[Federal Register Volume 59, Number 50 (Tuesday, March 15, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-5984]


[[Page Unknown]]

[Federal Register: March 15, 1994]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8528]
RIN 1545-AS12

 

Certain Elections for Intangible Property

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations relating to the 
procedures for making elections under the intangibles provisions of the 
Omnibus Budget Reconciliation Act of 1993 (OBRA '93). The regulations 
affect electing taxpayers that acquired intangible property after July 
25, 1991, or acquired intangibles under a written, binding contract 
that was in effect on August 10, 1993. The text of these temporary 
regulations also serves as the text of the proposed regulations set 
forth in the notice of proposed rulemaking on this subject in the 
Proposed Rules section of this issue of the Federal Register.

EFFECTIVE DATE: These regulations are effective March 15, 1994.

FOR FURTHER INFORMATION CONTACT: John Huffman, (202) 622-3110 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    These regulations are being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collection of information contained in these 
regulations has been reviewed and, pending receipt and evaluation of 
public comments, approved by the Office of Management and Budget under 
control number 1545-1425. The estimated annual burden per respondent 
varies from 30 minutes to 75 minutes, depending on individual 
circumstances, with an estimated average of 1 hour.
    For further information concerning this collection of information, 
and where to submit comments on this collection of information, the 
accuracy of the estimated burden, and suggestions for reducing this 
burden, please refer to the preamble to the cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section of this 
issue of the Federal Register.

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) under sections 197 and 167(f). The amendments reflect 
changes made by section 13261 of OBRA '93.

Explanation of Provisions

    Section 13261 of OBRA '93 contains provisions affecting the tax 
treatment of intangible property acquired after August 10, 1993 (the 
date of enactment of OBRA '93). The temporary regulations provide 
guidance on how to make the section 13261(g)(2) election to apply the 
intangibles provisions of OBRA '93 to property acquired after July 25, 
1991, and on or before August 10, 1993 (retroactive election). Once 
made, the election applies to all property acquired during this period 
by the taxpayer or a taxpayer under common control with the electing 
taxpayer. Common control exists if the two taxpayers are treated as a 
single taxpayer under section 41(f)(1) (A) or (B) at any time after 
August 2, 1993, and on or before the election date as defined under 
these regulations.
    If a corporation is a former member of a consolidated group and the 
common parent of that group makes the retroactive election, the 
intangibles provisions of OBRA '93 will apply to property that was 
acquired by the former member after July 25, 1991, while it was a 
member of the consolidated group.
    The regulations provide special rules for partnerships for which a 
section 754 election was in effect. In these situations, a partner that 
obtains an increased basis in intangibles held through the partnership 
as a result of either section 734(b) or 743(b) will be treated as if 
the increased basis were attributable to the partner's acquisition of a 
new intangible asset on the date of the transaction that results in the 
basis increase.
    The regulations also provide guidance on how a taxpayer may make 
the section 13261(g)(3) election to apply prior law to intangibles 
acquired after August 10, 1993, pursuant to a written binding contract 
in effect on August 10, 1993, and at all times thereafter before the 
acquisition (binding contract election). Only taxpayers that have not 
elected the retroactive election may make the binding contract 
election.
    The elections provided for in these regulations generally must be 
made on the taxpayer's timely filed (including extensions) income tax 
return for the taxable year that includes August 10, 1993. Transition 
rules are provided, however for taxpayers that have filed tax returns 
for the taxable year that includes August 10, 1993, prior to April 14, 
1994.
    The taxpayer must make the desired election by following the 
election requirements under the regulations. An attempted election made 
other than at the time and in the manner prescribed by the regulations 
is not valid.
    Taxpayers making the retroactive election must conform all affected 
prior years' returns to reflect the application of the intangibles 
provisions of OBRA '93.
    The regulations also provide special rules for transfers of 
intangibles in certain tax-free transactions. Under these rules, a 
transferee is bound by a transferor's retroactive election with respect 
to any transferred intangibles. In cases where the transferor does not 
make the retroactive election, the transferee may make the election. In 
these cases, the transferor is not required to apply the intangibles 
provisions of OBRA '93 to the transferred intangibles (unless those 
provisions are otherwise applicable), and the transferee must take into 
account an adjustment with respect to the transferred intangibles on 
account of any interim period during which the intangibles provisions 
of OBRA '93 did not apply to the transferred intangibles. The 
adjustment, which is taken into account in the taxable year of the 
acquisition, is equal to the difference, as of the date of the 
transfer, between the sum of the depreciation, amortization, or other 
cost recovery deductions that would have been permitted for the 
transferred intangibles had the intangibles provisions of OBRA '93 
applied to the property during the interim period, and the sum of the 
depreciation, amortization, or other cost recovery deductions claimed 
with respect to the intangibles during the interim period. The 
transferee must also make any corresponding basis adjustments to the 
transferred intangibles.
    Principles and adjustments similar to those described in the 
preceding paragraph (in the case of a retroactive election by the 
transferee where no election is made by the transferor) are also 
applied in certain circumstances with respect to an electing former 
member of a non-electing consolidated group.
    Finally, in order for the retroactive or binding contract elections 
to be valid, the regulations prescribe certain notice requirements and 
require that certain information be included in a written election 
statement filed with the election year return and any affected amended 
returns.

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. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 
6) do not apply to these regulations, and, therefore, a Regulatory 
Flexibility Analysis is not required. Pursuant to section 7805(f) of 
the Internal Revenue Code, these temporary regulations will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small business.

Drafting Information

    The principal author of these regulations is John Huffman, Office 
of Assistant Chief Counsel (Passthroughs and Special Industries). 
However, other personnel from the IRS and Treasury Department 
participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1--INCOME 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 * * *

    Section 1.197-1T also issued under 26 U.S.C. 197(g).

    Par. 2. Section 1.167(a)-13T is added to read as follows:


Sec. 1.167(a)-13T  Certain elections for intangible property 
(temporary).

    For rules applying the elections under section 13261(g) (2) and (3) 
of the Omnibus Budget Reconciliation Act of 1993 to intangible property 
described in section 167(f), see Sec. 1.197-1T.
    Par. 3. Section 1.197-1T is added under the heading ``Itemized 
Deductions for Individuals and Corporations'' to read as follows:


Sec. 1.197-1T  Certain elections for intangible property (temporary).

    (a) In general. This section provides rules for making the two 
elections under section 13261 of the Omnibus Budget Reconciliation Act 
of 1993 (OBRA '93). Paragraph (c) of this section provides rules for 
making the section 13261(g)(2) election (the retroactive election) to 
apply the intangibles provisions of OBRA '93 to property acquired after 
July 25, 1991, and on or before August 10, 1993 (the date of enactment 
of OBRA '93). Paragraph (d) of this section provides rules for making 
the section 13261(g)(3) election (binding contract election) to apply 
prior law to property acquired pursuant to a written binding contract 
in effect on August 10, 1993, and at all times thereafter before the 
date of acquisition. The provisions of this section apply only to 
property for which an election is made under paragraph (c) or (d) of 
this section.
    (b) Definitions and special rules--(1) Intangibles provisions of 
OBRA '93. The intangibles provisions of OBRA '93 are sections 167(f) 
and 197 of the Internal Revenue Code (Code) and all other pertinent 
provisions of section 13261 of OBRA '93 (e.g., the amendment of section 
1253 in the case of a franchise, trademark, or trade name).
    (2) Transition period property. The transition period property of a 
taxpayer is any property that was acquired by the taxpayer after July 
25, 1991, and on or before August 10, 1993.
    (3) Eligible section 197 intangibles. The eligible section 197 
intangibles of a taxpayer are any section 197 intangibles that--
    (i) Are transition period property; and
    (ii) Qualify as amortizable section 197 intangibles (within the 
meaning of section 197(c)) if an election under section 13261(g)(2) of 
OBRA '93 applies.
    (4) Election date. The election date is the date (determined after 
application of section 7502(a)) on which the taxpayer files the 
original or amended return to which the election statement described in 
paragraph (e) of this section is attached.
    (5) Election year. The election year is the taxable year of the 
taxpayer that includes August 10, 1993.
    (6) Common control. A taxpayer is under common control with the 
electing taxpayer if, at any time after August 2, 1993, and on or 
before the election date (as defined in paragraph (b)(4) of this 
section), the two taxpayers would be treated as a single taxpayer under 
section 41(f)(1) (A) or (B).
    (7) Applicable convention for sections 197 and 167(f) intangibles.  
For purposes of computing the depreciation or amortization deduction 
allowable with respect to transition period property described in 
section 167(f) (1) or (3) or with respect to eligible section 197 
intangibles--
    (i) Property acquired at any time during the month is treated as 
acquired as of the first day of the month and is eligible for 
depreciation or amortization during the month; and
    (ii) Property is not eligible for depreciation or amortization in 
the month of disposition.
    (8) Application to adjustment to basis of partnership property 
under section 734(b) or 743(b). Any increase in the basis of 
partnership property under section 734(b) (relating to the optional 
adjustment to basis of undistributed partnership property) or section 
743(b) (relating to the optional adjustment to the basis of partnership 
property) will be taken into account under this section by a partner as 
if the increased portion of the basis were attributable to the 
partner's acquisition of the underlying partnership property on the 
date the distribution or transfer occurs. For example, if a section 754 
election is in effect and, as a result of its acquisition of a 
partnership interest, a taxpayer obtains an increased basis in an 
intangible held through the partnership, the increased portion of the 
basis in the intangible will be treated as an intangible asset newly 
acquired by that taxpayer on the date of the transaction.
    (9) Former member. A former member of a consolidated group is a 
corporation that was a member of the consolidated group at any time 
after July 25, 1991, and on or before August 2, 1993, but that is not 
under common control with the common parent of the group for purposes 
of paragraph (c)(1)(ii) of this section.
    (c) Retroactive election--(1) Effect of election--(i) On taxpayer. 
Except as provided in paragraph (c)(1)(v) of this section, if a 
taxpayer makes the retroactive election, the intangibles provisions of 
OBRA '93 will apply to all the taxpayer's transition period property. 
Thus, for example, section 197 will apply to all the taxpayer's 
eligible section 197 intangibles.
    (ii) On taxpayers under common control. If a taxpayer makes the 
retroactive election, the election applies to each taxpayer that is 
under common control with the electing taxpayer. If the retroactive 
election applies to a taxpayer under common control, the intangibles 
provisions of OBRA '93 apply to that taxpayer's transition period 
property in the same manner as if that taxpayer had itself made the 
retroactive election. However, a retroactive election that applies to a 
non-electing taxpayer under common control is not treated as an 
election by that taxpayer for purposes of re-applying the rule of this 
paragraph (c)(1)(ii) to any other taxpayer.
    (iii) On former members of consolidated group. A retroactive 
election by the common parent of a consolidated group applies to 
transition period property acquired by a former member while it was a 
member of the consolidated group and continues to apply to that 
property in each subsequent consolidated or separate return year of the 
former member.
    (iv) On transferred assets--(A) In general. If property is 
transferred in a transaction described in paragraph (c)(1)(iv)(C) of 
this section and the intangibles provisions of OBRA '93 applied to such 
property in the hands of the transferor, the property remains subject 
to the intangibles provisions of OBRA '93 with respect to so much of 
its adjusted basis in the hands of the transferee as does not exceed 
its adjusted basis in the hands of the transferor. The transferee is 
not required to apply the intangibles provisions of OBRA '93 to any 
other transition period property that it owns, however, unless such 
provisions are otherwise applicable under the rules of this paragraph 
(c)(1).
    (B) Transferee election. If property is transferred in a 
transaction described in paragraph (c)(1)(iv)(C)(1) of this section and 
the transferee makes the retroactive election, the transferor is not 
required to apply the intangibles provisions of OBRA '93 to any of its 
transition period property (including the property transferred to the 
transferee in the transaction described in paragraph (c)(1)(iv)(C)(1) 
of this section), unless such provisions are otherwise applicable under 
the rules of this paragraph (c)(1).
    (C) Transactions covered. This paragraph (c)(1)(iv) applies to--
    (1) Any transaction described in section 332, 351, 361, 721, 731, 
1031, or 1033; and
    (2) Any transaction between corporations that are members of the 
same consolidated group immediately after the transaction.
    (D) Exchanged basis property. In the case of a transaction 
involving exchanged basis property (e.g., a transaction subject to 
section 1031 or 1033)--
    (1) Paragraph (c)(1)(iv)(A) of this section shall not apply; and
    (2) If the intangibles provisions of OBRA '93 applied to the 
property by reference to which the exchanged basis is determined (the 
predecessor property), the exchanged basis property becomes subject to 
the intangibles provisions of OBRA '93 with respect to so much of its 
basis as does not exceed the predecessor property's basis.
    (E) Acquisition date. For purposes of paragraph (b)(2) of this 
section (definition of transition period property), property (other 
than exchanged basis property) acquired in a transaction described in 
paragraph (c)(1)(iv)(C)(1) of this section generally is treated as 
acquired when the transferor acquired (or was treated as acquiring) the 
property (or predecessor property). However, if the adjusted basis of 
the property in the hands of the transferee exceeds the adjusted basis 
of the property in the hands of the transferor, the property, with 
respect to that excess basis, is treated as acquired at the time of the 
transfer. The time at which exchanged basis property is considered 
acquired is determined by applying similar principles to the 
transferee's acquisition of predecessor property.
    (v) Special rule for property of former member of consolidated 
group--(A) Intangibles provisions inapplicable for certain periods. If 
a former member of a consolidated group makes a retroactive election 
pursuant to paragraph (c)(1)(i) of this section or if an election 
applies to the former member under the common control rule of paragraph 
(c)(1)(ii) of this section, the intangibles provisions of OBRA '93 
generally apply to all transition period property of the former member. 
The intangibles provisions of OBRA '93 do not apply, however, to the 
transition period property of a former member (including a former 
member that makes or is bound by a retroactive election) during the 
period beginning immediately after July 25, 1991, and ending 
immediately before the earlier of--
    (1) The first day after July 25, 1991, that the former member was 
not a member of a consolidated group; or
    (2) The first day after July 25, 1991, that the former member was a 
member of a consolidated group that is otherwise required to apply the 
intangibles provisions of OBRA '93 to its transition period property 
(e.g., because the common control election under paragraph (c)(1)(ii) 
of this section applies to the group).
    (B) Subsequent adjustments. See paragraph (c)(5) of this section 
for adjustments when the intangibles provisions of OBRA '93 first apply 
to the transition period property of the former member after the 
property is acquired.
    (2) Making the election--(i) Partnerships, S corporations, estates, 
and trusts. Except as provided in paragraph (c)(2)(ii) of this section, 
in the case of transition period property of a partnership, S 
corporation, estate, or trust, only the entity may make the retroactive 
election for purposes of paragraph (c)(1)(i) of this section.
    (ii) Partnerships for which a section 754 election is in effect. In 
the case of increased basis that is treated as transition period 
property of a partner under paragraph (b)(8) of this section, only that 
partner may make the retroactive election for purposes of paragraph 
(c)(1)(i) of this section.
    (iii) Consolidated groups. An election by the common parent of a 
consolidated group applies to members and former members as described 
in paragraphs (c)(1)(ii) and (iii) of this section. Further, for 
purposes of paragraph (c)(1)(ii) of this section, an election by the 
common parent is not treated as an election by any subsidiary member. A 
retroactive election cannot be made by a corporation that is a 
subsidiary member of a consolidated group on August 10, 1993, but an 
election can be made on behalf of the subsidiary member under paragraph 
(c)(1)(ii) of this section (e.g., by the common parent of the group). 
See paragraph (c)(1)(iii) of this section for rules concerning the 
effect of the common parent's election on transition period property of 
a former member.
    (3) Time and manner of election--(i) Time. In general, the 
retroactive election must be made by the due date (including extensions 
of time) of the electing taxpayer's Federal income tax return for the 
election year. If, however, the taxpayer's original Federal income tax 
return for the election year is filed before April 14, 1994, the 
election may be made by amending that return no later than September 
12, 1994.
    (ii) Manner. The retroactive election is made by attaching the 
election statement described in paragraph (e) of this section to the 
taxpayer's original or amended income tax return for the election year. 
In addition, the taxpayer must--
    (A) Amend any previously filed return when required to do so under 
paragraph (c)(4) of this section; and
    (B) Satisfy the notification requirements of paragraph (c)(6) of 
this section.
    (iii) Effect of nonconforming elections. An attempted election that 
does not satisfy the requirements of this paragraph (c)(3) (including 
an attempted election made on a return for a taxable year prior to the 
election year) is not valid.
    (4) Amended return requirements--(i) Requirements. A taxpayer 
subject to this paragraph (c)(4) must amend all previously filed income 
tax returns as necessary to conform the taxpayer's treatment of 
transition period property to the treatment required under the 
intangibles provisions of OBRA '93. See paragraph (c)(5) of this 
section for certain adjustments that may be required on the amended 
returns required under this paragraph (c)(4) in the case of certain 
consolidated group member dispositions and tax-free transactions.
    (ii) Applicability. This paragraph (c)(4) applies to a taxpayer 
if--
    (A) The taxpayer makes the retroactive election; or
    (B) Another person's retroactive election applies to the taxpayer 
or to any property acquired by the taxpayer.
    (5) Adjustment required with respect to certain consolidated group 
member dispositions and tax-free transactions--(i) Application. This 
paragraph (c)(5) applies to transition period property if the 
intangibles provisions of OBRA '93 first apply to the property while it 
is held by the taxpayer but do not apply to the property for some 
period (the ``interim period'') after the property is acquired (or 
considered acquired) by the taxpayer. For example, this paragraph 
(c)(5) may apply to transition period property held by a former member 
of a consolidated group if a retroactive election is made by or on 
behalf of the former member but is not made by the consolidated group. 
See paragraph (c)(1)(v) of this section.
    (ii) Required adjustment to income. If this paragraph (c)(5) 
applies, an adjustment must be taken into account in computing taxable 
income of the taxpayer for the taxable year in which the intangibles 
provisions of OBRA '93 first apply to the property. The amount of the 
adjustment is equal to the difference for the transition period 
property between--
    (A) The sum of the depreciation, amortization, or other cost 
recovery deductions that the taxpayer (and its predecessors) would have 
been permitted if the intangibles provisions of OBRA '93 applied to the 
property during the interim period; and
    (B) The sum of the depreciation, amortization, or other cost 
recovery deductions that the taxpayer (and its predecessors) claimed 
during that interim period.
    (iii) Required adjustment to basis. The taxpayer also must make a 
corresponding adjustment to the basis of its transition period property 
to reflect any adjustment to taxable income with respect to the 
property under this paragraph (c)(5).
    (6) Notification requirements--(i) Notification of commonly 
controlled taxpayers. A taxpayer that makes the retroactive election 
must provide written notification of the retroactive election (on or 
before the election date) to each taxpayer that is under common control 
with the electing taxpayer.
    (ii) Notification of certain former members, former consolidated 
groups, and transferees. This paragraph (c)(6)(ii) applies to a common 
parent of a consolidated group that makes or is notified of a 
retroactive election that applies to transition period property of a 
former member, a corporation that makes or is notified of a retroactive 
election that affects any consolidated group of which the corporation 
is a former member, or a taxpayer that makes or is notified of a 
retroactive election that applies to transition period property the 
taxpayer transfers in a transaction described in paragraph 
(c)(1)(iv)(C) of this section. Such common parent, former member, or 
transferor must provide written notification of the retroactive 
election to any affected former member, consolidated group, or 
transferee. The written notification must be provided on or before the 
election date in the case of an election by the common parent, former 
member, or transferor, and within 30 days of the election date in the 
case of an election by a person other than the common parent, former 
member, or transferor.
    (7) Revocation. Once made, the retroactive election may be revoked 
only with the consent of the Commissioner.
    (8) Examples. The following examples illustrate the application of 
this paragraph (c).


    Example 1. (i) X is a partnership with 5 equal partners, A 
through E. X acquires in 1989, as its sole asset, intangible asset 
M. X has a section 754 election in effect for all relevant years. F, 
an unrelated individual, purchases A's entire interest in the X 
partnership in January 1993 for $700. At the time of F's purchase, 
X's inside basis for M is $2,000, and its fair market value is 
$3,500.
    (ii) Under section 743(b), X makes an adjustment to increase F's 
basis in asset M by $300, the difference between the allocated 
purchase price and M's inside basis ($700 - $400 = $300). Under 
paragraphs (b)(8) and (c)(2)(ii) of this section, if F makes the 
retroactive election, the section 743(b) basis increase of $300 in M 
is an amortizable section 197 intangible even though asset M is not 
an amortizable section 197 intangible in the hands of X. F's 
increase in the basis of asset M is amortizable over 15 years 
beginning with the month of F's acquisition of the partnership 
interest. With respect to the remaining $400 of basis, F is treated 
as stepping into A's shoes and continues A's amortization (if any) 
in asset M. F's retroactive election applies to all other 
intangibles acquired by F or a taxpayer under common control with F.
    Example 2. A, a calendar year taxpayer, is under common control 
with B, a June 30 fiscal year taxpayer. A files its original 
election year Federal income tax return on March 15, 1994, and does 
not make either the retroactive election or the binding contract 
election. B files its election year tax return on September 15, 
1994, and makes the retroactive election. B is required by paragraph 
(c)(6)(i) of this section to notify A of its election. Even though A 
had already filed its election year return, A is bound by B's 
retroactive election under the common control rules. Additionally, 
if A had made a binding contract election, it would have been 
negated by B's retroactive election. Because of B's retroactive 
election, A must comply with the requirements of this paragraph (c), 
and file amended returns for the election year and any affected 
prior years as necessary to conform the treatment of transition 
period property to the treatment required under the intangibles 
provisions of OBRA '93.
    Example 3. (i) P and Y, calendar year taxpayers, are the common 
parents of unrelated calendar year consolidated groups. On August 
15, 1991, S, a subsidiary member of the P group, acquires a section 
197 intangible with an unadjusted basis of $180. Under prior law, no 
amortization or depreciation was allowed with respect to the 
acquired intangible. On November 1, 1992, a member of the Y group 
acquires the S stock in a taxable transaction. On the P group's 1993 
consolidated return, P makes the retroactive election. The P group 
also files amended returns for its affected prior years. Y does not 
make the retroactive election for the Y group.
    (ii) Under paragraph (c)(1)(iii) of this section, a retroactive 
election by the common parent of a consolidated group applies to all 
transition period property acquired by a former member while it was 
a member of the group. The section 197 intangible acquired by S is 
transition period property that S, a former member of the P group, 
acquired while a member of the P group. Thus, P's election applies 
to the acquired asset. P must notify S of the election pursuant to 
paragraph (c)(6)(ii) of this section.
    (iii) S amortizes the unadjusted basis of its eligible section 
197 intangible ($180) over the 15-year amortization period using the 
applicable convention beginning as of the first day of the month of 
acquisition (August 1, 1991). Thus, the P group amends its 1991 
consolidated tax return to take into account $5 of amortization 
($180/15 years  x  5/12 year = $5) for S.
    (iv) For 1992, S is entitled to $12 of amortization ($180/15). 
Assume that under Sec. 1.1502-76, $10 of S's amortization for 1992 
is allocated to the P group's consolidated return and $2 is 
allocated to the Y group's return. The P group amends its 1992 
consolidated tax return to reflect the $10 deduction for S. The Y 
group must amend its 1992 return to reflect the $2 deduction for S.
    Example 4. (i) The facts are the same as in Example 3, except 
that the retroactive election is made for the Y group, not for the P 
group.
    (ii) The Y group amends its 1992 consolidated return to claim a 
section 197 deduction of $2 ($180/15 years  x  2/12 year = $2) for 
S.
    (iii) Under paragraph (c)(1)(ii) of this section, the 
retroactive election by Y applies to all transition period property 
acquired by S. However, under paragraph (c)(1)(v)(A) of this 
section, the intangibles provisions of OBRA '93 do not apply to S's 
transition period property during the period when it held such 
property as a member of P group. Instead, these provisions become 
applicable to S's transition period property beginning on November 
1, 1992, when S becomes a member of Y group.
    (iv) Because the P group did not make the retroactive election, 
there is an interim period during which the intangibles provisions 
of OBRA '93 do not apply to the asset acquired by S. Thus, under 
paragraph (c)(5) of this section, the Y group must take into account 
in computing taxable income in 1992 an adjustment equal to the 
difference between the section 197 deduction that would have been 
permitted if the intangibles provisions of OBRA '93 applied to the 
property for the interim period (i.e., the period for which S was 
included in the P group's 1991 and 1992 consolidated returns) and 
any amortization or depreciation deductions claimed by S for the 
transferred intangible for that period. The retroactive election 
does not affect the P group, and the P group is not required to 
amend its returns.
    Example 5. The facts are the same as in Example 3, except that 
both P and Y make the retroactive election. P must notify S of its 
election pursuant to paragraph (c)(6)(ii) of this section. Further, 
both the P and Y groups must file amended returns for affected prior 
years. Because there is no period of time during which the 
intangibles provisions of OBRA '93 do not apply to the asset 
acquired by S, the Y group is permitted no adjustment under 
paragraph (c)(5) of this section for the asset.

    (d) Binding contract election--(1) General rule--(i) Effect of 
election. If a taxpayer acquires property pursuant to a written binding 
contract in effect on August 10, 1993, and at all times thereafter 
before the acquisition (an eligible acquisition) and makes the binding 
contract election with respect to the contract, the law in effect prior 
to the enactment of OBRA '93 will apply to all property acquired 
pursuant to the contract. A separate binding contract election must be 
made with respect to each eligible acquisition to which the law in 
effect prior to the enactment of OBRA '93 is to apply.
    (ii) Taxpayers subject to retroactive election. A taxpayer may not 
make the binding contract election if the taxpayer or a person under 
common control with the taxpayer makes the retroactive election under 
paragraph (c) of this section.
    (iii) Revocation. A binding contract election, once made, may be 
revoked only with the consent of the Commissioner.
    (2) Time and manner of election--(i) Time. In general, the binding 
contract election must be made by the due date (including extensions of 
time) of the electing taxpayer's Federal income tax return for the 
election year. If, however, the taxpayer's original Federal income tax 
return for the election year is filed before April 14, 1994, the 
election may be made by amending that return no later than September 
12, 1994.
    (ii) Manner. The binding contract election is made by attaching the 
election statement described in paragraph (e) of this section to the 
taxpayer's original or amended income tax return for the election year.
    (iii) Effect of nonconforming election. An attempted election that 
does not satisfy the requirements of this paragraph (d)(2) is not 
valid.
    (e) Election statement--(1) Filing requirements. For an election 
under paragraph (c) or (d) of this section to be valid, the electing 
taxpayer must:
    (i) File (with its Federal income tax return for the election year 
and with any affected amended returns required under paragraph (c)(4) 
of this section) a written election statement, as an attachment to Form 
4562 (Depreciation and Amortization), that satisfies the requirements 
of paragraph (e)(2) of this section; and
    (ii) Forward a copy of the election statement to the Statistics 
Branch (QAM:S:6111), IRS Ogden Service Center, ATTN: Chief, Statistics 
Branch, P.O. Box 9941, Ogden, UT 84409.
    (2) Content of the election statement. The written election 
statement must include the information in paragraphs (e)(2) (i) through 
(vi) and (ix) of this section in the case of a retroactive election, 
and the information in paragraphs (e)(2) (i) and (vii) through (ix) of 
this section in the case of a binding contract election. The required 
information should be arranged and identified in accordance with the 
following order and numbering system--
    (i) The name, address and taxpayer identification number (TIN) of 
the electing taxpayer (and the common parent if a consolidated return 
is filed).
    (ii) A statement that the taxpayer is making the retroactive 
election.
    (iii) Identification of the transition period property affected by 
the retroactive election, the name and TIN of the person from which the 
property was acquired, the manner and date of acquisition, the basis at 
which the property was acquired, and the amount of depreciation, 
amortization, or other cost recovery under section 167 or any other 
provision of the Code claimed with respect to the property.
    (iv) Identification of each taxpayer under common control (as 
defined in paragraph (b)(6) of this section) with the electing taxpayer 
by name, TIN, and Internal Revenue Service Center where the taxpayer's 
income tax return is filed.
    (v) If any persons are required to be notified of the retroactive 
election under paragraph (c)(6) of this section, identification of such 
persons and certification that written notification of the election has 
been provided to such persons.
    (vi) A statement that the transition period property being 
amortized under section 197 is not subject to the anti-churning rules 
of section 197(f)(9).
    (vii) A statement that the taxpayer is making the binding contract 
election.
    (viii) Identification of the property affected by the binding 
contract election, the name and TIN of the person from which the 
property was acquired, the manner and date of acquisition, the basis at 
which the property was acquired, and whether any of the property is 
subject to depreciation under section 167 or to amortization or other 
cost recovery under any other provision of the Code.
    (ix) The signature of the taxpayer or an individual authorized to 
sign the taxpayer's Federal income tax return.
    (f) Effective date. These regulations are effective March 15, 1994.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 4. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.


Sec. 602.101(c)  [Amended]

    Par. 5. Section 602.101(c) is amended by adding an entry numerical 
order to the table to read as follows:

``1.197-1T . . . . 1545-1425''.

    Dated: March 2, 1994.
Margaret Milner Richardson,
Commissioner of Internal Revenue.

    Approved:
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 94-5984 Filed 3-10-94; 3:04 pm]
BILLING CODE 4830-01-P