Allocation of Basis in All Cash D Reorganizations, 67059-67063 [2014-26780]
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Federal Register / Vol. 79, No. 218 / Wednesday, November 12, 2014 / Rules and Regulations
added May 13, 2014, at 79 FR 27439,
effective November 10, 2014, by adding
an items paragraph .y to read as follows:
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(see supp. No. 1 to part 738)
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Items:
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y. Items that would otherwise be within
the scope of ECCN 9A004.x but that have
been identified in an interagency-cleared
commodity classification (CCATS) pursuant
to § 748.3(e) as warranting control in
9A004.y.
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9A515 ‘‘Spacecraft’’ and Related
Commodities, as Follows (See List of
Items Controlled)
License Requirements
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List of Items Controlled
Related Controls: * * * See ECCN 9A610.g
for pressure suits used for high altitude
aircraft.
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Items:
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a. * * *
Note: ECCN 9A515.a includes commercial
communications satellites, remote sensing
satellites, planetary rovers, planetary and
interplanetary probes, and in-space habitats,
not identified in USML Category XV(a).
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f. Pressure suits (i.e., space suits) capable
of operating at altitudes 55,000 feet above sea
level.
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12. In Supplement No. 1 to Part 774,
Category 9—Aerospace and Propulsion,
Product Group E. ‘‘Technology’’ is
amended by:
■ a. Redesignating the Note to Product
Group E: ‘‘Technology’’ as Note 1 and
revising newly redesignated Note 1; and
■ b. Adding a Note 2 to Product Group
E: ‘‘Technology’’ to read as follows:
Category 9—Aerospace and Propulsion
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USML Category XV or ECCNs 9A515, and
defense services using the classified technical
data remains subject to the ITAR. This note
does not affect controls in USML XV(f), ECCN
9D515, or ECCN 9E515 on software source
code or commands that control a
‘‘spacecraft,’’ payload, or associated
subsystems for purposes of 9A515. This note
also does not affect controls in ECCNs 9D001,
9D002, 9E001, or 9E002 on software source
code or commands that control a
‘‘spacecraft,’’ payload, or associated
subsystems for purposes of 9A004.
E. ‘‘Technology’’
11. In Supplement No. 1 to Part 774,
Category 9—Aerospace and Propulsion,
Export Control Classification Number
(ECCN) 9A515 is amended by:
■ a. Adding a sentence at the end of the
Related Controls paragraph in the List of
Items Controlled section as added May
13, 2014, at 79 FR 27440, effective
November 10, 2014;
■ b. Revising the note to paragraph .a in
the List of Items Controlled section as
added May 13, 2014, at 79 FR 27440,
effective November 10, 2014; and
■ c. Adding paragraph .f in the Items
paragraph in the List of Items Controlled
section as added May 13, 2014, at 79 FR
27440, effective November 10, 2014, to
read as follows:
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NS Column 1.
AT Column 1.
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List of Items Controlled
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Reason for Control: * * *
9A004 Space Launch Vehicles and
‘‘Spacecraft,’’ as Follows (See List of
Items Controlled)
NS applies to entire entry except .y .........................................................
AT applies to entire entry .........................................................................
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License Requirements
Supplement No. 1 to Part 774—The
Commerce Control List
Control(s)
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Note 1: ‘‘Development’’ or ‘‘production’’
‘‘technology’’ controlled by 9E001 to 9E003
for gas turbine engines remains controlled
when used for repair or overhaul. Excluded
from 9E001 to 9E003 control are: technical
data, drawings or documentation for
maintenance activities directly associated
with calibration, removal or replacement of
damaged or unserviceable line replaceable
units, including replacement of whole
engines or engine modules.
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Note 2: USML Category XV(f) and ECCNs
9E001, 9E002 and 9E515 do not control the
data transmitted to or from a satellite or
‘‘spacecraft,’’ whether real or simulated,
when limited to information about the
health, operational status, or measurements
or function of, or raw sensor output from, the
‘‘spacecraft,’’ ‘‘spacecraft’’ payload(s), or its
associated subsystems or components. Such
information is not within the scope of
information captured within the definition of
‘‘technology’’ in the EAR for purposes of
Category 9 Product Group E. Examples of
such information, which are commonly
referred to as ‘‘housekeeping data,’’ include
(i) system, hardware, component
configuration, and operation status
information pertaining to temperatures,
pressures, power, currents, voltages, and
battery charges; (ii) ‘‘spacecraft’’ or payload
orientation or position information, such as
state vector or ephemeris information; (iii)
payload raw mission or science output, such
as images, spectra, particle measurements, or
field measurements; (iv) command responses;
(v) accurate timing information; and (vi) link
budget data. The act of processing such
telemetry data—i.e., converting raw data into
engineering units or readable products—or
encrypting it does not, in and of itself, cause
the telemetry data to become subject to the
ITAR or to ECCN 9E515 for purposes of
9A515, or to ECCNs 9E001 or 9E002 for
purposes of 9A004. All classified technical
data directly related to items controlled in
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13. In Supplement No. 1 to Part 774,
Category 9—Aerospace and Propulsion,
Export Control Classification Number
(ECCN) 9E515 is amended by removing
Note 3 to 9E515 at the end of the Items
paragraph in the List of Items Controlled
section as added May 13, 2014, at 79 FR
27442, effective November 10, 2014.
Dated: November 5, 2014.
Kevin J. Wolf,
Assistant Secretary of Commerce for Export
Administration.
[FR Doc. 2014–26664 Filed 11–10–14; 8:45 am]
BILLING CODE 3510–33–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9702]
RIN 1545–BJ21
Allocation of Basis in All Cash D
Reorganizations
Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
AGENCY:
This document contains final
regulations regarding the determination
of the basis of stock or securities in
certain reorganizations where no stock
or securities of the issuing corporation
is issued and distributed in the
transaction. These final regulations
clarify that only a shareholder that owns
actual shares in the issuing corporation
SUMMARY:
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Federal Register / Vol. 79, No. 218 / Wednesday, November 12, 2014 / Rules and Regulations
substantially all of the assets of the
transferor corporation, and the stock,
securities, and other properties received
by the transferor corporation, as well as
the other properties of the transferor
corporation, are distributed in
pursuance of the plan of reorganization.
Further, section 356 provides, in part,
that if section 354 would apply to an
exchange but for the fact that property
other than permitted property is also
received, the recipient recognizes gain,
but not in excess of the amount of
money and fair market value of such
other property.
in such a reorganization can designate
the actual share of stock of the issuing
corporation to which the basis, if any,
of the stock or securities surrendered
will attach. These regulations affect
corporations engaging in such
transactions and their shareholders.
DATES: These regulations are effective
on November 12, 2014.
FOR FURTHER INFORMATION CONTACT:
Michael R. Gould, (202) 317–5363, or
Kevin M. Jacobs, (202) 317–5024 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of
Provisions
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1. Introduction
This Treasury Decision contains final
regulations that amend the Income Tax
Regulations (26 CFR part 1) under
section 358(a) of the Internal Revenue
Code (Code). In the case of certain
reorganizations under section 368,
section 358(a) and the regulations
thereunder provide, in part, rules for
determining a taxpayer’s basis in stock
or securities of an issuing corporation
received without the recognition of gain
or loss (permitted property), as well as
rules relating to the basis of other
property received in the reorganization.
These final regulations clarify the rules
under section 358(a) regarding the
allocation of stock basis in a transaction
that qualifies as a reorganization under
section 368(a)(1)(D) (D reorganization)
in which no permitted property is
actually issued (All Cash D
reorganization).
2. D Reorganizations Generally
Section 368(a)(1)(D) provides, in part,
that a reorganization includes a transfer
by a corporation (transferor corporation)
of all or a part of its assets to another
corporation (issuing corporation) if,
immediately after the transfer, the
transferor corporation or one or more of
its shareholders (including persons who
were shareholders immediately before
the transfer), or any combination
thereof, is in control of the issuing
corporation, but only if, in pursuance of
the plan, stock or securities of the
issuing corporation are distributed
under section 354, 355, or 356.
Under section 354(a)(1), a shareholder
or security holder of the transferor
corporation generally recognizes no gain
or loss if the shareholder or security
holder exchanges stock or securities of
the transferor corporation, in pursuance
of the plan of reorganization, solely for
permitted property. Section 354(b)(1)
provides that section 354(a)(1) is
inapplicable to a D reorganization
unless the issuing corporation acquires
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3. All Cash D Reorganizations
On December 18, 2009, the IRS and
the Treasury Department published
final regulations (TD 9475) in the
Federal Register (74 FR 67053) (2009
regulations) providing that the
distribution requirement of section
368(a)(1)(D) and 354(b)(1)(B) is satisfied
in the case of an All Cash D
reorganization even though there is no
actual distribution of permitted property
by the transferor corporation, provided
the same person(s) own, directly or
indirectly, all of the stock of the
transferor and issuing corporations in
identical proportions. See § 1.368–
2(l)(2)(i). In such cases, assuming a
value-for-value exchange between the
transferor and issuing corporations, the
issuing corporation is deemed to issue
a nominal share of its stock in addition
to the actual consideration exchanged
for the transferor corporation’s assets. If
the issuing corporation provides the
transferor corporation with no
consideration or consideration having a
value less than the transferor
corporation’s assets (bargain exchange),
the issuing corporation is treated as
issuing shares of its stock having a value
necessary to result in a value-for-value
exchange. The rules of § 1.368–2(l)
further provide that all stock treated as
issued, or deemed issued, by the issuing
corporation to the transferor corporation
is then deemed distributed by the
transferor corporation to its
shareholders and, if appropriate, further
transferred through chains of ownership
to the extent necessary to reflect the
actual ownership of the transferor and
issuing corporations.
The 2009 regulations also amended
the regulations under § 1.358–
2(a)(2)(iii). Prior to being amended by
the 2009 regulations, these regulations
provided a two-step rule under section
358 for allocating the basis of stock or
securities of a transferor corporation
surrendered as a result of a bargain
exchange by a shareholder or security
holder (bargain exchange basis rule).
First, a shareholder or security holder
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was generally treated as receiving the
consideration actually received in the
transaction and an amount of stock of
the issuing corporation having a value
equal to the difference in value between
the stock or securities surrendered in
the transaction and the consideration
actually received. Second, the
shareholder or security holder was
treated as surrendering all of its stock
and securities that it actually owned
and was treated as owning of the issuing
corporation in a reorganization under
section 368(a)(1)(E) in exchange for the
shares of stock and securities of the
issuing corporation actually held
immediately after the transaction.
The 2009 regulations added a new
sentence after the bargain exchange
basis rule that permitted a shareholder
that was deemed to have received a
nominal share of issuing corporation
stock under § 1.368–2(l) to, after
adjusting the basis of the nominal share
under the rules of §§ 1.358–1 and 1.358–
2, designate a share of the issuing
corporation’s stock to which the basis,
if any, of the nominal share would
attach (nominal share basis designation
rule).
4. Temporary Regulations
On November 21, 2011, the IRS and
the Treasury Department published
temporary regulations (TD 9558) in the
Federal Register (76 FR 71878) to
amend § 1.358–2(a)(2)(iii) of the 2009
regulations in response to an
inappropriate interpretation of those
rules. Certain taxpayers had taken the
position that a shareholder of a
transferor corporation who did not own
any actual shares of an issuing
corporation’s stock immediately after
the section 354 or section 356 exchange
in a value-for-value All Cash D
reorganization was permitted to
designate another person’s share of the
issuing corporation’s stock as the share
to which the nominal share’s basis
could attach. For example, assume that
corporation P owns all of the stock of
corporations S1 and S2, and that S1
owns all of the stock of corporation S3.
If S3 (the transferor corporation)
transfers to S2 all of its assets (subject
to liabilities) having a value of $100x in
exchange for $100x of cash, S2 (the
issuing corporation) would be deemed
to issue a nominal share of its stock to
S3 under § 1.368–2(l)(2), provided the
transaction otherwise qualified as a D
reorganization. S3 would then be
deemed to distribute the nominal S2
share to S1 in the section 356 exchange.
Because S1 received a nominal S2 share
but did not actually own any S2 stock,
§ 1.368–2(l)(2) would require that the
nominal S2 share be treated as
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distributed by S1 to P to reflect the
actual ownership of S2 and P’s basis in
the nominal share would be its fair
market value under section 301(d). In an
attempt to avoid this result under
similar circumstances, certain taxpayers
took the position that S1 was permitted
to, after allocating the basis of its S3
stock to the nominal S2 share under the
rules of §§ 1.358–1 and 1.358–2,
designate a share of S2 stock that was
actually held by P to which S1’s basis
in the nominal S2 share would attach.
These taxpayers further took the
position that such designation and
allocation could occur immediately
before the nominal S2 share was
deemed (under § 1.368–2(l)) to be
further transferred through the chain of
ownership to reflect the actual
ownership of S3 and S2.
Under this interpretation, any built-in
loss in the shares of transferor
corporation stock (which the 2009
regulations allocated to the nominal
share of issuing corporation stock)
would be preserved even if a direct
shareholder of the transferor corporation
did not directly own stock of the issuing
corporation. Taxpayers could thus avoid
losing the built-in loss in the nominal
share, which may have occurred as a
result of the deemed transfer(s) of the
nominal share through the chains of
ownership to the actual shareholder(s)
of the issuing corporation. In addition,
the actual shareholder could then sell
the share of the issuing corporation’s
stock to which the nominal share’s basis
was allocated and recognize a loss or a
reduced amount of gain.
The IRS and the Treasury Department
did not intend for the nominal share
basis designation rule of the 2009
regulations to allow such an
inappropriate allocation of basis and do
not believe the 2009 regulations have
ever supported such an allocation. The
temporary regulations therefore clarified
the application of the nominal share
basis designation rule of the 2009
regulations. Specifically, the temporary
regulations provided that, using the
facts of the example described earlier in
this section, because P (an actual
shareholder of S2 (the issuing
corporation)) is deemed to receive a
nominal share of S2 stock described in
§ 1.368–2(l), P must, after allocating and
adjusting the basis of the nominal S2
share in accordance with the rules of
§§ 1.358–1 and 1.358–2, and after
adjusting the basis in the nominal S2
share for any transfers described in
§ 1.368–2(l) (that is the transfer from S3
to S1 and from S1 to P), designate the
share of S2 stock actually held by P to
which the basis, if any, of the nominal
S2 share will attach. The purpose of the
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temporary regulations was to clarify that
only a shareholder that owned actual
shares of the issuing corporation’s stock
immediately after a value-for-value All
Cash D reorganization could designate
one of its actual shares of the issuing
corporation’s stock to which the
nominal share’s basis, if any, would
attach.
A notice of proposed rulemaking
(REG–101273–10) cross-referencing the
temporary regulations was also
published in the Federal Register (76
FR 71919) on November 21, 2011. No
written comments were received in
response to the notice of proposed
rulemaking. In addition, no requests for
a public hearing were received, and
accordingly, no hearing was held.
5. Final Regulations
This Treasury Decision adopts the
temporary regulations with clarifying
changes. These changes include
redesignating the paragraphs under
§ 1.358–2(a)(2)(iii) to separate newly
designated § 1.358–2(a)(2)(iii)(A), the
bargain exchange basis rule, and newly
designated § 1.358–2(a)(2)(iii)(B), the
nominal share basis designation rule,
and clarifying the language of these
rules. The IRS and the Treasury
Department do not intend any
substantive changes to the rules of the
temporary regulations.
The changes to newly designated
§ 1.358–2(a)(2)(iii)(A)(1) and (2) were
made to clarify that the deemed
recapitalization under the second step
of the bargain exchange basis rule
occurs only after the stock treated as
issued by the issuing corporation
pursuant to § 1.368–2(l) is held by a
shareholder that actually owns issuing
corporation stock. Thus, using the facts
of the example described in section 4 of
this preamble, except that the
consideration provided by S2 is not
$100 of cash but only $90 of cash,
because S1 (the shareholder of S3 (the
transferor corporation)) does not
actually own any stock of S2 (the
issuing corporation), the basis of the S2
stock treated as issued under the first
step of the bargain exchange basis rule
that S1 receives in the section 356
exchange is determined under §§ 1.358–
1 and 1.358–2 (without regard to the
second step of the bargain exchange
basis rule or the nominal share basis
designation rule) and then further
adjusted for the transfer to P described
in § 1.368–2(l) prior to the deemed
recapitalization of the stock of S2 that
P actually holds and is deemed to hold.
The numbering changes reflected in
newly designated § 1.358–
2(a)(2)(iii)(A)(1), (2) and (B) were made
to clarify that the nominal share basis
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designation rule applies in cases in
which a nominal share of issuing
corporation stock is deemed issued
under § 1.368–2(l). Additional changes
were made under § 1.358–2(a)(2)(iii) to
emphasize that the nominal share basis
designation rule applies only after an
actual shareholder of the issuing
corporation receives the nominal share
pursuant to § 1.368–2(l), and that such
a shareholder must attach the nominal
share’s basis to a share of the issuing
corporation’s stock that the particular
shareholder actually owns.
In addition, the analysis of Example
16 of § 1.358–2(c) has been clarified to
confirm that Corporation P must
designate a share of Corporation Y stock
to which the distributed nominal share’s
zero basis will attach. This designation
of the share to which the basis of a
nominal share must attach is relevant in
various scenarios, including if an
affiliated group files a consolidated
return and must determine the
particular share that is a successor asset
for purposes of § 1.1502–13. Finally,
minor editorial changes were made to
reflect the new paragraph designations
under § 1.358–2(a)(2)(iii) and to make
Examples 15 and 16 of § 1.358–2(c)
consistent with the clarifying changes
adopted by the final regulations.
Special Analyses
It has been determined that this
Treasury Decision is 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 has also
been determined that section 553(b) of
the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these
regulations, and because these
regulations do not impose a collection
of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Code, the notice
of proposed rulemaking preceding these
regulations was submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on its impact on small businesses, and
no comments were received.
Drafting Information
The principal author of these
regulations is Michael R. Gould of the
Office of Associate Chief Counsel
(Corporate). However, other personnel
from the IRS and the Treasury
Department participated in their
development.
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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 continues to read in part as
follows:
■
Authority: 26 U.S.C. 7805 * * *
Section 1.358–2 is also issued under 26
U.S.C. 358(b).
Par. 2. Section 1.358–2 is amended
by:
■ 1. Revising paragraph (a)(2)(iii).
■ 2. Adding Example 15 and Example
16 to paragraph (c).
■ 3. Revising paragraph (d).
The revisions and additions are as
follows:
■
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§ 1.358–2 Allocation of basis among
nonrecognition property.
(a) * * *
(2) * * *
(iii)(A) For purposes of this section, if
a shareholder or security holder
surrenders a share of stock or a security
in a transaction under the terms of
section 354 (or so much of section 356
as relates to section 354) in which the
shareholder or security holder receives
no property or property (including
property permitted by section 354 to be
received without the recognition of gain
or ‘‘other property’’ or money) with a
fair market value less than that of the
stock or securities surrendered in the
transaction:
(1) Such shareholder or security
holder shall be treated as receiving the
stock, securities, other property, and
money actually received by the
shareholder or security holder in the
transaction and an amount of stock of
the issuing corporation (as defined in
§ 1.368–1(b)) that has a value equal to
the excess of the value of the stock or
securities the shareholder or security
holder surrendered in the transaction
over the value of the stock, securities,
other property, and money the
shareholder or security holder actually
received in the transaction. If the
shareholder owns only one class of
stock of the issuing corporation the
receipt of which would be consistent
with the economic rights associated
with each class of stock of the issuing
corporation, the stock deemed received
by the shareholder pursuant to the
previous sentence shall be stock of such
class. If the shareholder owns multiple
classes of stock of the issuing
corporation the receipt of which would
be consistent with the economic rights
associated with each class of stock of
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the issuing corporation, the stock
deemed received by the shareholder
shall be stock of each such class owned
by the shareholder immediately prior to
the transaction, in proportion to the
value of the stock of each such class
owned by the shareholder at that time.
The basis of each share of stock or
security of the issuing corporation
deemed received and actually received
shall be determined under the rules of
this section. If and to the extent
necessary to reflect the actual
ownership of the issuing corporation
immediately after the exchange to
which section 354 (or so much of
section 356 as relates to section 354)
applies, an appropriate amount of the
stock of the issuing corporation treated
as issued to the shareholder or security
holder in the exchange is deemed
further transferred in accordance with
§ 1.368–2(l) to reflect the actual
ownership of the issuing corporation.
Paragraph (a)(2)(iii)(A)(2) of this section
is only applied to any shareholder of the
issuing corporation after all of the
deemed transfers pursuant to § 1.368–
2(l) are completed. The transferred
shares’ basis shall be adjusted for all
deemed transfers required by § 1.368–
2(l).
(2) A direct shareholder of the issuing
corporation that receives the shares
deemed issued as part of the
transaction, as described in paragraph
(a)(2)(iii)(A)(1) of this section, shall then
be treated as surrendering all of its
shares of stock and securities in the
issuing corporation, including those
shares of stock or securities held
immediately prior to the transaction,
those shares of stock or securities
actually received in the transaction, and
those shares of stock deemed received
as described in paragraph
(a)(2)(iii)(A)(1) of this section, in a
reorganization under section
368(a)(1)(E) in exchange for the shares
of stock and securities of the issuing
corporation that the shareholder or
security holder actually holds
immediately after the transaction. The
basis of each share of stock and security
deemed received in the reorganization
under section 368(a)(1)(E) shall be
determined under the rules of this
section.
(B) For purposes of this section, if an
actual shareholder of the issuing
corporation is deemed to receive a
nominal share of stock of the issuing
corporation as provided in § 1.368–2(l),
then that shareholder must, after
allocating and adjusting the basis of the
nominal share in accordance with the
rules of this section and § 1.358–1,
designate the share of stock of the
issuing corporation that it owns to
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which the basis, if any, of the nominal
share will attach. If the shareholder does
not actually own any shares of stock in
the issuing corporation immediately
after the exchange to which section 354
(or so much of section 356 as relates to
section 354) applies, the nominal share
of stock of the issuing corporation
received by the shareholder in the
exchange is deemed further transferred
in accordance with § 1.368–2(l) without
applying the designation rule set forth
in the first sentence of this paragraph
until it is transferred to a person that
actually owns stock in the issuing
corporation. The transferred share’s
basis shall be adjusted for all deemed
transfers required by § 1.368–2(l).
*
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*
*
*
(c) * * *
Example 15. (i) Facts. Each of Corporation
X and Corporation Y has a single class of
stock outstanding, all of which is owned by
J, an individual. J purchased 100 shares of
Corporation X stock on Date 1 for $1.50 each,
resulting in J having an aggregate basis in the
stock of Corporation X of $150. On Date 2,
Corporation Y acquires the assets of
Corporation X for $100 of cash, their fair
market value, in a transaction described in
§ 1.368–2(l). Pursuant to the terms of the
exchange, Corporation X does not receive any
Corporation Y stock. Corporation X
distributes the $100 of cash to J and retains
no assets.
(ii) Analysis. Pursuant to § 1.368–2(l),
Corporation Y will be deemed to issue a
nominal share of Corporation Y stock to
Corporation X in addition to the $100 of cash
actually exchanged for the Corporation X
assets. Corporation X will then be deemed to
distribute the nominal share of Corporation
Y stock to J in addition to the $100 of cash
actually distributed to J. Pursuant to § 1.368–
2(l), J, the actual shareholder of Corporation
Y, the issuing corporation, is deemed to
receive the nominal share of Corporation Y
stock described in § 1.368–2(l). J will have a
basis of $50 in the nominal share of
Corporation Y stock under section 358(a)(1).
Therefore, under paragraph (a)(2)(iii)(B) of
this section, J must designate a share of
Corporation Y stock to which J’s basis of $50
in the nominal share of Corporation Y stock
will attach.
Example 16. (i) Facts. Each of Corporation
X and Corporation Y has a single class of
stock outstanding, all of which is owned by
Corporation P. Corporation T has a single
class of stock outstanding, all of which is
owned by Corporation X. The corporations
do not join in the filing of a consolidated
return. Corporation X purchased 100 shares
of Corporation T stock on Date 1 for $1.50
each, resulting in Corporation X having an
aggregate basis in the stock of Corporation T
of $150. On Date 2, Corporation Y acquires
the assets of Corporation T for $100 of cash,
their fair market value, in a transaction
described in § 1.368–2(l). Pursuant to the
terms of the exchange, Corporation T does
not receive any Corporation Y stock.
Corporation T distributes the $100 of cash to
Corporation X and retains no assets.
E:\FR\FM\12NOR1.SGM
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Federal Register / Vol. 79, No. 218 / Wednesday, November 12, 2014 / Rules and Regulations
(ii) Analysis. Pursuant to § 1.368–2(l),
Corporation Y will be deemed to issue a
nominal share of Corporation Y stock to
Corporation T in addition to the $100 of cash
actually exchanged for the Corporation T
assets. Corporation T will be deemed to
distribute the nominal share of Corporation
Y stock to Corporation X in addition to the
$100 of cash actually distributed.
Corporation X will have a basis of $50 in the
nominal share of Corporation Y stock under
section 358(a). However, Corporation X is not
an actual shareholder of Corporation Y, the
issuing corporation. Therefore, Corporation X
cannot designate any share of Corporation Y
stock under paragraph (a)(2)(iii)(B) of this
section to which the basis of the nominal
share of Corporation Y stock will attach and
Corporation X will be deemed to distribute
the nominal share of Corporation Y stock to
Corporation P as required by § 1.368–2(l).
Corporation X does not recognize the loss on
the deemed distribution of the nominal share
to Corporation P under section 311(a).
Corporation P’s basis in the nominal share it
receives is zero, its fair market value, under
section 301(d). Under paragraph (a)(2)(iii)(B)
of this section, Corporation P must designate
a share of Corporation Y stock to which the
nominal share’s zero basis will attach.
(d) Effective/applicability date. This
section generally applies to exchanges
and distributions of stock and securities
occurring on or after January 23, 2006.
However, paragraph (a)(2)(iii) and
Examples 15 and 16 of paragraph (c) of
this section apply to exchanges and
distributions of stock and securities
occurring on or after November 12,
2014. See § 1.358–2T(a)(2)(iii) and
§ 1.358–2T(c), Examples 15 and 16, as
contained in 26 CFR part 1, revised
April 1, 2014, for exchanges and
distributions of stock and securities
occurring on or after November 21, 2011
and before November 12, 2014; see
§ 1.358–2(a)(2)(iii), as contained in 26
CFR part 1, revised as of April 1, 2011,
for exchanges and distributions of stock
and securities occurring on or after
January 23, 2006 and before November
21, 2011.
§ 1.358–2T
wreier-aviles on DSK5TPTVN1PROD with RULES
■
[Removed]
Par. 3. Section 1.358–2T is removed.
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
Approved: October 17, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax
Policy).
[FR Doc. 2014–26780 Filed 11–10–14; 8:45 am]
BILLING CODE 4830–01–P
VerDate Sep<11>2014
14:57 Nov 10, 2014
Jkt 235001
DEPARTMENT OF HOMELAND
SECURITY
Coast Guard
33 CFR Part 165
DHS Department of Homeland Security
FR Federal Register
NPRM Notice of Proposed Rulemaking
RIN 1625–AA00
Safety Zone, Elizabeth River;
Portsmouth, VA
Coast Guard, DHS.
Temporary final rule.
AGENCY:
The Coast Guard is
establishing a safety zone on the
navigable waters of the Elizabeth River
in Portsmouth, VA for 12 periods of 48
hours beginning at midnight on January
5, January 12, January 19, January 22,
January 27, February 9, March 2, March
5, March 10, March 23, March 30 and
April 6, 2015. This action will restrict
vessel traffic movement in the
designated area during construction of
the new Midtown Tunnel. This action is
necessary to protect the life and
property of the maritime public due to
the number of work vessels in the
designated area and their lack of
maneuverability while engaged in
construction operations.
DATES: This rule will be effective from
January 5, 2015, through April 6, 2015.
This rule will be enforced for 12 periods
of 48 hours in length, beginning at
midnight on January 5, January 12,
January 19, January 22, January 27,
February 9, March 2, March 5, March
10, March 23, March 30, and April 6,
2015.
SUMMARY:
Documents mentioned in
this preamble are part of docket [USCG–
2014–0693]. To view documents
mentioned in this preamble as being
available in the docket, go to https://
www.regulations.gov, type the docket
number in the ‘‘SEARCH’’ box and click
‘‘SEARCH.’’ Click on Open Docket
Folder on the line associated with this
rulemaking. You may also visit the
Docket Management Facility in Room
W12–140 on the ground floor of the
Department of Transportation West
Building, 1200 New Jersey Avenue SE.,
Washington, DC 20590, between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays.
FOR FURTHER INFORMATION CONTACT: If
you have questions on this rule, call or
email LCDR Gregory Knoll, Waterways
Management Division Chief, Sector
Hampton Roads, Coast Guard; telephone
(757)-668–5580, email
HamptonRoadsWaterway@uscg.mil. If
you have questions on viewing or
ADDRESSES:
PO 00000
Frm 00027
Fmt 4700
submitting material to the docket, call
Cheryl Collins, Program Manager,
Docket Operations, telephone (202)–
366–9826.
SUPPLEMENTARY INFORMATION:
Table of Acronyms
[Docket No. USCG–2014–0693]
ACTION:
67063
Sfmt 4700
A. Regulatory History and Information
SKW Constructors are building a
second span for the Midtown Tunnel
between Portsmouth and Norfolk, VA
and will be conducting operations that
require closures of the federal channel
beginning in January 2015. A Notice of
Proposed Rulemaking (NPRM) was
published on August 25, 2014 in the
Federal Register (79 FR 50571).
The Coast Guard received one
comment on the NPRM, which is
addressed below in Section C. No
request for a public meeting was
received, and no meeting was held.
B. Basis and Purpose
The legal basis for the rule is the
Coast Guard’s authority to establish
regulated navigation areas and other
limited access areas: 33 U.S.C. 1231; 46
U.S.C. Chapter 701, 3306, 3703; 50
U.S.C. 191, 195; 33 CFR 1.05–1, 6.04–1,
6.04–6, 160.5; Public Law 107–295, 116
Stat. 2064; Department of Homeland
Security Delegation No. 0170.1.
Due to increased vehicle traffic in the
Hampton Roads area, SKW
Constructors, in concert with Elizabeth
River Crossings and the Virginia
Department of Transportation, is
constructing a second tunnel parallel to
the existing Midtown Tunnel between
Portsmouth and Norfolk, VA. The
construction will involve submerging
elements of the new Midtown Tunnel.
The presence of working vessels and the
inability to maneuver submerged
equipment necessitate closures of the
federal channel. The closures will be in
effect for 12 48-hour periods to allow
SKW Constructors to install the
segments of the tunnel that overlap the
federal channel.
The Coast Guard is establishing a
safety zone in the portion of the
Elizabeth River between Elizabeth River
Channel Buoy 31 (LLNR 9835) and
Elizabeth River Channel Buoy 34 (LLNR
9855). The first of the 12 scheduled
closures will begin at midnight on
January 5, 2015; the final scheduled
closure will begin at midnight on April
6, 2015. The dates and hours are subject
to change due to weather, scheduling
conflicts, equipment failure and other
unforeseen factors. Any changes to these
dates will be listed in the Federal
E:\FR\FM\12NOR1.SGM
12NOR1
]]>Agencies
[Federal Register Volume 79, Number 218 (Wednesday, November 12, 2014)]
[Rules and Regulations]
[Pages 67059-67063]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-26780]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9702]
RIN 1545-BJ21
Allocation of Basis in All Cash D Reorganizations
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations and removal of temporary regulations.
-----------------------------------------------------------------------
SUMMARY: This document contains final regulations regarding the
determination of the basis of stock or securities in certain
reorganizations where no stock or securities of the issuing corporation
is issued and distributed in the transaction. These final regulations
clarify that only a shareholder that owns actual shares in the issuing
corporation
[[Page 67060]]
in such a reorganization can designate the actual share of stock of the
issuing corporation to which the basis, if any, of the stock or
securities surrendered will attach. These regulations affect
corporations engaging in such transactions and their shareholders.
DATES: These regulations are effective on November 12, 2014.
FOR FURTHER INFORMATION CONTACT: Michael R. Gould, (202) 317-5363, or
Kevin M. Jacobs, (202) 317-5024 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
1. Introduction
This Treasury Decision contains final regulations that amend the
Income Tax Regulations (26 CFR part 1) under section 358(a) of the
Internal Revenue Code (Code). In the case of certain reorganizations
under section 368, section 358(a) and the regulations thereunder
provide, in part, rules for determining a taxpayer's basis in stock or
securities of an issuing corporation received without the recognition
of gain or loss (permitted property), as well as rules relating to the
basis of other property received in the reorganization. These final
regulations clarify the rules under section 358(a) regarding the
allocation of stock basis in a transaction that qualifies as a
reorganization under section 368(a)(1)(D) (D reorganization) in which
no permitted property is actually issued (All Cash D reorganization).
2. D Reorganizations Generally
Section 368(a)(1)(D) provides, in part, that a reorganization
includes a transfer by a corporation (transferor corporation) of all or
a part of its assets to another corporation (issuing corporation) if,
immediately after the transfer, the transferor corporation or one or
more of its shareholders (including persons who were shareholders
immediately before the transfer), or any combination thereof, is in
control of the issuing corporation, but only if, in pursuance of the
plan, stock or securities of the issuing corporation are distributed
under section 354, 355, or 356.
Under section 354(a)(1), a shareholder or security holder of the
transferor corporation generally recognizes no gain or loss if the
shareholder or security holder exchanges stock or securities of the
transferor corporation, in pursuance of the plan of reorganization,
solely for permitted property. Section 354(b)(1) provides that section
354(a)(1) is inapplicable to a D reorganization unless the issuing
corporation acquires substantially all of the assets of the transferor
corporation, and the stock, securities, and other properties received
by the transferor corporation, as well as the other properties of the
transferor corporation, are distributed in pursuance of the plan of
reorganization. Further, section 356 provides, in part, that if section
354 would apply to an exchange but for the fact that property other
than permitted property is also received, the recipient recognizes
gain, but not in excess of the amount of money and fair market value of
such other property.
3. All Cash D Reorganizations
On December 18, 2009, the IRS and the Treasury Department published
final regulations (TD 9475) in the Federal Register (74 FR 67053) (2009
regulations) providing that the distribution requirement of section
368(a)(1)(D) and 354(b)(1)(B) is satisfied in the case of an All Cash D
reorganization even though there is no actual distribution of permitted
property by the transferor corporation, provided the same person(s)
own, directly or indirectly, all of the stock of the transferor and
issuing corporations in identical proportions. See Sec. 1.368-
2(l)(2)(i). In such cases, assuming a value-for-value exchange between
the transferor and issuing corporations, the issuing corporation is
deemed to issue a nominal share of its stock in addition to the actual
consideration exchanged for the transferor corporation's assets. If the
issuing corporation provides the transferor corporation with no
consideration or consideration having a value less than the transferor
corporation's assets (bargain exchange), the issuing corporation is
treated as issuing shares of its stock having a value necessary to
result in a value-for-value exchange. The rules of Sec. 1.368-2(l)
further provide that all stock treated as issued, or deemed issued, by
the issuing corporation to the transferor corporation is then deemed
distributed by the transferor corporation to its shareholders and, if
appropriate, further transferred through chains of ownership to the
extent necessary to reflect the actual ownership of the transferor and
issuing corporations.
The 2009 regulations also amended the regulations under Sec.
1.358-2(a)(2)(iii). Prior to being amended by the 2009 regulations,
these regulations provided a two-step rule under section 358 for
allocating the basis of stock or securities of a transferor corporation
surrendered as a result of a bargain exchange by a shareholder or
security holder (bargain exchange basis rule). First, a shareholder or
security holder was generally treated as receiving the consideration
actually received in the transaction and an amount of stock of the
issuing corporation having a value equal to the difference in value
between the stock or securities surrendered in the transaction and the
consideration actually received. Second, the shareholder or security
holder was treated as surrendering all of its stock and securities that
it actually owned and was treated as owning of the issuing corporation
in a reorganization under section 368(a)(1)(E) in exchange for the
shares of stock and securities of the issuing corporation actually held
immediately after the transaction.
The 2009 regulations added a new sentence after the bargain
exchange basis rule that permitted a shareholder that was deemed to
have received a nominal share of issuing corporation stock under Sec.
1.368-2(l) to, after adjusting the basis of the nominal share under the
rules of Sec. Sec. 1.358-1 and 1.358-2, designate a share of the
issuing corporation's stock to which the basis, if any, of the nominal
share would attach (nominal share basis designation rule).
4. Temporary Regulations
On November 21, 2011, the IRS and the Treasury Department published
temporary regulations (TD 9558) in the Federal Register (76 FR 71878)
to amend Sec. 1.358-2(a)(2)(iii) of the 2009 regulations in response
to an inappropriate interpretation of those rules. Certain taxpayers
had taken the position that a shareholder of a transferor corporation
who did not own any actual shares of an issuing corporation's stock
immediately after the section 354 or section 356 exchange in a value-
for-value All Cash D reorganization was permitted to designate another
person's share of the issuing corporation's stock as the share to which
the nominal share's basis could attach. For example, assume that
corporation P owns all of the stock of corporations S1 and S2, and that
S1 owns all of the stock of corporation S3. If S3 (the transferor
corporation) transfers to S2 all of its assets (subject to liabilities)
having a value of $100x in exchange for $100x of cash, S2 (the issuing
corporation) would be deemed to issue a nominal share of its stock to
S3 under Sec. 1.368-2(l)(2), provided the transaction otherwise
qualified as a D reorganization. S3 would then be deemed to distribute
the nominal S2 share to S1 in the section 356 exchange. Because S1
received a nominal S2 share but did not actually own any S2 stock,
Sec. 1.368-2(l)(2) would require that the nominal S2 share be treated
as
[[Page 67061]]
distributed by S1 to P to reflect the actual ownership of S2 and P's
basis in the nominal share would be its fair market value under section
301(d). In an attempt to avoid this result under similar circumstances,
certain taxpayers took the position that S1 was permitted to, after
allocating the basis of its S3 stock to the nominal S2 share under the
rules of Sec. Sec. 1.358-1 and 1.358-2, designate a share of S2 stock
that was actually held by P to which S1's basis in the nominal S2 share
would attach. These taxpayers further took the position that such
designation and allocation could occur immediately before the nominal
S2 share was deemed (under Sec. 1.368-2(l)) to be further transferred
through the chain of ownership to reflect the actual ownership of S3
and S2.
Under this interpretation, any built-in loss in the shares of
transferor corporation stock (which the 2009 regulations allocated to
the nominal share of issuing corporation stock) would be preserved even
if a direct shareholder of the transferor corporation did not directly
own stock of the issuing corporation. Taxpayers could thus avoid losing
the built-in loss in the nominal share, which may have occurred as a
result of the deemed transfer(s) of the nominal share through the
chains of ownership to the actual shareholder(s) of the issuing
corporation. In addition, the actual shareholder could then sell the
share of the issuing corporation's stock to which the nominal share's
basis was allocated and recognize a loss or a reduced amount of gain.
The IRS and the Treasury Department did not intend for the nominal
share basis designation rule of the 2009 regulations to allow such an
inappropriate allocation of basis and do not believe the 2009
regulations have ever supported such an allocation. The temporary
regulations therefore clarified the application of the nominal share
basis designation rule of the 2009 regulations. Specifically, the
temporary regulations provided that, using the facts of the example
described earlier in this section, because P (an actual shareholder of
S2 (the issuing corporation)) is deemed to receive a nominal share of
S2 stock described in Sec. 1.368-2(l), P must, after allocating and
adjusting the basis of the nominal S2 share in accordance with the
rules of Sec. Sec. 1.358-1 and 1.358-2, and after adjusting the basis
in the nominal S2 share for any transfers described in Sec. 1.368-2(l)
(that is the transfer from S3 to S1 and from S1 to P), designate the
share of S2 stock actually held by P to which the basis, if any, of the
nominal S2 share will attach. The purpose of the temporary regulations
was to clarify that only a shareholder that owned actual shares of the
issuing corporation's stock immediately after a value-for-value All
Cash D reorganization could designate one of its actual shares of the
issuing corporation's stock to which the nominal share's basis, if any,
would attach.
A notice of proposed rulemaking (REG-101273-10) cross-referencing
the temporary regulations was also published in the Federal Register
(76 FR 71919) on November 21, 2011. No written comments were received
in response to the notice of proposed rulemaking. In addition, no
requests for a public hearing were received, and accordingly, no
hearing was held.
5. Final Regulations
This Treasury Decision adopts the temporary regulations with
clarifying changes. These changes include redesignating the paragraphs
under Sec. 1.358-2(a)(2)(iii) to separate newly designated Sec.
1.358-2(a)(2)(iii)(A), the bargain exchange basis rule, and newly
designated Sec. 1.358-2(a)(2)(iii)(B), the nominal share basis
designation rule, and clarifying the language of these rules. The IRS
and the Treasury Department do not intend any substantive changes to
the rules of the temporary regulations.
The changes to newly designated Sec. 1.358-2(a)(2)(iii)(A)(1) and
(2) were made to clarify that the deemed recapitalization under the
second step of the bargain exchange basis rule occurs only after the
stock treated as issued by the issuing corporation pursuant to Sec.
1.368-2(l) is held by a shareholder that actually owns issuing
corporation stock. Thus, using the facts of the example described in
section 4 of this preamble, except that the consideration provided by
S2 is not $100 of cash but only $90 of cash, because S1 (the
shareholder of S3 (the transferor corporation)) does not actually own
any stock of S2 (the issuing corporation), the basis of the S2 stock
treated as issued under the first step of the bargain exchange basis
rule that S1 receives in the section 356 exchange is determined under
Sec. Sec. 1.358-1 and 1.358-2 (without regard to the second step of
the bargain exchange basis rule or the nominal share basis designation
rule) and then further adjusted for the transfer to P described in
Sec. 1.368-2(l) prior to the deemed recapitalization of the stock of
S2 that P actually holds and is deemed to hold.
The numbering changes reflected in newly designated Sec. 1.358-
2(a)(2)(iii)(A)(1), (2) and (B) were made to clarify that the nominal
share basis designation rule applies in cases in which a nominal share
of issuing corporation stock is deemed issued under Sec. 1.368-2(l).
Additional changes were made under Sec. 1.358-2(a)(2)(iii) to
emphasize that the nominal share basis designation rule applies only
after an actual shareholder of the issuing corporation receives the
nominal share pursuant to Sec. 1.368-2(l), and that such a shareholder
must attach the nominal share's basis to a share of the issuing
corporation's stock that the particular shareholder actually owns.
In addition, the analysis of Example 16 of Sec. 1.358-2(c) has
been clarified to confirm that Corporation P must designate a share of
Corporation Y stock to which the distributed nominal share's zero basis
will attach. This designation of the share to which the basis of a
nominal share must attach is relevant in various scenarios, including
if an affiliated group files a consolidated return and must determine
the particular share that is a successor asset for purposes of Sec.
1.1502-13. Finally, minor editorial changes were made to reflect the
new paragraph designations under Sec. 1.358-2(a)(2)(iii) and to make
Examples 15 and 16 of Sec. 1.358-2(c) consistent with the clarifying
changes adopted by the final regulations.
Special Analyses
It has been determined that this Treasury Decision is 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 has also been determined that section
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations, and because these regulations do not
impose a collection of information on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to
section 7805(f) of the Code, the notice of proposed rulemaking
preceding these regulations was submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact
on small businesses, and no comments were received.
Drafting Information
The principal author of these regulations is Michael R. Gould of
the Office of Associate Chief Counsel (Corporate). However, other
personnel from the IRS and the Treasury Department participated in
their development.
[[Page 67062]]
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 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.358-2 is also issued under 26 U.S.C. 358(b).
0
Par. 2. Section 1.358-2 is amended by:
0
1. Revising paragraph (a)(2)(iii).
0
2. Adding Example 15 and Example 16 to paragraph (c).
0
3. Revising paragraph (d).
The revisions and additions are as follows:
Sec. 1.358-2 Allocation of basis among nonrecognition property.
(a) * * *
(2) * * *
(iii)(A) For purposes of this section, if a shareholder or security
holder surrenders a share of stock or a security in a transaction under
the terms of section 354 (or so much of section 356 as relates to
section 354) in which the shareholder or security holder receives no
property or property (including property permitted by section 354 to be
received without the recognition of gain or ``other property'' or
money) with a fair market value less than that of the stock or
securities surrendered in the transaction:
(1) Such shareholder or security holder shall be treated as
receiving the stock, securities, other property, and money actually
received by the shareholder or security holder in the transaction and
an amount of stock of the issuing corporation (as defined in Sec.
1.368-1(b)) that has a value equal to the excess of the value of the
stock or securities the shareholder or security holder surrendered in
the transaction over the value of the stock, securities, other
property, and money the shareholder or security holder actually
received in the transaction. If the shareholder owns only one class of
stock of the issuing corporation the receipt of which would be
consistent with the economic rights associated with each class of stock
of the issuing corporation, the stock deemed received by the
shareholder pursuant to the previous sentence shall be stock of such
class. If the shareholder owns multiple classes of stock of the issuing
corporation the receipt of which would be consistent with the economic
rights associated with each class of stock of the issuing corporation,
the stock deemed received by the shareholder shall be stock of each
such class owned by the shareholder immediately prior to the
transaction, in proportion to the value of the stock of each such class
owned by the shareholder at that time. The basis of each share of stock
or security of the issuing corporation deemed received and actually
received shall be determined under the rules of this section. If and to
the extent necessary to reflect the actual ownership of the issuing
corporation immediately after the exchange to which section 354 (or so
much of section 356 as relates to section 354) applies, an appropriate
amount of the stock of the issuing corporation treated as issued to the
shareholder or security holder in the exchange is deemed further
transferred in accordance with Sec. 1.368-2(l) to reflect the actual
ownership of the issuing corporation. Paragraph (a)(2)(iii)(A)(2) of
this section is only applied to any shareholder of the issuing
corporation after all of the deemed transfers pursuant to Sec. 1.368-
2(l) are completed. The transferred shares' basis shall be adjusted for
all deemed transfers required by Sec. 1.368-2(l).
(2) A direct shareholder of the issuing corporation that receives
the shares deemed issued as part of the transaction, as described in
paragraph (a)(2)(iii)(A)(1) of this section, shall then be treated as
surrendering all of its shares of stock and securities in the issuing
corporation, including those shares of stock or securities held
immediately prior to the transaction, those shares of stock or
securities actually received in the transaction, and those shares of
stock deemed received as described in paragraph (a)(2)(iii)(A)(1) of
this section, in a reorganization under section 368(a)(1)(E) in
exchange for the shares of stock and securities of the issuing
corporation that the shareholder or security holder actually holds
immediately after the transaction. The basis of each share of stock and
security deemed received in the reorganization under section
368(a)(1)(E) shall be determined under the rules of this section.
(B) For purposes of this section, if an actual shareholder of the
issuing corporation is deemed to receive a nominal share of stock of
the issuing corporation as provided in Sec. 1.368-2(l), then that
shareholder must, after allocating and adjusting the basis of the
nominal share in accordance with the rules of this section and Sec.
1.358-1, designate the share of stock of the issuing corporation that
it owns to which the basis, if any, of the nominal share will attach.
If the shareholder does not actually own any shares of stock in the
issuing corporation immediately after the exchange to which section 354
(or so much of section 356 as relates to section 354) applies, the
nominal share of stock of the issuing corporation received by the
shareholder in the exchange is deemed further transferred in accordance
with Sec. 1.368-2(l) without applying the designation rule set forth
in the first sentence of this paragraph until it is transferred to a
person that actually owns stock in the issuing corporation. The
transferred share's basis shall be adjusted for all deemed transfers
required by Sec. 1.368-2(l).
* * * * *
(c) * * *
Example 15. (i) Facts. Each of Corporation X and Corporation Y
has a single class of stock outstanding, all of which is owned by J,
an individual. J purchased 100 shares of Corporation X stock on Date
1 for $1.50 each, resulting in J having an aggregate basis in the
stock of Corporation X of $150. On Date 2, Corporation Y acquires
the assets of Corporation X for $100 of cash, their fair market
value, in a transaction described in Sec. 1.368-2(l). Pursuant to
the terms of the exchange, Corporation X does not receive any
Corporation Y stock. Corporation X distributes the $100 of cash to J
and retains no assets.
(ii) Analysis. Pursuant to Sec. 1.368-2(l), Corporation Y will
be deemed to issue a nominal share of Corporation Y stock to
Corporation X in addition to the $100 of cash actually exchanged for
the Corporation X assets. Corporation X will then be deemed to
distribute the nominal share of Corporation Y stock to J in addition
to the $100 of cash actually distributed to J. Pursuant to Sec.
1.368-2(l), J, the actual shareholder of Corporation Y, the issuing
corporation, is deemed to receive the nominal share of Corporation Y
stock described in Sec. 1.368-2(l). J will have a basis of $50 in
the nominal share of Corporation Y stock under section 358(a)(1).
Therefore, under paragraph (a)(2)(iii)(B) of this section, J must
designate a share of Corporation Y stock to which J's basis of $50
in the nominal share of Corporation Y stock will attach.
Example 16. (i) Facts. Each of Corporation X and Corporation Y
has a single class of stock outstanding, all of which is owned by
Corporation P. Corporation T has a single class of stock
outstanding, all of which is owned by Corporation X. The
corporations do not join in the filing of a consolidated return.
Corporation X purchased 100 shares of Corporation T stock on Date 1
for $1.50 each, resulting in Corporation X having an aggregate basis
in the stock of Corporation T of $150. On Date 2, Corporation Y
acquires the assets of Corporation T for $100 of cash, their fair
market value, in a transaction described in Sec. 1.368-2(l).
Pursuant to the terms of the exchange, Corporation T does not
receive any Corporation Y stock. Corporation T distributes the $100
of cash to Corporation X and retains no assets.
[[Page 67063]]
(ii) Analysis. Pursuant to Sec. 1.368-2(l), Corporation Y will
be deemed to issue a nominal share of Corporation Y stock to
Corporation T in addition to the $100 of cash actually exchanged for
the Corporation T assets. Corporation T will be deemed to distribute
the nominal share of Corporation Y stock to Corporation X in
addition to the $100 of cash actually distributed. Corporation X
will have a basis of $50 in the nominal share of Corporation Y stock
under section 358(a). However, Corporation X is not an actual
shareholder of Corporation Y, the issuing corporation. Therefore,
Corporation X cannot designate any share of Corporation Y stock
under paragraph (a)(2)(iii)(B) of this section to which the basis of
the nominal share of Corporation Y stock will attach and Corporation
X will be deemed to distribute the nominal share of Corporation Y
stock to Corporation P as required by Sec. 1.368-2(l). Corporation
X does not recognize the loss on the deemed distribution of the
nominal share to Corporation P under section 311(a). Corporation P's
basis in the nominal share it receives is zero, its fair market
value, under section 301(d). Under paragraph (a)(2)(iii)(B) of this
section, Corporation P must designate a share of Corporation Y stock
to which the nominal share's zero basis will attach.
(d) Effective/applicability date. This section generally applies to
exchanges and distributions of stock and securities occurring on or
after January 23, 2006. However, paragraph (a)(2)(iii) and Examples 15
and 16 of paragraph (c) of this section apply to exchanges and
distributions of stock and securities occurring on or after November
12, 2014. See Sec. 1.358-2T(a)(2)(iii) and Sec. 1.358-2T(c), Examples
15 and 16, as contained in 26 CFR part 1, revised April 1, 2014, for
exchanges and distributions of stock and securities occurring on or
after November 21, 2011 and before November 12, 2014; see Sec. 1.358-
2(a)(2)(iii), as contained in 26 CFR part 1, revised as of April 1,
2011, for exchanges and distributions of stock and securities occurring
on or after January 23, 2006 and before November 21, 2011.
Sec. 1.358-2T [Removed]
0
Par. 3. Section 1.358-2T is removed.
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
Approved: October 17, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-26780 Filed 11-10-14; 8:45 am]
BILLING CODE 4830-01-P
