[Federal Register Volume 68, Number 217 (Monday, November 10, 2003)]
[Rules and Regulations]
[Pages 63733-63734]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28190]



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 Rules and Regulations
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  Federal Register / Vol. 68, No. 217 / Monday, November 10, 2003 / 
Rules and Regulations  

[[Page 63733]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9094]
RIN 1545-BC01


Return of Partnership Income

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains final and temporary regulations that 
authorize the Commissioner to provide exceptions to the requirements of 
section 6031(a) of the Internal Revenue Code for certain partnerships 
by guidance published in the Internal Revenue Bulletin. The text of 
these temporary regulations also serves as the text of the proposed 
regulations set forth in the Proposed Rules section in this issue of 
the Federal Register.

DATES: Effective Date: These regulations are effective November 5, 
2003.
    Applicability Date: For dates of applicability, see Sec. Sec.  
1.6031(a)-1(f)(2) and 1.6031(a)-1T(f)(2).

FOR FURTHER INFORMATION CONTACT: David A. Shulman, (202) 622-3070 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    A partnership may be used to create the economic equivalent of a 
variable-rate tax-exempt bond. The partnership acquires a tax-exempt 
obligation and issues both interests that are entitled to preferred 
returns based on current short-term yields on tax-exempt obligations 
(variable-rate interests) and interests that are entitled to the rest 
of the partnership's income (inverse interests). As a consequence of 
this structure, the partner that holds a variable-rate interest in the 
partnership receives a return that is equivalent to the return on a 
variable-rate tax-exempt bond. Under section 702(b), income received by 
a partnership generally retains its character when allocated to a 
partner.
    Section 6031(a) requires every partnership to make a return for 
each taxable year stating specifically the items of its gross income 
and the deductions allowable by subtitle A of the Internal Revenue 
Code, as well as other specified information. Section 6031(b) requires 
every partnership that is required to file a return under section 
6031(a) to provide each person who is a partner with such information 
as may be required by regulations. Section 1.6031(b)-1T(a)(3) provides 
that the partner must be provided such information as is required by 
any form or instructions that may be required. Generally, a Schedule K-
1 (Form 1065) must be provided to each partner.
    Section 404 of the Tax Equity and Fiscal Responsibility Act of 1982 
(Pub. L. 97-248; 96 Stat. 324, 669) (TEFRA) authorizes regulations that 
provide exceptions to the filing requirement of section 6031. Current 
Sec.  1.6031(a)-1(a)(3) and (c) provides exceptions for partnerships 
that have no income, deductions, or credits for a taxable year and for 
eligible partnerships that elect to be excluded from the application of 
subchapter K in the manner specified by Sec.  1.761-2(b)(2)(i) or are 
deemed to have so elected under Sec.  1.761-2(b)(2)(ii).
    The Treasury Department and the IRS believe that it is in the 
interest of sound and efficient administration of the tax laws to 
permit the Commissioner to provide in a timely and flexible manner for 
an additional exception to the requirements of section 6031(a) in 
situations in which all or substantially all of the partnership's 
income is derived from the holding or disposition of tax-exempt 
obligations or shares in a regulated investment company (as defined in 
section 851(a))(RIC) that pays exempt-interest dividends (as defined in 
section 852(b)(5)).

Explanation of Provisions

    Under temporary regulations, the Commissioner may, in guidance 
published in the Internal Revenue Bulletin, provide an exception to the 
reporting requirements of section 6031(a) for partnerships in 
situations in which all or substantially all of the partnership's 
income is derived from the holding or disposition of tax-exempt 
obligations (as defined in section 1275(a)(3) and Sec.  1.1275-1(e)) or 
shares in a RIC that pays exempt-interest dividends (as defined in 
section 852(b)(5)). The exception may be conditioned on substitute 
reporting and eligibility and other requirements. In conjunction with 
issuance of this temporary regulation, the Commissioner is publishing 
Rev. Proc. 2003-84, I.R.B. 2003-48, which provides for an exception to 
section 6031 for specified eligible partnerships.

Effective Date

    These regulations are effective November 5, 2003.

Special Analyses

    These temporary regulations are necessary to allow the publication 
of guidance in the Internal Revenue Bulletin to reduce the burden on 
certain partnerships. Accordingly, good cause is found for dispensing 
with notice and public procedure pursuant to 5 U.S.C. 553(b)(B) and 
with a delayed effective date pursuant to 5 U.S.C. 553(d)(1) and (3). 
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 preceding notice of 
proposed rulemaking is required for this temporary regulation, the 
provisions of the Regulatory Flexibility Act do not apply. Pursuant to 
section 7805(f) of the Code, these temporary regulations will be 
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 David A. Shulman of 
the Office of the Associate Chief Counsel (Passthroughs & Special 
Industries), IRS. 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

0
Accordingly, 26 CFR part 1 is amended as follows:

[[Page 63734]]

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding the 
following citation:

    Authority: 26 U.S.C. 7805. * * *
    Section 1.6031(a)-1T also issued under section 404 of the Tax 
Equity and Fiscal Responsibility Act of 1982 (Public Law 97-248; 96 
Stat. 324, 669) (TEFRA). * * *


0
Par. 2. Section 1.6031(a)-1 is amended as follows:
0
1. In paragraph (a)(1), the first sentence is amended by adding the 
language ``and Sec.  1.6031(a)-1T'' immediately following the language 
``of this section''.
0
2. The text of paragraph (a)(3) is redesignated as paragraph (a)(3)(i).
0
3. Paragraph (a)(3)(ii) is added.
0
4. Paragraph (f) is revised.
    The additions and revisions read as follows:


Sec.  1.6031(a)-1  Return of partnership income.

    (a) * * *
    (3) * * * (i) * * *
    (ii) [Reserved]. For further guidance see Sec.  1.6031(a)-
1T(a)(3)(ii).
* * * * *
    (f) Effective dates. This section applies to taxable years of a 
partnership beginning after December 31, 1999, except that'
    (1) Paragraph (b)(3) of this section applies to taxable years of a 
foreign partnership beginning after December 31, 2000; and
    (2) [Reserved]. For further guidance, see Sec.  1.6031(a)-1T(f)(2).

0
Par. 3. Section 1.6031(a)-1T is added to read as follows:


Sec.  1.6031(a)-1T  Return of partnership income (temporary).

    (a) through (a)(3)(i) [Reserved]. For further guidance see Sec.  
1.6031(a)-1(a) through (a)(3)(i).
    (ii) The Commissioner may, in guidance published in the Internal 
Revenue Bulletin (see Sec.  601.601(d)(2)(ii)(b) of this chapter), 
provide for an exception to partnership reporting under section 6031 
and for conditions for the exception, if all or substantially all of a 
partnership's income is derived from the holding or disposition of tax-
exempt obligations (as defined in section 1275(a)(3) and Sec.  1.1275-
1(e)) or shares in a regulated investment company (as defined in 
section 851(a)) that pays exempt-interest dividends (as defined in 
section 852(b)(5)).
    (a)(4) through (f)(1) [Reserved]. For further guidance see Sec.  
1.6031(a)-1(a)(4) through (f)(1).
    (f)(2) Effective dates. Paragraph (a)(3)(ii) of this section 
applies to taxable years of a partnership beginning on or after 
November 5, 2003. The applicability of paragraph (a)(3)(ii) of this 
section expires on or before November 6, 2006.

    Dated: October 30, 2003.
Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 03-28190 Filed 11-5-03; 1:41 pm]
BILLING CODE 4830-01-P