[Federal Register Volume 61, Number 240 (Thursday, December 12, 1996)]
[Rules and Regulations]
[Pages 65321-65323]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-31362]
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DEPARTMENT OF THE TREASURY
26 CFR Parts 1 and 602
[TD 8688]
RIN 1545-AS14
Certain Elections Under the Omnibus Budget Reconciliation Act of
1993
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations relating to the time
and manner of making certain elections under the Omnibus Budget
Reconciliation Act of 1993. These regulations provide guidance to
persons making the elections.
EFFECTIVE DATE: December 12, 1996.
FOR FURTHER INFORMATION CONTACT: George Bradley, 202-622-4920 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final regulations
have been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545-1421. Responses to these collections of information
are required to obtain the benefits of the particular election that is
the subject of the collection.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
The estimated annual burden per respondent varies from 15 minutes
to 45 minutes, depending on individual circumstances, with an estimated
average of 30 minutes.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington,
DC 20224, and to the Office of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503.
Books or records relating to this collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains final regulations relating to elections
under the following sections of the Internal Revenue Code of 1986
(Code) and the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-
66, 107 Stat. 312) (Act):
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Act section Code section
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13114..................................... 1044(a).
13150..................................... 108(c)(3)(C).
13206(d).................................. 163(d)(4)(B)(iii).
13225..................................... 6655(e)(2)(C).
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On December 27, 1993, the Federal Register published temporary
regulations (TD 8509) and a cross-reference notice of proposed
rulemaking (IA-62-93), 58 FR 68300 and 58 FR 68336, respectively,
relating to these elections. Three written comments responding to the
regulations were submitted. Since none of the commentators requested a
public hearing, one was not held. After consideration of the comments,
the proposed regulations are adopted as final regulations subject to
modifications to proposed Sec. 1.108(c)-1, and the corresponding
temporary regulations are removed. The comments and a description of
the modifications to proposed Sec. 1.108(c)-1 are discussed below.
Summary of Comments and Modifications
All three comments related to the election under section
163(d)(4)(B)(iii), which allows a taxpayer to take all or a portion of
certain net capital gains, attributable to dispositions of property
held for investment, into account as investment income. As a
consequence, the capital gains affected by this election are not
eligible for the maximum capital gain rate of 28 percent. The election
must be made on Form 4952, Investment Interest Expense Deduction, on or
before the due date (including extensions) of the income tax return for
the taxable year in which the net capital gain is recognized.
The commentators questioned the authority of the IRS to require a
formal election, stated that a formal election will add to the
complexity of filing individual income tax returns, and suggested that
taxpayers be allowed to freely change the manner in which they treat
long-term capital gains, as long as the taxable year is open. These
comments were given careful consideration. However, they have not been
incorporated into these final regulations. The IRS and the Treasury
Department believe that the requirement of a formal election is
supported by the language of section 163(d)(4)(B)(iii), is not unduly
burdensome, and provides taxpayers with flexibility, since the election
is revocable.
The final regulations modify the requirements for making the
election for discharge of qualified real property business indebtedness
under section 108(c). Under the previous temporary regulations a
taxpayer was required to make the election with the taxpayer's income
tax return for the taxable year in which the discharge occurred, but
was permitted to file an election with an amended return or claim for
credit or refund if the taxpayer established reasonable cause for
failure to file the election with the original return. The final
regulations require the taxpayer to make the election on the timely-
filed (including extensions) Federal income tax return for the taxable
year in which the taxpayer has discharge of indebtedness income that is
excludible under section 108(a). Therefore, a taxpayer that fails to
make the election on that return must request the Commissioner's
consent to file a late election under Sec. 301.9100-3T or any
regulations that supersede Sec. 301.9100-3T.
Special Analyses
It has been determined that these regulations are not significant
rules as defined in Executive Order 12866. It also has 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 the notice
of proposed rulemaking preceding the regulations was issued prior to
March 29, 1996, a Regulatory Flexibility Analysis is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, the notice of
proposed rulemaking preceding these regulations was submitted to the
Small Business Administration for comment on its impact on small
business.
Drafting Information: The principal author of these regulations
is George Bradley, Office of Assistant Chief Counsel (Income Tax and
Accounting), Internal Revenue Service. However, personnel from other
offices of the Internal Revenue Service and the Treasury Department
participated in their development.
[[Page 65322]]
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, parts 1 and 602 of title 26 of the Code of Federal
Regulations are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by
removing the entry for section 1.108(c)-1T and by adding an entry in
numerical order to read as follows.
Authority: 26 U.S.C. 7805 * * *
Section 1.108(c)-1 also issued under the authority of 26 U.S.C.
108(d)(9); * * *
Sec. 1.108(c)-1T [Removed
Par. 2. Section 1.108(c)-1T is removed.
Sec. 1.163(d)-1T [Removed]
Par. 3. Section 1.163(d)-1T is removed.
Sec. 1.1044(a)-1T [Removed]
Par. 4. Section 1.1044(a)-1T is removed.
Sec. 1.6655(e)-1T [Removed]
Par. 5. Section 1.6655(e)-1T is removed.
Par. 6. Section 1.108(c)-1 is added to read as follows:
Sec. 1.108(c)-1 Time and manner for making election under the Omnibus
Budget Reconciliation Act of 1993.
(a) Description. Section 108(c)(3)(C), as added by section 13150 of
the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-66, 107
Stat. 446), allows certain noncorporate taxpayers to elect to treat
certain indebtedness described in section 108(c)(3) that is discharged
after December 31, 1992, as qualified real property business
indebtedness. This discharged indebtedness is excluded from gross
income to the extent allowed by section 108.
(b) Time and manner for making election. The election described in
this section must be made on the timely-filed (including extensions)
Federal income tax return for the taxable year in which the taxpayer
has discharge of indebtedness income that is excludible from gross
income under section 108(a). The election is to be made on a completed
Form 982, in accordance with that Form and its instructions.
(c) Revocability of election. The election described in this
section is revocable with the consent of the Commissioner.
(d) Effective date. The rules set forth in this section are
effective December 27, 1993.
Par. 7. Section 1.163(d)-1 is added to read as follows.
Sec. 1.163(d)-1 Time and manner for making election under the Omnibus
Budget Reconciliation Act of 1993.
(a) Description. Section 163(d)(4)(B)(iii), as added by section
13206(d) of the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-
66, 107 Stat. 467), allows an electing taxpayer to take all or a
portion of certain net capital gains, attributable to dispositions of
property held for investment, into account as investment income. As a
consequence, the capital gains affected by this election are not
eligible for the maximum capital gain rate of 28 percent. The election
may be made for net capital gains recognized by noncorporate taxpayers
during any taxable year beginning after December 31, 1992.
(b) Time and manner for making the election. The election under
section 163(d)(4)(B)(iii) must be made on or before the due date
(including extensions) of the income tax return for the taxable year in
which the net capital gain is recognized. The election is to be made on
Form 4952, Investment Interest Expense Deduction, in accordance with
the Form and its instructions.
(c) Revocability of election. The election described in this
section is revocable with the consent of the Commissioner.
(d) Effective date. The rules set forth in this section are
effective December 12, 1996.
Par. 8. Section 1.1044(a)-1 is added to read as follows.
Sec. 1.1044(a)-1 Time and manner for making election under the Omnibus
Budget Reconciliation Act of 1993.
(a) Description. Section 1044(a), as added by section 13114 of the
Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-66, 107 Stat.
430), generally allows individuals and C corporations that sell
publicly traded securities after August 9, 1993, to elect not to
recognize certain gain from the sale if the taxpayer purchases common
stock or a partnership interest in a specialized small business
investment company (SSBIC) within the 60-day period beginning on the
date the publicly traded securities are sold.
(b) Time and manner for making the election. The election under
section 1044(a) must be made on or before the due date (including
extensions) for the income tax return for the year in which the
publicly traded securities are sold. The election is to be made by
reporting the entire gain from the sale of publicly traded securities
on Schedule D of the income tax return in accordance with instructions
for Schedule D, and by attaching a statement to Schedule D showing--
(1) How the nonrecognized gain was calculated;
(2) The SSBIC in which common stock or a partnership interest was
purchased;
(3) The date the SSBIC stock or partnership interest was purchased;
and
(4) The basis of the SSBIC stock or partnership interest.
(c) Revocability of election. The election described in this
section is revocable with the consent of the Commissioner.
(d) Effective date. The rules set forth in this section are
effective December 12, 1996.
Par. 9. Section 1.6655(e)-1 is added to read as follows.
Sec. 1.6655(e)-1 Time and manner for making election under the Omnibus
Budget Reconciliation Act of 1993.
(a) Description. Section 6655(e)(2)(C), as added by section 13225
of the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-66, 107
Stat. 486), allows a corporate taxpayer to make an annual election to
use a different annualization period to determine annualized income for
purposes of paying any required installment of estimated income tax for
a taxable year beginning after December 31, 1993.
(b) Time and manner for making the election. An election under
section 6655(e)(2)(C) must be made on or before the date required for
the payment of the first required installment for the taxable year. For
a calendar or fiscal year corporation, Form 8842, Election to Use
Different Annualization Periods for Corporate Estimated Tax, must be
filed by the 15th day of the 4th month of the taxable year for which
the election is to apply. Form 8842 must be filed with the Internal
Revenue Service Center where the corporation files its income tax
return.
(c) Revocability of election. The election described in this
section is irrevocable.
(d) Effective date. The rules set forth in this section are
effective December 12, 1996.
[[Page 65323]]
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 10. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 11. In Sec. 602.101, paragraph (c) is amended as follows:
1. The following entries are removed from the table:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
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* * * * *
1.108(c)-1T................................................ 1545-1421
* * * * *
1.163(d)-1T................................................ 1545-1421
* * * * *
1.1044(a)-1T............................................... 1545-1421
* * * * *
1.6655(e)-1T............................................... 1545-1421
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2. The following entries are added in numerical order to the table:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
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Current OMB
CFR part or section where identified and described control No.
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* * * * *
1.108(c)-1................................................. 1545-1421
* * * * *
1.163(d)-1................................................. 1545-1421
* * * * *
1.1044(a)-1................................................ 1545-1421
* * * * *
1.6655(e)-1................................................ 1545-1421
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Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: November 1, 1996.
Donald C. Lubick,
Acting Assistant Secretary of the Treasury.
[FR Doc. 96-31362 Filed 12-11-96; 8:45 am]
BILLING CODE 4380-01-U