[Federal Register Volume 65, Number 25 (Monday, February 7, 2000)]
[Proposed Rules]
[Pages 5805-5807]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-1895]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-209135-88]
RIN 1545-AW92


Certain Asset Transfers to Regulated Investment Companies [RICs] 
and Real Estate Investment Trusts [REITs]

AGENCY:  Internal Revenue Service (IRS), Treasury.

ACTION:  Notice of proposed rulemaking by cross-reference to temporary 
regulations and notice of public hearing.

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SUMMARY:  In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations which apply 
with respect to the net built-in gain of C corporation assets that 
become assets of a Regulated Investment Company [RIC] or Real Estate 
Investment Trust [REIT] by the qualification of a C corporation as a 
RIC or REIT or by the transfer of assets of a C corporation to a RIC or 
REIT in a carryover basis transaction. This document also provides 
notice of a public hearing on these proposed regulations.

DATES:  Written comments and outlines of topics to be discussed at the 
public hearing scheduled for May 10, 2000, at 10 a.m. in the IRS 
Auditorium, must be received by April 19, 2000.

ADDRESSES:  Send submissions to: CC:DOM:CORP:R [REG-209135-88], Room 
5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered between the 
hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R [REG-209135-88], Courier's 
Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., 
Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the Internet by

[[Page 5806]]

selecting the ``Tax Regs'' option on the Home Page or by submitting 
comments directly to the IRS Internet site at: http://
www.irs.ustreas.gov/tax__regs/regslist.html. The public hearing has 
been scheduled for May 10, 2000, at 10 a.m., in the IRS Auditorium, 
Internal Revenue Building, 1111 Constitution Avenue, NW., Washington, 
DC.

FOR FURTHER INFORMATION CONTACT:  Concerning the proposed regulations, 
Christopher W. Schoen, (202) 622-7750, concerning submissions and the 
hearing, LaNita Van Dyke (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. section 3507(d)).
    Comments on the collection of information should be sent 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, with copies to the Internal Revenue Service, 
Attn: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224. 
Comments on the collection of information should be received by April 
7, 2000. Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the IRS, including whether the 
collection will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in this proposed regulation is in 
Sec. 1.337(d)-5. This information is necessary for the Service to 
determine whether liquidation treatment or section 1374 treatment is 
appropriate for the entity for which the regulation applies. The 
collection of information is required to obtain a benefit, i.e., to 
elect to be subject to section 1374 in lieu of liquidation treatment. 
The likely respondents are Regulated Investment Companies (RICs) and 
Real Estate Investment Trusts (REITs).
    The regulation provides that a section 1374 election is made by 
filing a statement, signed by an official authorized to sign the income 
tax return of the RIC or REIT and attached to the RIC's or REIT's 
Federal income tax return. The burden for the collection of information 
in Sec. 1.337(d)-5T(b)(3) is as follows: Estimated total annual 
reporting burden: 50 hours Estimated average annual burden per 
respondent: 30 minutes Estimated number of respondents: 100 Estimated 
annual frequency of responses: Once
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a 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. 
section 6103.

Background

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating to section 337(d). The temporary regulations provide 
rules that when a C corporation (1) qualifies to be taxed as a RIC or 
REIT, or (2) transfers assets to a RIC or REIT in a carryover basis 
transaction, the C corporation is treated as if it sold all of its 
assets at their respective fair market values and immediately 
liquidated, unless the RIC or REIT elects to be subject to tax under 
section 1374 of the Code. The text of those temporary regulations also 
serves as the text of these proposed regulations. The preamble to the 
temporary regulations explains the temporary regulations.

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) 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. Therefore, a Regulatory Flexibility Analysis is not required. 
Pursuant to section 7805(f) of the Code, these temporary regulations 
will be submitted to the Chief Counsel of 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 comments (preferably a 
signed original and eight (8) copies) that are submitted to the IRS. 
The IRS and Treasury request comments on the clarity of the proposed 
rule and how it may be made easier to understand. All comments will be 
made available for public inspection and copying.
    A public hearing has been scheduled for May 10, 2000 at 10 a.m., in 
the IRS Auditorium. Because of access restrictions, visitors will not 
be admitted beyond the Internal Revenue Building lobby more than 15 
minutes before the hearing starts.
    The rules of 26 CFR 601.601(a)(3) apply at the hearing.
    Persons who wish to present oral comments at the hearing must 
submit written comments and an outline of the topics to be discussed 
(signed original and eight (8) copies) by April 19, 2000.
    A period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of speakers will be prepared after 
the deadline for receiving outlines has passed. Copies of the agenda 
will be available free of charge at the hearing.

Drafting Information

    The principal author of these regulations is Christopher W. Schoen 
of the Office of Assistant Chief Counsel (Corporate). Other personnel 
from the IRS and Treasury participated in their development.

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 11--INCOME TAXES

    Paragraph 1. The authority citation for 26 CFR part 1 is amended by 
adding an entry in numerical order to read as follows:

    Authority:  26 U.S.C. 7805 * * *

    Section 1.337(d)-5 also issued under 26 U.S.C. 337. * * *


[[Page 5807]]


    Par. 2. Section 1.337(d)-5 is added to read as follows:


Sec. 1.337(d)-5  Tax on C assets becoming RIC or REIT assets.

    [The text of proposed Sec. 1.337(d)-5 of this section is the same 
as the text of Sec. 1.337(d)-5T published elsewhere in this issue of 
the Federal Register.]

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 00-1895 Filed 2-4-00; 8:45 am]
BILLING CODE 4830-01-U