Federal Register: May 9, 2008 (Volume 73, Number 91)
DOCID: fr09my08-5 FR Doc E8-10454
DEPARTMENT OF THE TREASURY
Internal Revenue Service
CFR Citation: 26 CFR Part 1
RIN ID: RIN 1545-BH95
TD ID: [TD 9397]
NOTICE: RULES
DOCID: fr09my08-5
DOCUMENT ACTION: Final regulations and removal of temporary regulations.
SUBJECT CATEGORY:
Assumption of Liabilities
DATES: Effective Date: These regulations are effective on May 9, 2008.
Applicability Date: For dates of applicability, see Sec. Sec. 1.3585(a) and (b).
DOCUMENT SUMMARY:
This document contains final regulations relating to the assumption of liabilities under section 358(h) of the Internal Revenue Code (Code). Section 358(h) provides that, after application of section 358(d), the basis in stock received in a nonrecognition transaction shall be reduced to the fair market value of the stock by the amount of any liability assumed in the exchange. The Treasury Department and the IRS have determined that removing an exception to section 358(h) is necessary to prevent abuse. These regulations affect corporations and their shareholders.
SUMMARY:
Assumption of Liabilities,
SUPPLEMENTAL INFORMATION
Background
This document contains amendments to 26 CFR part 1 under section 358(h) of the Code. As part of the Consolidated Appropriations Act of 2001 (Pub. L. 106554, 114 Stat. 2763), Congress enacted, on December 21, 2000, section 358(h), applicable to assumptions of liability after October 18, 1999, to address certain transactions in which property is transferred to a corporation in exchange for both stock and the corporation's assumption of certain obligations of the transferor. In these transactions, transferors took the position that the obligations were not liabilities within the meaning of section 357(c) or that they were described in section 357(c)(3), and, therefore, the obligations did not reduce the basis of the stock received by transferor. These assumed obligations, however, did reduce the value of the stock. The transferors then sold the stock and claimed a loss. In this way, taxpayers attempted to duplicate a loss in corporate stock and to accelerate deductions that typically are allowed only on the economic performance of these types of obligations.
Section 358(h)(1) addresses these transactions by requiring that, after application of section 358(d), the basis in stock received in an exchange to which section 351, 354, 355, 356, or 361 applies be reduced (but not below the fair market value of the stock) by the amount of any liability assumed in the exchange. Section 358(h)(2) provides exceptions to section 358(h)(1) where: (A) The trade or business with which the liability is associated is transferred to the person assuming the liability as part of the exchange; or (B) substantially all of the assets with which the liability is associated are transferred to the person assuming the liability as part of the exchange (the ``Asset Exception''). The Secretary, however, has the authority to limit these exceptions. Section 358(h)(3) provides that the term ``liability'' for purposes of section 358(h) includes any fixed or contingent obligation to make payment without regard to whether the obligation is otherwise taken into account for purposes of the Code.
On May 26, 2005, temporary regulations (TD 9207) were published in
the Federal Register (70 FR 30334) making unavailable the exception of
section 358(h)(2)(B), the Asset Exception. A notice of proposed rulemaking (REG10673600) crossreferencing those temporary
regulations was published in the Federal Register (71 FR 30380) on the same day.
The IRS and the Treasury Department received no comments responding to the proposed and temporary regulations. No public hearing was requested or held. The IRS and the Treasury Department have determined that making the exception of section 358(h)(2)(B) unavailable is necessary to prevent abuse; therefore, this document contains final regulations adopting the provisions of the proposed regulations with no change and the corresponding temporary regulations are removed. Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. Pursuant to 5
U.S.C. 553(d)(3) it has been determined that a delayed effective [[Page 26322]]
date is unnecessary because this rule finalizes, without change,
currently effective temporary rules regarding the assumption of
liabilities. It is hereby certified that these regulations will not
have a significant economic impact on a substantial number of small
entities. This certification is based upon the fact that the only
impact of the regulations is to require taxpayers to calculate the
basis of stock received in certain transactions more accurately.
Therefore, a Regulatory Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. Chapter 6) is not required. Pursuant to
section 7805(f) of the Code, the 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 business.
Drafting Information
The principal author of these regulations is Robert M. Rhyne of the Office of Associate Chief Counsel (Corporate). 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. Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding an entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Sec. 1.3585 also issued under 26 U.S.C. 358(h)(2). * * * Par. 2. Section 1.3585 is added to read as follows:
Sec. 1.3585 Special rules for assumption of liabilities.
(a) In general. Section 358(h)(2)(B) does not apply to an exchange occurring on or after May 9, 2008.
(b) Effective/Applicability date. For exchanges occurring on or
after June 24, 2003, and before May 9, 2008, see Sec. 1.3585T as contained in 26 CFR part 1 in effect on April 1, 2007.
Sec. 1.3585T [Removed]
Par. 3. Section 1.3585T is removed.
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
Approved: April 28, 2008.
Eric Solomon,
Assistant Secretary of the Treasury(Tax Policy).
[FR Doc. E810454 Filed 5808; 8:45 am]
BILLING CODE 483001P
FOR FURTHER INFORMATION CONTACT
Robert M. Rhyne (202) 622-7550 (not a tollfree number).