[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):

------------------------------------------------------------------------
                Act section                         Code section        
------------------------------------------------------------------------
13114.....................................  1044(a).                    
13150.....................................  108(c)(3)(C).               
13206(d)..................................  163(d)(4)(B)(iii).          
13225.....................................  6655(e)(2)(C).              
------------------------------------------------------------------------

    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.
------------------------------------------------------------------------
                                                                        
                  *        *        *        *        *                 
1.108(c)-1T................................................    1545-1421
                                                                        
                  *        *        *        *        *                 
1.163(d)-1T................................................    1545-1421
                                                                        
                  *        *        *        *        *                 
1.1044(a)-1T...............................................    1545-1421
                                                                        
                  *        *        *        *        *                 
1.6655(e)-1T...............................................    1545-1421
------------------------------------------------------------------------

    2. The following entries are added in numerical order to the table:


Sec. 602.101  OMB Control numbers.

* * * * *
    (c) * * *

------------------------------------------------------------------------
                                                             Current OMB
     CFR part or section where identified and described      control No.
------------------------------------------------------------------------
                                                                        
                  *        *        *        *        *                 
1.108(c)-1.................................................    1545-1421
                                                                        
                  *        *        *        *        *                 
1.163(d)-1.................................................    1545-1421
                                                                        
                  *        *        *        *        *                 
1.1044(a)-1................................................    1545-1421
                                                                        
                  *        *        *        *        *                 
1.6655(e)-1................................................    1545-1421
------------------------------------------------------------------------

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