[Federal Register Volume 66, Number 188 (Thursday, September 27, 2001)]
[Rules and Regulations]
[Pages 49278-49279]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-23985]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8964]
RIN 1545-AY55


Liabilities Assumed in Certain Corporate Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations relating to the 
assumption of liabilities in certain corporate transactions under 
section 301 of the Internal Revenue Code. These final regulations 
affect corporations and their shareholders. Changes to the applicable 
law were made by the Miscellaneous Trade and Technical Corrections Act 
of 1999.

DATES: Effective Date: These regulations are effective September 27, 
2001.
    Applicability Date: For dates of applicability, see the Effective 
Date portion of the preamble under SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: Douglas Bates (202) 622-7550 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    Changes to the applicable law were made by the Miscellaneous Trade 
and Technical Corrections Act of 1999, Public Law 106-36 (113 Stat. 
127). On January 4, 2001, temporary regulations (TD 8924) were 
published in the Federal Register (66 FR 723) under section 301 of the 
Internal Revenue Code, relating to liabilities assumed in connection 
with a distribution of property made by a corporation with respect to 
its stock. A notice of proposed rulemaking cross-referencing the 
temporary regulations was published in the Federal Register for the 
same day (66 FR 748). No public hearing was requested or held.
    No written comments responding to the notice were received. This 
document adopts, without substantive change, final regulations with 
respect to the notice of proposed rulemaking.

Effective Date

    The regulations apply generally to distributions occurring after 
January 4, 2001. The regulations also apply to distributions occurring 
on or prior to January 4, 2001, if the distribution is made as part of 
a transaction described in, or substantially similar to, the 
transaction in Notice 99-59 (1999-2 C.B. 761), including transactions 
designed to reduce gain. Under section 7805(b)(3), the Secretary may 
provide that any regulation may take effect or apply retroactively to 
prevent abuse. These regulations are being applied retroactively to 
prevent the abuse described in Notice 99-59. No inference should be 
drawn regarding the tax treatment of distributions not covered by these 
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 is hereby certified that these final regulations do not have a 
significant economic impact on a substantial number of small entities. 
These final regulations under section 301 address distributions by 
corporations in which liabilities are assumed by the shareholders or in 
which the distributed property is subject to liabilities. These final 
regulations provide that the amount of a distribution under section 301 
will be reduced by the amount of any liability that is treated as 
assumed by the distributee within the meaning of section 357(d).
    These regulations apply to persons receiving distributions of 
property in which the property is subject to a liability, or in which 
liabilities are assumed by the distributee. These regulations, however, 
will affect only those persons described in the preceding sentence that 
would have, but for the regulations, considered liabilities to have 
been assumed in circumstances other that those described in section 
357(d). Therefore, most businesses will not be affected by the final 
regulations in any given year. Therefore, a Regulatory Flexibility 
Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is 
not required. Pursuant to section 7805(f) of the Code, the notice of 
proposed rulemaking accompanying these regulations was submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small businesses.

Drafting Information

    The principal author of these regulations is Michael N. Kaibni of 
the Office of the Associate Chief Counsel (Corporate). However, other 
personnel from the IRS and Treasury Department participated in their 
development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

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 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *. Section 1.301-1 also issued 
under 26 U.S.C. 357(d)(3). * * *

    Par. 2. Section 1.301-1 is amended by revising paragraph (g) to 
read as follows:


Sec. 1.301-1  Rules applicable with respect to distributions of money 
and other property.

* * * * *
    (g) Reduction for liabilities--(1) General rule. For the purpose of 
section 301, no reduction shall be made for the amount of any 
liability, unless the liability is assumed by the shareholder within 
the meaning of section 357(d).
    (2) No reduction below zero. Any reduction pursuant to paragraph 
(g)(1) of this section shall not cause the amount of the distribution 
to be reduced below zero.
    (3) Effective dates--(i) In general. This paragraph (g) applies to 
distributions occurring after January 4, 2001.
    (ii) Retroactive application. This paragraph (g) also applies to

[[Page 49279]]

distributions made on or before January 4, 2001, if the distribution is 
made as part of a transaction described in, or substantially similar 
to, the transaction in Notice 99-59 (1999-2 C.B. 761), including 
transactions designed to reduce gain (see Sec. 601.601(d)(2) of this 
chapter). For rules for distributions on or before January 4, 2001 
(other than distributions on or before that date to which this 
paragraph (g) applies), see rules in effect on January 4, 2001 (see 
Sec. 1.301-1(g) as contained in 26 CFR part 1 revised April 1, 2001).
* * * * *


Sec. 1.301-1T  [Removed]

    Par. 3. Section 1.301-1T is removed.

    Approved: September 17, 2001.
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
Mark A. Weinberger,
Assistant Secretary of the Treasury for Tax Policy.
[FR Doc. 01-23985 Filed 9-26-01; 8:45 am]
BILLING CODE 4830-01-P