[Federal Register Volume 64, Number 95 (Tuesday, May 18, 1999)]
[Proposed Rules]
[Pages 26924-26925]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11892]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-103694-99]
RIN 1545-AW75
Section 467 Rental Agreements Involving Payments of $2,000,000 or
Less
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations concerning section
467 rental agreements. The regulations remove the constant rental
accrual exception for rental agreements involving payments of
$2,000,000 or less. The regulations affect taxpayers that are parties
to a section 467 rental agreement entered into on or after July 19,
1999.
DATES: Written or electronically generated comments and requests for a
public hearing must be received by August 16, 1999.
ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-103694-99), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday through
Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-
103694-99), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC. Alternatively, taxpayers may submit
comments electronically via the Internet by selecting the ``Tax Regs''
option on the IRS Home Page, or by submitting comments directly to
http://www.irs.ustreas.gov/tax__regs/regslist.html (the IRS Internet
address).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Forest Boone, (202) 622-4960; concerning submissions of comments,
Michael L. Slaughter, (202) 622-7190 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to section 467 of the
Income Tax Regulations (26 CFR Part 1). Section 467 was added to the
Internal Revenue Code by section 92(a) of the Tax Reform Act of 1984
(Pub. L. 98-369 (98 Stat. 609)). On June 3, 1996, the IRS and Treasury
Department issued a notice of proposed rulemaking (61 FR 27834 [IA-292-
84, 1996-2 C.B. 462]) relating to section 467. Comments responding to
the notice were received, and a public hearing was held on September
25, 1996. After considering the comments received and the statements
made at the public hearing, final regulations under section 467 have
been completed and also appear elsewhere in this issue of the Federal
Register. This regulation proposes to amend the section 467 regulations
and, for purposes of the application of constant rental accrual, treat
rental agreements involving payments of $2,000,000 or less in the same
manner as those agreements involving payments of more than $2,000,000.
Explanation of Provisions
Under the section 467 final regulations, section 467 applies only
in the case of rental agreements with increasing or decreasing rent or
deferred or prepaid rent. However, section 467 is not applicable in the
case of rental agreements involving payments and other consideration of
$250,000 or less. See section 467(d)(2).
The section 467 final regulations provide that if section 467 is
applicable, the amount of fixed rent that must be taken into account by
a lessor and lessee for a rental period is either the amount of fixed
rent allocated to the period under the agreement, the proportional
rental amount, or the constant rental amount (constant rental accrual).
Constant rental accrual is to be used only where the section 467 rental
agreement is a disqualified leaseback or long-term agreement. Under the
section 467 final regulations, a rental agreement will not be a
disqualified leaseback or long-term agreement, and, consequently, will
not be subject to constant rental accrual, if it requires $2,000,000 or
less in rental payments and other consideration.
The IRS and Treasury Department have reconsidered the $2,000,000
constant rental accrual exception and have determined that it should be
eliminated from the section 467 final regulations. The original purpose
of the $2,000,000 exception was to simplify the section 467 rules for
small businesses. Upon further reflection, however, the IRS and
Treasury Department believe that the $2,000,000 exception
inappropriately permits certain rental agreements to avoid the
application of constant rental accrual, and that the inappropriate
avoidance of constant rental accrual outweighs the need for
simplification. Further, section 467(d)(2) provides an exception from
section 467 for rental agreements with payments and other consideration
of $250,000 or less. However, because the $2,000,000 constant rental
accrual
[[Page 26925]]
exception was included in the proposed regulations, the $2,000,000
exception will continue to apply to agreements entered into on or
before July 19, 1999.
Special Analyses
It has been determined that these proposed regulations are not a
significant regulatory action as defined in EO 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)
does not apply to these regulations, and because the regulations do not
impose a collection of information on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to
section 7805(f), this notice of proposed rulemaking will be submitted
to the Chief Counsel for Advocacy of the Small Business Administration
for comment on their impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and 8
copies) and electronic comments that are submitted timely to the IRS.
The IRS and Treasury Department request comments on the clarity of the
proposed rules and how they can be made easier to understand. All
comments will be available for public inspection and copying. 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 for the public hearing will be
published in the Federal Register.
Drafting Information: The principal author of the regulations is
Forest Boone, Office of Assistant Chief Counsel (Income Tax and
Accounting). However, other personnel from the IRS and Treasury
Department participated in the development of the regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par 2. In Sec. 1.467-3, paragraph (b)(1) is revised to read as
follows:
Sec. 1.467-3 Disqualified leasebacks and long-term agreements.
* * * * *
(b) Disqualified leaseback or long-term agreement--(1) In general.
A leaseback (as defined in paragraph (b)(2) of this section) or a long-
term agreement (as defined in paragraph (b)(3) of this section) is
disqualified only if--
(i) A principal purpose for providing increasing or decreasing rent
is the avoidance of Federal income tax (as described in paragraph (c)
of this section); and
(ii) The Commissioner determines that, because of the tax avoidance
purpose, the section 467 rental agreement should be treated as a
disqualified leaseback or long-term agreement.
* * * * *
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 99-11892 Filed 5-17-99; 8:45 am]
BILLING CODE 4830-01-P