Corporate Reorganizations; Guidance on the Measurement of Continuity of Interest
| Published date | 01 April 2019 |
| Citation | 84 FR 12169 |
| Record Number | 2019-06159 |
| Section | Proposed rules |
| Court | Internal Revenue Service |
Federal Register, Volume 84 Issue 62 (Monday, April 1, 2019)
[Federal Register Volume 84, Number 62 (Monday, April 1, 2019)]
[Proposed Rules]
[Pages 12169-12170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06159]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-124627-11]
RIN 1545-BK43
Corporate Reorganizations; Guidance on the Measurement of
Continuity of Interest
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Withdrawal of notice of proposed rulemaking.
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SUMMARY: This document withdraws a notice of proposed rulemaking that
would have provided guidance on how to determine whether certain
transactions satisfy the continuity of interest (COI) requirement under
Sec. 1.368-1(e), applicable to certain corporate reorganizations
described in section 368 of the Internal Revenue Code of 1986 (Code).
The proposed regulations being withdrawn would have affected
corporations and their shareholders.
DATES: As of April 1, 2019, the proposed amendment to Sec. 1.368-1 in
the notice of proposed rulemaking (REG-124627-11) that was published in
the Federal Register (76 FR 78591) on December 19, 2011, is withdrawn.
FOR FURTHER INFORMATION CONTACT: Jean R. Broderick at (202) 317-6848
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
The provisions of subchapter C, chapter 1, of the Code generally
provide nonrecognition treatment for corporate transactions that are
described as reorganizations in section 368. The COI requirement is one
of a number of requirements that a transaction must satisfy in order to
qualify as a reorganization. The COI requirement
[[Page 12170]]
prevents transactions that resemble sales from qualifying as
reorganizations. Pinellas Ice & Cold Storage Co. v. Commissioner, 287
U.S. 462 (1933).
The COI requirement requires that, in substance, a substantial part
of the value of the target corporation (Target) shareholders'
proprietary interests (i.e., stock) in Target be preserved. Section
1.368-1(e)(1)(i); John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935).
A Target shareholder's proprietary interest in Target is preserved to
the extent it is exchanged for either the stock of the acquiring
corporation (Acquiror) or, in the case of a triangular reorganization
(as defined in Sec. 1.358-6(b)(2)), the stock of a corporation in
control (within the meaning of section 368(c)) of Acquiror (in either
case, Issuing Corporation stock). To the extent the Target
shareholders' proprietary interests are exchanged for money or other
property, their proprietary interests are not preserved. Section 1.368-
1(e)(1)(i).
To determine whether a substantial part of the Target shareholders'
proprietary interests has been preserved, the value of the Issuing
Corporation stock the Target shareholders received is compared to the
aggregate value of the consideration the Target shareholders received.
Prior to 2011, the determination of whether the COI requirement is
satisfied had been based on the value of the Issuing Corporation stock
``as of the effective date of the reorganization'' (Closing Date). Rev.
Proc. 77-37 (1977-2 C.B. 568).
On December 19, 2011, the Department of the Treasury (Treasury
Department) and the IRS issued final regulations (TD 9565, 76 FR 78540)
that include a special rule (Signing Date Rule) that applies if a
binding contract to effect a potential reorganization provides for
fixed consideration (as defined in Sec. 1.368-1(e)(2)(iii)(A)) to be
exchanged for the Target shareholders' proprietary interests. Section
1.368-1(e)(2)(i). If the Signing Date Rule applies, the consideration
is valued as of the end of the last business day before the first date
there is a binding contract (Pre-signing Date), rather than on the
Closing Date.
On the same date, the Treasury Department and the IRS published
proposed regulations (2011 Proposed Regulations) (REG-124627-11, 76 FR
78591) that identified situations, other than those covered by the
Signing Date Rule, in which the value of Issuing Corporation stock
could be determined based on a value other than its actual trading
price on the Closing Date. In one of these situations, the 2011
Proposed Regulations would have allowed the parties to use an average
of the trading prices of Issuing Corporation stock over a number of
days, in lieu of its actual trading price on the Closing Date, for
purposes of determining whether the COI requirement is satisfied.
The Treasury Department and the IRS have determined that current
law generally provides sufficient guidance to taxpayers with respect to
the COI requirement. Therefore, the Treasury Department and the IRS
have decided to withdraw the 2011 Proposed Regulations. However, after
considering comments received on the 2011 Proposed Regulations, the IRS
has concluded that, in certain circumstances, taxpayers should be able
to rely on certain average stock valuation methods for purposes of
measuring COI. Accordingly, the IRS issued a revenue procedure
effective January 23, 2018, that provides the circumstances under which
the IRS will not challenge a taxpayer's use of certain stock valuation
methods to value certain Issuing Corporation stock for purposes of
determining whether the COI requirement is satisfied. See Rev. Proc.
2018-12, I.R.B. 2018-6.
Statement of Availability of IRS Documents
Rev. Proc. 2018-12 is published in the Internal Revenue Bulletin
and is available from the Superintendent of Documents, U.S. Government
Publishing Office, Washington, DC 20402, or by visiting the IRS website
at http://www.irs.gov.
Drafting Information
The principal author of this withdrawal notice is Jean Broderick of
the Office of Associate Chief Counsel (Corporate). However, other
personnel from the Treasury Department and the IRS participated in its
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Withdrawal of Notice of Proposed Rulemaking
0
Accordingly, under the authority of 26 U.S.C. 7805, the notice of
proposed rulemaking (REG-124627-11) that was published in the Federal
Register (76 FR 78591) on December 19, 2011, is withdrawn.
Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2019-06159 Filed 3-29-19; 8:45 am]
BILLING CODE 4830-01-P
