sec.  1.195-1 to start-up 
expenditures paid or incurred after October 22, 2004, provided that the 
period of limitations on assessment of tax for the year the election 
under Sec.  1.195-1(b) is deemed made has not expired.
    Section 195(b)(2) provides that in any case in which a trade or 
business is completely disposed of by the taxpayer before the end of 
the amortization period, any deferred expenses attributable to such 
trade or business that were not allowed as a deduction by reason of 
section 195 may be deducted to the extent allowable under section 165.

3. Section 709: Treatment of Organization and Syndication Fees

    Section 709(a) provides that, except as otherwise provided in 
section 709(b), no deduction shall be allowed for any amounts paid or 
incurred to organize a partnership or to promote the sale of (or to 
sell) an interest in the partnership. Section 709(b) provides that a 
partnership may elect to deduct organizational expenses, within the 
meaning of section 709(b)(3), as provided in section 709(b)(1)(A) and 
(B).
    Section 709(b)(1)(A) allows an electing partnership to deduct 
organizational expenses in the year in which the partnership begins 
business. The amount that may be deducted under section 709(b)(1)(A) in 
that year is the lesser of (i) the amount of the organizational 
expenses of the partnership, or (ii) $5,000, reduced (but not below 
zero) by the amount by which the organizational expenses exceed 
$50,000.
    Section 709(b)(1)(B) provides that any organizational expenses that 
are not deductible under section 709(b)(1)(A) shall be allowed as a 
deduction ratably over the 180-month period beginning with the month in 
which the partnership begins business. All organizational expenses 
incurred by the partnership are considered in determining whether the 
organizational expenses exceed $50,000, including expenses incurred on 
or before October 22, 2004. Prior to October 22, 2004, section 709(b) 
contained a rule similar to former section 195(b)(1).
    Section 1.709-1(b)(2) provides that, for organizational expenses as 
defined in section 709(b)(3) and Sec.  1.709-2(a) paid or incurred 
after August 16, 2011 (the effective date of Sec.  1.709-1(b)(2)), a 
partnership is deemed to make an election under section 709(b) to 
amortize organizational expenses for the taxable year in which the 
partnership begins business. However, taxpayers may apply all 
provisions of Sec.  1.709-1 to organizational expenses paid or incurred 
after October 22, 2004, provided that the period of limitations on 
assessment of tax for the year the election under Sec.  1.709-1(b)(2) 
is deemed made has not expired.
    Section 709(b)(2) provides that in any case in which a partnership 
is liquidated before the end of the amortization period, any deferred 
expenses attributable to the partnership that were not allowed as a 
deduction by reason of section 709 may be deducted to the extent 
allowable under section 165. See also Sec.  1.709-1(b)(3). However,

[[Page 73755]]

there is no partnership deduction with respect to its capitalized 
syndication expenses. Id.

Explanation of Provisions

    The Treasury Department and the IRS are aware that some taxpayers 
are taking the position that a technical termination under section 
708(b)(1)(B) entitles a partnership to deduct unamortized start-up 
expenses and organizational expenses to the extent provided under 
section 165. The Treasury Department and the IRS believe this result is 
contrary to the congressional intent underlying sections 195, 708, and 
709. Therefore, the proposed regulations amend Sec.  1.708-1 to provide 
that a new partnership formed due to a transaction, or series of 
transactions, described in section 708(b)(1)(B) must continue 
amortizing the section 195 and section 709 expenses using the same 
amortization period adopted by the terminating partnership.
    The legislative purpose of sections 195 and 709 was to allow 
expenses incurred in the formation of a partnership to be deducted 
ratably over the period during which the partnership benefits from 
those initial expenses. Section 195 and 709 provide that this period 
begins with the commencement of business (which must be an active trade 
or business in the case of section 195) and closes after 180 months, or 
when the business ceases, if earlier. The Treasury Department and the 
IRS believe that a technical termination under section 708(b)(1)(B) 
should not constitute a cessation of a trade or business to which the 
section 195 or section 709 expenses relate, nor does it otherwise 
constitute the type of disposition or liquidation that should trigger 
deduction of deferred section 195 or section 709 expenses.
    Moreover, the Conference Report issued in conjunction with the 
enactment of AJCA treated start-up expenditures under section 195 and 
organizational expenditures under section 709 as analogous to other 
intangible business assets described in section 197, and accordingly 
determined that the period for the amortization of start-up 
expenditures and organizational expenditures should be consistent with 
the fifteen year amortization period for section 197 intangibles. H. 
Rep. No. 108-755, at 776-77 (October 07, 2004). Section 1.197-
2(g)(2)(ii)(B) provides, generally, that in the case of a section 721 
transaction in which an amortizable section 197 intangible is 
transferred to a partnership, the transferee partnership will continue 
to amortize its adjusted basis, to the extent it does not exceed the 
transferor's adjusted basis, ratably over the remainder of the 
transferor's 15-year amortization period. Section 1.197-2(g)(2)(iv)(B) 
provides that in applying Sec.  1.197-2(g)(2)(ii)(B) to a partnership 
that is terminated pursuant to section 708(b)(1)(B), the terminated 
partnership is treated as the transferor and the new partnership is 
treated as the transferee with respect to any section 197 intangible 
held by the terminated partnership immediately preceding the 
termination. Consistent with Congress' intent of aligning the 
amortization of start-up and organizational expenditures with the 
treatment of section 197 intangibles, the new partnership resulting 
from a technical termination under section 708(b)(1)(B) should 
similarly continue to amortize the section 195 and section 709 expenses 
using the same amortization period adopted by the terminated 
partnership.
    Practitioners suggested guidance on this issue to alleviate 
uncertainty regarding the proper treatment of these items when a 
partnership undergoes a technical termination. One alternative to the 
rule set forth above would allow the terminating partnership to 
immediately deduct any unamortized section 195 or section 709 items to 
the extent provided under section 165 on the effective date of the 
termination (as defined in Sec.  1.708-1(b)(3)(ii)). However, the 
Treasury Department and the IRS decline to adopt this alternative, 
which as noted above would be inconsistent with Congress' intent to 
treat section 195 and section 709 items consistently with section 197 
intangibles, and which might provide incentives for taxpayers to 
structure transactions in order to inappropriately accelerate the 
deduction of section 195 or section 709 expenses shortly after those 
expenses are incurred.

Proposed Effective/Applicability Date

    These regulations, when published in their final form in the 
Federal Register, will apply to technical terminations that occur on or 
after December 9, 2013.

Special Analyses

    It has been determined that these proposed regulations are not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It also has 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 regulation does 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, these regulations have 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 written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The IRS and the 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 author of these proposed regulations is David H. 
Kirk, IRS Office of the Associate Chief Counsel (Passthroughs and 
Special Industries). However, other personnel from the IRS and the 
Treasury Department participated in their development.

Proposed Amendments to the Regulations

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

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

0
Par. 2. Section 1.195-2 is added to read as follows:


Sec.  1.195-2  Technical termination of a partnership.

    (a) In general. If a partnership that has elected to amortize 
start-up expenditures under section 195(b) and Sec.  1.195-1 terminates 
in a transaction (or a series of transactions) described in section 
708(b)(1)(B) or Sec.  1.708-1(b)(2), the termination shall not be 
treated as resulting in a disposition of the partnership's trade or 
business for purposes of section 195(b)(2). See Sec.  1.708-1(b)(6) for 
rules concerning the treatment of these start-up expenditures by the 
new partnership.

[[Page 73756]]

    (b) Effective/applicability date. This section applies to a 
technical termination of a partnership under section 708(b)(1)(B) that 
occurs on or after December 9, 2013.
0
Par. 3. Section 1.708-1 is amended by adding paragraph (b)(6) to read 
as follows:


Sec.  1.708-1  Continuation of partnership.

* * * * *
    (b) * * *
    (6) Treatment of certain start-up or organizational expenses 
following a technical termination--(i) In general. If a partnership 
that has elected to amortize start-up expenditures under section 195(b) 
or organizational expenses under section 709(b)(1) terminates in a 
transaction (or a series of transactions) described in section 
708(b)(1)(B) or paragraph (b)(2) of this section, the new partnership 
must continue to amortize those expenditures using the same 
amortization period adopted by the terminating partnership. See section 
195 and Sec.  1.195-1 for rules concerning the amortization of start-up 
expenditures and section 709 and Sec.  1.709-1 for rules concerning the 
amortization of organizational expenses.
    (ii) Effective/applicability date. This paragraph (b)(6) applies to 
a technical termination of a partnership under section 708(b)(1)(B) 
that occurs on or after December 9, 2013.
* * * * *
0
Par. 4. Section 1.709-1 is amended by:
0
1. Designating the text in paragraph (b)(3) as paragraph (b)(3)(i), 
adding a heading to newly designated paragraph (b)(3)(i) and adding 
paragraph (b)(3)(ii);
0
2. Adding a sentence at the end of paragraph (b)(5).
    The additions read as follows:


Sec.  1.709-1  Treatment of organization and syndication costs.

* * * * *
    (b) * * *
    (3) Liquidation of partnership--(i) In general. * * *
    (ii) Technical termination of a partnership. If a partnership that 
has elected to amortize organizational costs under section 709(b) 
terminates in a transaction (or a series of transactions) described in 
section 708(b)(1)(B) or Sec.  1.708-1(b)(2), the termination shall not 
be treated as resulting in a liquidation of the partnership for 
purposes of section 709(b)(2). See Sec.  1.708-1(b)(6) for rules 
concerning the treatment of these organizational costs by the new 
partnership.
    * * *
    (5) * * * Paragraph (b)(3)(ii) of this section applies to a 
technical termination of a partnership under section 708(b)(1)(B) that 
occurs on or after December 9, 2013.

Heather C. Maloy,
Deputy Commissioner for Operations Support.
[FR Doc. 2013-29177 Filed 12-6-13; 8:45 am]
BILLING CODE 4830-01-P