Revised Applicability Dates for Regulations Under Section 382(h) Related to Built-in Gain and Loss
| Published date | 14 January 2020 |
| Citation | 85 FR 2061 |
| Record Number | 2020-00469 |
| Section | Proposed rules |
| Court | Internal Revenue Service,Treasury Department |
Federal Register, Volume 85 Issue 9 (Tuesday, January 14, 2020)
[Federal Register Volume 85, Number 9 (Tuesday, January 14, 2020)]
[Proposed Rules]
[Pages 2061-2064]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00469]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-125710-18]
RIN 1545-BP07
Revised Applicability Dates for Regulations Under Section 382(h)
Related to Built-in Gain and Loss
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Partial withdrawal of notice of proposed rulemaking; notice of
proposed rulemaking.
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SUMMARY: This document withdraws a portion of a notice of proposed
rulemaking published in the Proposed Rules section of the Federal
Register on September 10, 2019. That notice of proposed rulemaking
contained proposed rules to provide guidance regarding the items of
income and deduction that are included in the calculation of built-in
gains and losses under section 382 of the Internal Revenue Code (Code).
If adopted, those proposed rules would apply to any ownership change
occurring after the date the Treasury decision adopting those proposed
rules as a final regulation is published in the Federal Register. This
notice of proposed rulemaking would delay the applicability of those
proposed rules and provide transition relief for eligible taxpayers.
The proposed regulations in this notice of proposed rulemaking would
affect corporations that experience an ownership change for purposes of
section 382.
DATES: Written or electronic comments must be received by March 16,
2020. Written or electronic requests for a public hearing and outlines
of topics to be discussed at the public hearing must be received by
March 16, 2020.
ADDRESSES: Submit electronic submissions via the Federal eRulemaking
Portal at www.regulations.gov (indicate IRS and REG-125710-18) by
following the online instructions for submitting comments. Once
submitted to the Federal eRulemaking Portal, comments cannot be edited
or withdrawn. The Department of the Treasury (Treasury Department) and
the IRS will publish for public availability any comment received to
its public docket, whether submitted electronically or in hard copy.
Send hard copy submissions to: Internal Revenue Service, CC:PA:LPD:PR
(REG-125710-18), Room 5203, Post Office Box 7604, Ben Franklin Station,
Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Jonathan R. Neuville at (202) 317-5363; concerning submissions of
comments or requests for a public hearing, Regina L. Johnson at (202)
317-6901 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
On September 10, 2019, the Treasury Department and the IRS
published in the Federal Register (84 FR 47455) a notice of proposed
rulemaking (REG-125710-18) proposing revisions to the rules in
Sec. Sec. 1.382-2 and 1.382-7 (September 2019 proposed regulations).
These rules would affect the determination of net built-in gains and
losses and recognized built-in gains and losses under section 382(h)
that, in turn, affect the limitation under section 382 on net operating
losses and disallowed business interest expense under section 163(j).
[[Page 2062]]
Proposed Sec. Sec. 1.382-2(b)(4) and 1.382-7(g)(1), as set forth
in the September 2019 proposed regulations, provided that the September
2019 proposed regulations would apply to ownership changes that occur
after the date the Treasury decision adopting the September 2019
proposed regulations as final regulations is published in the Federal
Register. As noted in part II of the Background in the September 2019
proposed regulations, section V of Notice 2003-65 (2003-2 C.B. 747)
provides that taxpayers may rely on either of two safe harbor
approaches for applying section 382(h) to an ownership change ``prior
to the effective date of temporary or final regulations under section
382(h).''
Taxpayers and practitioners have expressed concern that the
applicability date set forth in the September 2019 proposed regulations
would impose a significant burden on taxpayers evaluating and
negotiating business transactions, due to their uncertainty regarding
when those transactions will close and when the September 2019 proposed
regulations will be finalized. As a result, taxpayers and practitioners
have requested transition relief with regard to ownership changes
caused by pending transactions. In connection with this request,
taxpayers and practitioners also have expressed concern that transition
relief limited to transactions for which a binding agreement is in
effect on or before the applicability date of final regulations would
be inadequate, because pending transactions regularly are modified or
delayed prior to closing.
As explained more fully in the Explanation of Provisions, this
notice of proposed rulemaking modifies the applicability dates for the
September 2019 proposed regulations by withdrawing the text of proposed
Sec. Sec. 1.382-2(b)(4) and 1.382-7(g), as set forth in the September
2019 proposed regulations, and proposing revised applicability dates.
Explanation of Provisions
I. Delay of Applicability Date and Applicability of Pre-Existing
Guidance
To address the concerns raised by taxpayers and practitioners, the
Treasury Department and the IRS are withdrawing the text of proposed
Sec. Sec. 1.382-2(b)(4) and 1.382-7(g) contained in the September 2019
proposed regulations. In its place, the Treasury Department and the IRS
are proposing the revised applicability date text set forth in proposed
Sec. Sec. 1.382-2(b)(4) and 1.382-7(g) as contained in this notice of
proposed rulemaking.
The Treasury Department and the IRS do not intend there to be any
gap between the date on which taxpayers can no longer rely on Notice
2003-65 and the date on which the final regulations are applicable.
Other than in the case of the two exceptions described in parts II and
III of this Explanation of Provisions, the applicability date of the
final regulations will be 30 days after the date the Treasury decision
containing such regulations is published in the Federal Register
(delayed applicability date). As provided in this proposed regulation,
Notice 2003-65 will remain applicable to ownership changes to which the
final regulations do not apply.
II. Limiting Duplicative Application of Section 382
The first exception to the delayed applicability date relates to
the rule in proposed Sec. 1.382-7(d)(5), which provides that certain
carryforwards of business interest expense disallowed under section
163(j) would not be treated as recognized built-in losses under section
382(h)(6)(B) if such amounts were allowable as deductions during the
five-year recognition period set forth in section 382(h)(7)(A). This
rule eliminates the possible duplicative application of section 382 to
certain disallowed business interest expense carryforwards. Due to the
noncontroversial nature of this rule, the Treasury Department and the
IRS have determined that proposed Sec. 1.382-7(d)(5) should be
finalized before the remainder of the rules in the September 2019
proposed regulations, and that taxpayers should be allowed to
retroactively apply this rule. To that end, the Treasury Department and
IRS expect that proposed Sec. 1.382-7(d)(5) will be finalized as part
of the Treasury decision that finalizes the proposed section 163(j)
regulations (see 83 FR 67490) and taxpayers will be permitted to apply
the rule to prior periods. The Treasury Department and the IRS continue
to actively study the remainder of the rules in the September 2019
proposed regulations.
III. Transition Relief Provisions
Under the transition relief provisions proposed in this notice of
proposed rulemaking, the final regulations would not apply to certain
ownership changes that occur after the delayed applicability date. As
discussed in part I of this Explanation of Provisions, the delayed
applicability date will be 30 days after the date these regulations are
published in the Federal Register. In order for an ownership change
after the delayed applicability date to qualify for transition relief,
the ownership change must occur immediately after an owner shift or
equity structure shift that occurs:
(1) Pursuant to a binding agreement in effect on or before the
delayed applicability date and at all times thereafter;
(2) Pursuant to a specific transaction described in a public
announcement made on or before the delayed applicability date;
(3) Pursuant to a specific transaction described in a filing with
the Securities and Exchange Commission submitted on or before the
delayed applicability date;
(4) By order of a court (or pursuant to a plan confirmed, or a sale
approved, by order of a court) in a title 11 or similar case (as
defined in section 382(l)(5)(F)), provided that the taxpayer was a
debtor in a case before such court on or before the delayed
applicability date; or
(5) Pursuant to a transaction described in a private letter ruling
request submitted to the IRS on or before the delayed applicability
date.
The relevant owner shift or equity structure shift must be a
specific, identifiable transaction. For example, a stock buyback
pursuant to an announced, on-going program would not qualify.
Taxpayers may continue to rely on Notice 2003-65 with respect to
any ownership change qualifying for transition relief, even though the
Notice will be obsoleted on the delayed applicability date. However, a
taxpayer may choose to apply the final regulations to such an ownership
change.
Special Analyses
These proposed regulations are not subject to review under section
6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement
(April 11, 2018) between the Treasury Department and the Office of
Management and Budget regarding review of tax regulations.
Pursuant to the Regulatory Flexibility Act (RFA), 5 U.S.C. chapter
6, the Treasury Department and the IRS hereby certify that these
proposed regulations will not have a significant economic impact on a
substantial number of small entities. This proposed rule is limited to
revising the proposed applicability date of proposed regulations under
section 382(h) of the Internal Revenue Code that were published in the
Federal Register (84 FR 47455) on September 10, 2019. Based on the
narrow scope of corporate transactions covered by the proposed
regulations' delayed applicability rules,
[[Page 2063]]
the Treasury Department and the IRS have determined that these proposed
regulations are unlikely to affect a substantial number of small
entities and are unlikely to have a significant economic impact on any
small entities affected.
The Treasury Department and the IRS invite comments on any impact
that these regulations would have on small entities.
Pursuant to section 7805(f), this notice of proposed rulemaking has
been submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.
Comments and Requests for Public Hearing
The Treasury Department and the IRS appreciate the comments that
taxpayers and practitioners already have provided regarding the
September 2019 proposed regulations and encourage taxpayers and
practitioners to provide comments on the proposed regulations contained
in this notice of proposed rulemaking. In particular, the Treasury
Department and the IRS request comments on whether taxpayers should be
permitted to apply the final regulations to ownership changes occurring
before the applicability date and what restrictions, if any, should be
placed on such retroactive application.
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the Treasury Department and the IRS as prescribed in this preamble
under the ADDRESSES heading. All comments will be available at http://www.regulations.gov or upon request. A public hearing will be scheduled
if requested in writing by any person that timely submits written
comments. If a public hearing is scheduled, notice of the date, time,
and place of the public hearing will be published in the Federal
Register.
Statement of Availability of IRS Documents
Notice 2003-65 is published in the Internal Revenue Bulletin (or
Cumulative 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 authors of this notice of proposed rulemaking are
Jonathan R. Neuville of the Office of Associate Chief Counsel
(Corporate) and Kevin M. Jacobs, formerly of the Office of Associate
Chief Counsel (Corporate). However, other personnel from the Treasury
Department and the IRS participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Partial Withdrawal of Notice of Proposed Rulemaking
Accordingly, under the authority of 26 U.S.C. 382(h)(3)(B)(ii),
382(m), and 7805, Sec. Sec. 1.382-2(b)(4) and 1.382-7(g) of the notice
of proposed rulemaking (REG-125710-18) published in the Federal
Register on September 10, 2019 (84 FR 47455) are withdrawn.
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 revising
the entry for Sec. 1.382-7 to read as follows:
Authority: 26 U.S.C. 7805 * * *
* * * * *
Section 1.382-7 also issued under 26 U.S.C. 382(h)(3)(B)(ii) and
(m).
* * * * *
0
Par. 2. Section 1.382-1, as proposed to be revised by 84 FR 47455,
September 10, 2019, is further amended by revising the entry for Sec.
1.382-7(g) to read as follows:
Sec. 1.382-1 Table of Contents.
* * * * *
Sec. 1.382-7 Built-in gains and losses.
* * * * *
(g) Applicability dates.
(1) In general.
(2) Transition relief.
(3) Paragraph (d)(2)(vi) of this section.
* * * * *
0
Par. 3. Section 1.382-2, as proposed to be amended by 84 FR 47455,
September 10, 2019, is further amended by revising paragraph (b)(4) to
read as follows:
Sec. 1.382-2 General rules for ownership change.
* * * * *
(b) * * *
(4) Rules provided in paragraphs (a)(9) through (13) of this
section. The rules of paragraphs (a)(9) through (13) of this section
apply to any ownership change that occurs after the date that is 30
days after the date of publication in the Federal Register of a
Treasury decision adopting these proposed regulations as final
regulations, if Sec. 1.382-7(g)(2) does not apply to that ownership
change. Notwithstanding the preceding sentence, a taxpayer may apply
the rules of paragraphs (a)(9) through (13) of this section to an
ownership change to which Sec. 1.382-7(g)(2) applies if the taxpayer
applies the rules of Sec. 1.382-7 to such ownership change.
0
Par. 4. Section 1.382-7, as proposed to be revised by 84 FR 47455,
September 10, 2019, is further amended by revising paragraph (g) to
read as follows:
Sec. 1.382-7 Built-in gains and losses.
* * * * *
(g) Applicability dates--(1) In general. Except as otherwise
provided in this paragraph (g), this section applies to any ownership
change that occurs after the date that is 30 days after the date of
publication in the Federal Register of a Treasury decision adopting the
rules of this section as final regulations (applicability date), if
paragraph (g)(2) of this section does not apply to that ownership
change. For ownership changes occurring on or before the applicability
date and ownership changes to which paragraph (g)(2) of this section
applies, see Sec. 1.382-7 as contained in 26 CFR part 1, revised April
1, 2019, and other applicable guidance, including Notice 2003-65 (2003-
2 CB 747) (see Sec. 601.601(d)(2)(ii)(b) of this chapter).
Notwithstanding the preceding sentences of this paragraph (g)(1), a
taxpayer may apply this section to an ownership change to which
paragraph (g)(2) of this section applies.
(2) Certain ownership changes eligible for transition relief. This
paragraph (g)(2) applies to an ownership change after the applicability
date that occurs immediately after an owner shift or equity structure
shift, if the owner shift or equity structure shift occurs--
(i) Pursuant to a binding agreement in effect on or before the
applicability date and at all times thereafter;
(ii) Pursuant to a specific transaction described in a public
announcement made on or before the applicability date;
(iii) Pursuant to a specific transaction described in a filing with
the Securities and Exchange Commission submitted on or before the
applicability date;
(iv) By order of a court (or pursuant to a plan confirmed, or a
sale approved, by order of a court) in a title 11 or similar case (as
defined in section 382(l)(5)(F)), provided that the taxpayer was a
debtor in a case before such court on or before the applicability date;
or
(v) Pursuant to a transaction described in a ruling request
submitted to the IRS on or before the applicability date.
[[Page 2064]]
(3) Paragraph (d)(2)(vi) of this section. Paragraph (d)(2)(vi) of
this section applies to loss corporations that have undergone an
ownership change on or after June 11, 2010. For loss corporations that
have undergone an ownership change before June 11, 2010, see Sec.
[thinsp]1.382-7T as contained in 26 CFR part 1, revised April 1, 2009.
Sunita Lough,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2020-00469 Filed 1-10-20; 4:15 pm]
BILLING CODE 4830-01-P
