[Federal Register Volume 65, Number 95 (Tuesday, May 16, 2000)]
[Rules and Regulations]
[Pages 31078-31079]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-11899]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8882]
RIN 1545-AV86


Reorganizations; Nonqualified Preferred Stock

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to 
nonqualified preferred stock and rights to acquire nonqualified 
preferred stock. The regulations are necessary to reflect changes to 
the law concerning these instruments that were made by the Taxpayer 
Relief Act of 1997. The regulations affect shareholders who receive 
nonqualified preferred stock, or rights to acquire such stock, in 
certain corporate reorganizations and divisions.

EFFECTIVE DATE: These regulations are effective May 16, 2000.

FOR FURTHER INFORMATION CONTACT: Michael J. Danbury, (202) 622-7750 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    On January 6, 1998, a temporary regulation (TD 8753) was published 
in the Federal Register (63 FR 411). A notice of proposed rulemaking 
(REG-121755-97) cross-referencing the temporary regulation was 
published in the Federal Register (63 FR 453) on the same day.
    The temporary regulation provided that, notwithstanding 
contemporaneously issued final regulations treating certain rights to 
acquire stock as securities that can be received tax-free in corporate 
reorganizations and divisions, nonqualified preferred stock (as defined 
in section 351(g)(2) of the Internal Revenue Code) (NQPS), or a right 
to acquire NQPS, will in some circumstances not be treated as stock or 
securities for purposes of sections 354, 355, and 356. The temporary 
regulation added Sec. 1.356-6T, and applied to NQPS received in 
connection with a transaction occurring on or after March 9, 1998 
(other than certain recapitalizations of family-owned corporations and 
transactions described in section 1014(f)(2) of the Taxpayer Relief Act 
of 1997, Public Law 105-34, 111 Stat. 788, 921). No written comments 
responding to the notice of proposed rulemaking were received, and no 
public hearing was requested or held.
    The regulation proposed by REG-121755-97 is adopted by this 
Treasury decision, and the corresponding temporary regulation is 
removed. Cross-references to the temporary regulation in Secs. 1.354-
1(e), 1.355-1(c), and 1.356-3(b) have been removed and replaced with 
cross-references to the final regulation at Sec. 1.356-6.

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 has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. 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) of the Internal Revenue Code, the 
notice of proposed rulemaking preceding these regulations was submitted 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on its impact on small business.

Drafting Information

    The principal author of these regulations is Michael J. Danbury of 
the Office of Assistant Chief Counsel (Corporate). However, 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.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is 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 in part as follows:

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

    Section 1.356-6 also issued under 26 U.S.C. 351(g)(4). * * *


Sec. 1.354-1  [Amended]

    Par. 2. In Sec. 1.354-1, paragraph (e), first sentence, the 
language ``Sec. 1.356-6T'' is removed and ``Sec. 1.356-6'' is added in 
its place.


Sec. 1.355-1  [Amended]

    Par. 3. In Sec. 1.355-1, paragraph (c), first sentence, the 
language ``Sec. 1.356-6T'' is removed and ``Sec. 1.356-6'' is added in 
its place.


Sec. 1.356-3  [Amended]

    Par. 4. In Sec. 1.356-3, paragraph (b), first sentence, the 
language ``Sec. 1.356-6T'' is removed and ``Sec. 1.356-6'' is added in 
its place.
    Par. 5. Section 1.356-6T is redesignated as Sec. 1.356-6 and the 
section heading is revised to read as follows:

[[Page 31079]]

Sec. 1.356-6  Rules for treatment of nonqualified preferred stock as 
other property.

* * * * *

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: May 5, 2000.
Jonathan Talisman,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 00-11899 Filed 5-15-00; 8:45 am]
BILLING CODE 4830-01-U