[Federal Register Volume 67, Number 81 (Friday, April 26, 2002)]
[Proposed Rules]
[Pages 20711-20713]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-9818]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-163892-01]
RIN 1545-AY42


Guidance Under Section 355(e); Recognition of Gain on Certain 
Distributions of Stock or Securities in Connection With an Acquisition

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of notice of proposed rulemaking; and notice of 
proposed rulemaking by cross-reference to temporary regulations.

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SUMMARY: This document withdraws the notice of proposed rulemaking 
published in the Federal Register on January 2, 2001. In the Rules and 
Regulations section of this issue of the Federal Register, the IRS is 
issuing

[[Page 20712]]

temporary regulations relating to recognition of gain on certain 
distributions of stock or securities of a controlled corporation in 
connection with an acquisition. The text of those regulations also 
serves as the text of these proposed regulations.

DATES: Written and electronic comments and requests for a public 
hearing must be received by July 25, 2002.

ADDRESSES: Send submissions to: CC:ITA:RU (REG-163892-01), 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:ITA:RU (REG-163892-01), 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC. Alternatively, taxpayers may submit electronic 
comments directly to the IRS Internet site at www.irs.gov/regs.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Amber R. Cook at (202) 622-7530; concerning submissions, Treena 
Garrett, (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    On January 2, 2001, the IRS and Treasury published in the Federal 
Register (66 FR 66) a notice of proposed rulemaking (REG-107566-00) 
under section 355(e) of the Internal Revenue Code of 1986. Those 
proposed regulations are withdrawn.
    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 355(e). The temporary regulations provide 
rules relating to recognition of gain on certain distributions of stock 
or securities of a controlled corporation in connection with an 
acquisition. The text of those regulations also serves as the text of 
these proposed regulations. The preamble to the temporary regulations 
explains the amendments.

Special Analysis

    It has been determined that this notice of proposed rulemaking 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, and, because 
these 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, this 
notice of proposed rulemaking will be submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on its 
impact.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) and electronic comments that are submitted timely 
to the IRS. The IRS and Treasury Department specifically request 
comments on the clarity of the proposed rules and how they may 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 these regulations is Amber R. Cook, Office 
of Associate Chief Counsel (Corporate). Other personnel from the IRS 
and Treasury Department, however, participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Withdrawal of Proposed Amendments to the Regulations and Proposed 
Amendments to the Regulations

    Accordingly, under the authority of 26 U.S.C. 7805 and 26 U.S.C. 
355(e)(5), the notice of proposed rulemaking (REG-107566-00) that was 
published in the Federal Register on Tuesday, January 2, 2001, (66 FR 
66) is withdrawn. In addition, 26 CFR part 1 is proposed to be 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 1.355-7 also issued under 26 U.S.C. 355(e)(5). * * *
    Par. 2. Section 1.355-0 is amended by revising the introductory 
text and adding an entry for Sec. 1.355-7 to read as follows:


Sec. 1.355-0  Table of contents.

    In order to facilitate the use of Secs. 1.355-1 through 1.355-7, 
this section lists the major paragraphs in those sections as follows:
* * * * *


Sec. 1.355-7  Recognition of gain on certain distributions of stock or 
securities in connection with an acquisition.

(a) In general.
(b) Plan.
(1) In general.
(2) Certain post-distribution acquisitions.
(3) Plan factors.
(4) Non-plan factors.
(c) Operating rules.
(1) Internal discussions and discussions with outside advisors evidence 
of business purpose.
(2) Takeover defense.
(3) Effect of distribution on trading in stock.
(4) Consequences of section 355(e) disregarded for certain purposes.
(5) Multiple acquisitions.
(d) Safe harbors.
(1) Safe Harbor I.
(2) Safe Harbor II.
(3) Safe Harbor III.
(4) Safe Harbor IV.
(5) Safe Harbor V.
(i) In general.
(ii) Special rules.
(6) Safe Harbor VI.
(i) In general.
(ii) Special rule.
(7) Safe Harbor VII.
(i) In general.
(ii) Special rule.
(e) Stock acquired by exercise of options, warrants, convertible 
obligations, and other similar interests.
(1) Treatment of options.
(i) General rule.
(ii) Agreement, understanding, or arrangement to write an option.
(iii) Substantial negotiations related to options.
(2) Instruments treated as options.
(3) Instruments generally not treated as options.
(i) Escrow, pledge, or other security agreements.
(ii) Compensatory options.
(iii) Options exercisable only upon death, disability, mental 
incompetency, or separation from service.
(iv) Rights of first refusal.
(v) Other enumerated instruments.
(f) Multiple controlled corporations.
(g) Valuation.
(h) Definitions.
(1) Agreement, understanding, arrangement, or substantial negotiations.

[[Page 20713]]

(2) Controlled corporation.
(3) Controlling shareholder.
(4) Coordinating group.
(5) Discussions.
(6) Established market.
(7) Five-percent shareholder.
(8) Similar acquisition.
(9) Ten-percent shareholder.
(i) [Reserved]
(j) Examples.
(k) Effective date.
    Par. 3. Section 1.355-7 is added to read as follows:


Sec. 1.355-7  Recognition of gain on certain distributions of stock or 
securities in connection with an acquisition.

[The text of proposed Sec. 1.355-7 is the same as the text of 
Sec. 1.355-7T published elsewhere in this issue of the Federal 
Register].

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 02-9818 Filed 4-23-02; 12:14 pm]
BILLING CODE 4830-01-P