Guidance for Determining Stock Ownership, 3145-3146 [2014-00894]
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Federal Register / Vol. 79, No. 12 / Friday, January 17, 2014 / Proposed Rules
§ 1.1014–5
[Amended]
(d) * * *
Par. 3. Section 1.1014–5 is amended
by:
■ 1. In paragraph (a)(1), first sentence,
removing the language ‘‘paragraph (b)’’
and adding ‘‘paragraph (b) or (c)’’ in its
place.
■ 2. Re-designating paragraph (c) as
newly-designated paragraph (d) and
adding new paragraph (c).
■ 3. In newly-designated paragraph (d),
adding new Example 7 and Example 8.
The additions read as follows:
■
§ 1.1014–5
Gain or loss.
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*
*
*
*
*
(c) Sale or other disposition of a term
interest in a tax-exempt trust—(1) In
general. In the case of any sale or other
disposition by a taxable beneficiary of a
term interest (as defined in § 1.1001–
1(f)(2)) in a tax-exempt trust (as
described in paragraph (c)(2) of this
section) to which section 1001(e)(3)
applies, the taxable beneficiary’s share
of adjusted uniform basis, determined as
of (and immediately before) the sale or
disposition of that interest, is—
(i) That part of the adjusted uniform
basis assignable to the term interest of
the taxable beneficiary under the rules
of paragraph (a) of this section reduced,
but not below zero, by
(ii) An amount determined by
applying the same actuarial share
applied in paragraph (c)(1)(i) of this
section to the sum of—
(A) The trust’s undistributed net
ordinary income within the meaning of
section 664(b)(1) and § 1.664–
1(d)(1)(ii)(a)(1) for the current and prior
taxable years of the trust, if any; and
(B) The trust’s undistributed net
capital gains within the meaning of
section 664(b)(2) and § 1.664–
1(d)(1)(ii)(a)(2) for the current and prior
taxable years of the trust, if any.
(2) Tax-exempt trust defined. For
purposes of this section, the term taxexempt trust means a charitable
remainder annuity trust or a charitable
remainder unitrust as defined in section
664.
(3) Taxable beneficiary defined. For
purposes of this section, the term
taxable beneficiary means any person
other than an organization described in
section 170(c) or exempt from taxation
under section 501(a).
(4) Effective/applicability date. This
paragraph (c) and paragraph (d),
Example 7 and Example 8, of this
section apply to sales and other
dispositions of interests in tax-exempt
trusts occurring on or after January 16,
2014, except for sales or dispositions
occurring pursuant to a binding
commitment entered into before January
16, 2014.
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14:04 Jan 16, 2014
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Example 7. (a) Grantor creates a charitable
remainder unitrust (CRUT) on Date 1 in
which Grantor retains a unitrust interest and
irrevocably transfers the remainder interest to
Charity. Grantor is an individual taxpayer
subject to income tax. CRUT meets the
requirements of section 664 and is exempt
from income tax.
(b) Grantor’s basis in the shares of X stock
used to fund CRUT is $10x. On Date 2, CRUT
sells the X stock for $100x. The $90x of gain
is exempt from income tax under section
664(c)(1). On Date 3, CRUT uses the $100x
proceeds from its sale of the X stock to
purchase Y stock. On Date 4, CRUT sells the
Y stock for $110x. The $10x of gain on the
sale of the Y stock is exempt from income tax
under section 664(c)(1). On Date 5, CRUT
uses the $110x proceeds from its sale of Y
stock to buy Z stock. On Date 5, CRUT’s basis
in its assets is $110x and CRUT’s total
undistributed net capital gains are $100x.
(c) Later, when the fair market value of
CRUT’s assets is $150x and CRUT has no
undistributed net ordinary income, Grantor
and Charity sell all of their interests in CRUT
to a third person. Grantor receives $100x for
the retained unitrust interest, and Charity
receives $50x for its interest. Because the
entire interest in CRUT is transferred to the
third person, section 1001(e)(3) prevents
section 1001(e)(1) from applying to the
transaction. Therefore, Grantor’s gain on the
sale of the retained unitrust interest in CRUT
is determined under section 1001(a), which
provides that Grantor’s gain on the sale of
that interest is the excess of the amount
realized, $100x, over Grantor’s adjusted basis
in the interest.
(d) Grantor’s adjusted basis in the unitrust
interest in CRUT is that portion of CRUT’s
adjusted uniform basis that is assignable to
Grantor’s interest under § 1.1014–5, which is
Grantor’s actuarial share of the adjusted
uniform basis. In this case, CRUT’s adjusted
uniform basis in its sole asset, the Z stock,
is $110x. However, paragraph (c) of this
section applies to the transaction. Therefore,
Grantor’s actuarial share of CRUT’s adjusted
uniform basis (determined by applying the
factors set forth in the tables contained in
§ 20.2031–7 of this chapter) is reduced by an
amount determined by applying the same
factors to the sum of CRUT’s $0 of
undistributed net ordinary income and its
$100x of undistributed net capital gains.
(e) In determining Charity’s share of the
adjusted uniform basis, Charity applies the
factors set forth in the tables contained in
§ 20.2031–7 of this chapter to the full $110x
of basis.
Example 8. (a) Grantor creates a charitable
remainder annuity trust (CRAT) on Date 1 in
which Grantor retains an annuity interest and
irrevocably transfers the remainder interest to
Charity. Grantor is an individual taxpayer
subject to income tax. CRAT meets the
requirements of section 664 and is exempt
from income tax.
(b) Grantor funds CRAT with shares of X
stock having a basis of $50x. On Date 2,
CRAT sells the X stock for $150x. The $100x
of gain is exempt from income tax under
section 664(c)(1). On Date 3, CRAT
distributes $10x to Grantor, and uses the
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3145
remaining $140x of net proceeds from its sale
of the X stock to purchase Y stock. Grantor
treats the $10x distribution as capital gain, so
that CRAT’s remaining undistributed net
capital gains amount described in section
664(b)(2) and § 1.664–1(d) is $90x.
(c) On Date 4, when the fair market value
of CRAT’s assets, which consist entirely of
the Y stock, is still $140x, Grantor and
Charity sell all of their interests in CRAT to
a third person. Grantor receives $126x for the
retained annuity interest, and Charity
receives $14x for its remainder interest.
Because the entire interest in CRAT is
transferred to the third person, section
1001(e)(3) prevents section 1001(e)(1) from
applying to the transaction. Therefore,
Grantor’s gain on the sale of the retained
annuity interest in CRAT is determined
under section 1001(a), which provides that
Grantor’s gain on the sale of that interest is
the excess of the amount realized, $126x,
over Grantor’s adjusted basis in that interest.
(d) Grantor’s adjusted basis in the annuity
interest in CRAT is that portion of CRAT’s
adjusted uniform basis that is assignable to
Grantor’s interest under § 1.1014–5, which is
Grantor’s actuarial share of the adjusted
uniform basis. In this case, CRAT’s adjusted
uniform basis in its sole asset, the Y stock,
is $140x. However, paragraph (c) of this
section applies to the transaction. Therefore,
Grantor’s actuarial share of CRAT’s adjusted
uniform basis (determined by applying the
factors set forth in the tables contained in
§ 20.2031–7 of this chapter) is reduced by an
amount determined by applying the same
factors to the sum of CRAT’s $0 of
undistributed net ordinary income and its
$90x of undistributed net capital gains.
(e) In determining Charity’s share of the
adjusted uniform basis, Charity applies the
factors set forth in the tables contained in
§ 20.2031–7 of this chapter to determine its
actuarial share of the full $140x of basis.
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2014–00807 Filed 1–16–14; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG–121534–12]
RIN 1545–BL00
Guidance for Determining Stock
Ownership
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking
by cross-reference to temporary
regulations.
AGENCY:
In the Rules and Regulations
section of this issue of the Federal
Register, the IRS and the Treasury
SUMMARY:
E:\FR\FM\17JAP1.SGM
17JAP1
3146
Federal Register / Vol. 79, No. 12 / Friday, January 17, 2014 / Proposed Rules
pmangrum on DSK3VPTVN1PROD with PROPOSALS-1
Department are issuing temporary
regulations that identify certain stock of
a foreign corporation that is disregarded
in calculating ownership of the foreign
corporation for purposes of determining
whether it is a surrogate foreign
corporation. The temporary regulations
also provide guidance with respect to
the effect of transfers of stock of a
foreign corporation after the foreign
corporation has acquired substantially
all of the properties of a domestic
corporation or of a trade or business of
a domestic partnership. These
regulations affect certain domestic
corporations and partnerships (and
certain parties related thereto), and
foreign corporations that acquire
substantially all of the properties of
such domestic corporations or of the
trades or businesses of such domestic
partnerships. The text of the temporary
regulations also serves as the text of
these proposed regulations. The
preamble to the temporary regulations
explains the temporary regulations and
these proposed regulations.
DATES: Comments and requests for a
public hearing must be received by
April 17, 2014.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–121534–12), Room
5205, 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–121534–
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–121534–
12).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
David A. Levine, (202) 317–6937;
concerning submissions of comments or
requests for a public hearing,
Oluwafunmilayo Taylor, (202) 317–6901
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
Temporary regulations in the Rules
and Regulations section of this issue of
the Federal Register amend the Income
Tax Regulations (26 CFR part 1) relating
to section 7874 of the Internal Revenue
Code. The temporary regulations
identify certain stock of a foreign
corporation that is not taken into
account for purposes of calculating the
ownership percentage described in
section 7874(a)(2)(B)(ii), and also
address the effect of certain transfers of
stock of a foreign corporation that occur
VerDate Mar<15>2010
18:28 Jan 16, 2014
Jkt 232001
after the acquisition described in section
7874(a)(2)(B)(i). The text of those
regulations also serves as the text of
these proposed regulations. The
preamble to the temporary regulations
explains these amendments.
Special Analyses
It has been determined that that these
regulations are not a significant
regulatory action as defined in
Executive Order 12866. 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. It is hereby
certified that the collection of
information contained in these
regulations will not have a significant
economic impact on a substantial
number of small entities. Accordingly, a
regulatory flexibility analysis is not
required. Given the complexity and cost
of a transaction to which these
regulations may apply, the IRS and the
Treasury Department anticipate that
these regulations primarily will affect
large domestic corporations and
partnerships and their shareholders and
partners. Although small entities could
be shareholders or partners of a larger
domestic corporation or partnership
involved in a transaction affected by the
regulations, the IRS and the Treasury
Department do not anticipate the
number of these shareholders or
partners to be substantial. Pursuant to
section 7805(f), these regulations have
been submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on their
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
comments that are submitted timely to
the IRS as prescribed in this preamble
under the ‘‘Addresses’’ heading. The
IRS and the Treasury Department
request comments on all aspects of the
proposed rules. All comments will be
available at www.regulations.gov or
upon request. A public hearing will be
scheduled if requested in writing by any
person who timely submits written
comments. If a public hearing is
scheduled, notice of the date, time, and
place for the public hearing will be
published in the Federal Register.
Drafting Information
The principal authors of these
regulations are David A. Levine of the
Office of Associate Chief Counsel
(International) and Mary W. Lyons,
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Fmt 4702
Sfmt 4702
formerly of the Office of Associate Chief
Counsel (International). However, other
personnel from the IRS and the Treasury
Department participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR part 1 is
proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by adding entries
in numerical order to read as follows:
■
Authority: 26 U.S.C. 7805 * * *
Section 1.7874–4 also issued under 26
U.S.C. 7874(c)(6) and (g). Section 1.7874–5
also issued under 26 U.S.C. 7874(c)(6) and
(g).
Par. 2. Section 1.7874–4 is added to
read as follows:
■
§ 1.7874–4 Disregard of certain stock
related to the acquisition.
[The text of proposed § 1.7874–4(a)
through (k) is the same as the text of
§ 1.7874–4T(a) through (k) published
elsewhere in this issue of the Federal
Register].
■ Par. 3. Section 1.7874–5 is added to
read as follows:
§ 1.7874–5 Effect of certain transfers of
stock related to the acquisition.
[The text of proposed § 1.7874–5(a)
through (c) is the same as the text of
§ 1.7874–5T(a) through (c) published
elsewhere in this issue of the Federal
Register].
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2014–00894 Filed 1–16–14; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF COMMERCE
Patent and Trademark Office
37 CFR Parts 1, 3, 5 and 11
[Docket No.: PTO–P–2013–0025]
RIN 0651–AC87
Extension of the Comment Period for
Notice of Proposed Rulemaking on
Changes To Implement the Hague
Agreement Concerning International
Registration of Industrial Designs
United States Patent and
Trademark Office, Department of
Commerce.
AGENCY:
E:\FR\FM\17JAP1.SGM
17JAP1
]]>Agencies
[Federal Register Volume 79, Number 12 (Friday, January 17, 2014)]
[Proposed Rules]
[Pages 3145-3146]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-00894]
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-121534-12]
RIN 1545-BL00
Guidance for Determining Stock Ownership
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking by cross-reference to temporary
regulations.
-----------------------------------------------------------------------
SUMMARY: In the Rules and Regulations section of this issue of the
Federal Register, the IRS and the Treasury
[[Page 3146]]
Department are issuing temporary regulations that identify certain
stock of a foreign corporation that is disregarded in calculating
ownership of the foreign corporation for purposes of determining
whether it is a surrogate foreign corporation. The temporary
regulations also provide guidance with respect to the effect of
transfers of stock of a foreign corporation after the foreign
corporation has acquired substantially all of the properties of a
domestic corporation or of a trade or business of a domestic
partnership. These regulations affect certain domestic corporations and
partnerships (and certain parties related thereto), and foreign
corporations that acquire substantially all of the properties of such
domestic corporations or of the trades or businesses of such domestic
partnerships. The text of the temporary regulations also serves as the
text of these proposed regulations. The preamble to the temporary
regulations explains the temporary regulations and these proposed
regulations.
DATES: Comments and requests for a public hearing must be received by
April 17, 2014.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-121534-12), Room
5205, 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-
121534-12), 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-121534-12).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
David A. Levine, (202) 317-6937; concerning submissions of comments or
requests for a public hearing, Oluwafunmilayo Taylor, (202) 317-6901
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
Temporary regulations in the Rules and Regulations section of this
issue of the Federal Register amend the Income Tax Regulations (26 CFR
part 1) relating to section 7874 of the Internal Revenue Code. The
temporary regulations identify certain stock of a foreign corporation
that is not taken into account for purposes of calculating the
ownership percentage described in section 7874(a)(2)(B)(ii), and also
address the effect of certain transfers of stock of a foreign
corporation that occur after the acquisition described in section
7874(a)(2)(B)(i). The text of those regulations also serves as the text
of these proposed regulations. The preamble to the temporary
regulations explains these amendments.
Special Analyses
It has been determined that that these regulations are not a
significant regulatory action as defined in Executive Order 12866.
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. It is hereby
certified that the collection of information contained in these
regulations will not have a significant economic impact on a
substantial number of small entities. Accordingly, a regulatory
flexibility analysis is not required. Given the complexity and cost of
a transaction to which these regulations may apply, the IRS and the
Treasury Department anticipate that these regulations primarily will
affect large domestic corporations and partnerships and their
shareholders and partners. Although small entities could be
shareholders or partners of a larger domestic corporation or
partnership involved in a transaction affected by the regulations, the
IRS and the Treasury Department do not anticipate the number of these
shareholders or partners to be substantial. Pursuant to section
7805(f), these regulations have been submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on their
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 comments that are submitted timely
to the IRS as prescribed in this preamble under the ``Addresses''
heading. The IRS and the Treasury Department request comments on all
aspects of the proposed rules. All comments will be available at
www.regulations.gov or upon request. A public hearing will be scheduled
if requested in writing by any person who timely submits written
comments. If a public hearing is scheduled, notice of the date, time,
and place for the public hearing will be published in the Federal
Register.
Drafting Information
The principal authors of these regulations are David A. Levine of
the Office of Associate Chief Counsel (International) and Mary W.
Lyons, formerly of the Office of Associate Chief Counsel
(International). However, other personnel from the IRS and the Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding
entries in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.7874-4 also issued under 26 U.S.C. 7874(c)(6) and (g).
Section 1.7874-5 also issued under 26 U.S.C. 7874(c)(6) and (g).
0
Par. 2. Section 1.7874-4 is added to read as follows:
Sec. 1.7874-4 Disregard of certain stock related to the acquisition.
[The text of proposed Sec. 1.7874-4(a) through (k) is the same as
the text of Sec. 1.7874-4T(a) through (k) published elsewhere in this
issue of the Federal Register].
0
Par. 3. Section 1.7874-5 is added to read as follows:
Sec. 1.7874-5 Effect of certain transfers of stock related to the
acquisition.
[The text of proposed Sec. 1.7874-5(a) through (c) is the same as
the text of Sec. 1.7874-5T(a) through (c) published elsewhere in this
issue of the Federal Register].
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2014-00894 Filed 1-16-14; 8:45 am]
BILLING CODE 4830-01-P
