[Federal Register Volume 66, Number 118 (Tuesday, June 19, 2001)]
[Rules and Regulations]
[Pages 32901-32902]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-15353]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8949]
RIN 1545-AY80


Special Aggregate Stock Ownership Rules

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to the 
aggregation of stock ownership in a corporation of members of a 
consolidated group. These regulations reflect a technical correction 
enacted in section 311(c) of the Community Renewal Tax Relief Act of 
2000, that, in substance, provides that the special aggregate stock 
ownership rules shall apply for purposes of section 732(f) of the Code. 
These final regulations may affect all consolidated groups.

DATES: Effective Date: June 19, 2001.

FOR FURTHER INFORMATION CONTACT: Frances L. Kelly or David H. Kessler, 
(202) 622-7770 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) under section 1502 of the Internal Revenue Code of 1986 
(Code). Section 1.1502-34 generally provides that, for purposes of the 
consolidated return regulations, the stock ownership of all members of 
a consolidated group in another corporation is aggregated in 
determining the application of certain

[[Page 32902]]

Code provisions, including section 332(b)(1), in a consolidated return 
year.
    Section 538 of the Ticket to Work and Work Incentives Improvement 
Act of 1999 (Public Law 106-170, 113 Stat. 1939) (the 1999 Act) enacted 
section 732(f) on December 17, 1999. With certain exceptions, section 
732(f) generally provides that if (1) a corporate partner of a 
partnership receives a distribution from that partnership of stock in 
another corporation, (2) the corporate partner has control of the 
distributed corporation immediately after the distribution or at any 
time thereafter, and (3) the partnership's adjusted basis in such stock 
immediately before the distribution exceeded the corporate partner's 
adjusted basis in such stock immediately after the distribution, then 
an amount equal to such excess shall reduce the basis of the property 
held by the distributed corporation at such time.
    On December 21, 2000, Congress enacted section 311(c) of the 
Community Renewal Tax Relief Act of 2000 (Public Law 106-554, 114 Stat. 
2763) (the 2000 Act), a technical correction to section 538 of the 1999 
Act. Section 311(c) of the 2000 Act states ``[t]he reference to section 
332(b)(1) of the Internal Revenue Code of 1986 in Treasury Regulation 
section 1.1502-34 shall be deemed to include a reference to section 
732(f) of such Code.'' The Conference Report states that the rule in 
the consolidated return regulations (Sec. 1.1502-34) aggregating stock 
ownership for purposes of section 332 (relating to a complete 
liquidation of a subsidiary that is a controlled corporation) also 
applies for purposes of section 732(f) (relating to basis adjustments 
to assets of a controlled corporation received in a partnership 
distribution). H.R. Conf. Rep. No. 1033, 106th Cong., 2d Sess. 1022 
(2000).
    Section 311(d) of the 2000 Act provides that section 311(c) of the 
2000 Act takes effect as if included in the provisions of the 1999 Act 
to which it relates. Thus, the effective date of section 311(c) of the 
2000 Act is the same as that for section 538(a) of the 1999 Act, which 
is contained in section 538(b) of the 1999 Act.

Explanation of Provisions

    These final regulations conform Sec. 1.1502-34 to a technical 
correction enacted in section 311(c) of the 2000 Act and add a 
regulation under section 732 reflecting that correction. These 
regulations reflect this statutory provision clarifying that the stock 
aggregation rules under Sec. 1.1502-34 apply for purposes of section 
732(f).
    Because section 311(d) of the 2000 Act provides that section 311(c) 
of the 2000 Act shall take effect as if it had been included in the 
provisions of the 1999 Act, the effective date provisions of section 
538(b) of the 1999 Act apply to these regulations. Section 538(b) 
generally provides that the amendments made by section 538(a) of the 
1999 Act apply to distributions made after July 14, 1999. In the case 
of a corporation that was a partner in a partnership as of July 14, 
1999, the amendments made by section 538(a) of the 1999 Act apply to 
distributions made (or treated as made) to that partner from that 
partnership after June 30, 2001. In the case of any such distribution 
made after December 17, 1999, and before July 1, 2001, the rule of the 
preceding sentence does not apply unless that partner makes an election 
to have the rule apply to the distribution on the partner's income tax 
return for the year in which the distribution occurs.

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. Because no notice 
of proposed rulemaking is required for this final regulation, the 
provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do 
not apply.
    This final rule merely conforms Sec. 1.1502-34 to the statutory 
amendment made by section 311(c) of the 2000 Act. Pursuant to 5 U.S.C. 
553, it is determined that prior notice and comment are unnecessary and 
contrary to the public interest. For the same reason, good cause exists 
for not delaying the effective date of this final rule.

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 
entries in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *.
    Section 1.732-3 also issued under 26 U.S.C. 732(f). * * *
    Section 1.1502-34 also issued under 26 U.S.C. 1502. * * *


    Par. 2. Section 1.732-3 is added to read as follows:


Sec. 1.732-3  Corresponding adjustment to basis of assets of a 
distributed corporation controlled by a corporate partner.

    The determination of whether a corporate partner has control of a 
distributed corporation for purposes of section 732(f) shall be made by 
applying the special aggregate stock ownership rules of Sec. 1.1502-34.


Sec. 1.1502-34  [Amended]

    Par. 3. In Sec. 1.1502-34, the first sentence is amended by adding 
``732(f),'' immediately after ``351(a),''.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: June 8, 2001.
Mark A. Weinberger,
Assistant Secretary of the Treasury.
[FR Doc. 01-15353 Filed 6-18-01; 8:45 am]
BILLING CODE 4830-01-P