[Federal Register Volume 69, Number 88 (Thursday, May 6, 2004)]
[Rules and Regulations]
[Pages 25315-25316]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-10360]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9126]
RIN 1545-BB10


Section 704(b) and Capital Account Revaluations

AGENCY: Internal Revenue Service (IRS), Treasury.

[[Page 25316]]


ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to the 
capital account maintenance rules under section 704 of the Internal 
Revenue Code. These regulations expand the rules regarding a 
partnership's right to adjust capital accounts to reflect unrealized 
appreciation and depreciation in the value of partnership assets.

DATES: Effective Date: These regulations are effective May 6, 2004.

FOR FURTHER INFORMATION CONTACT: Laura Nash at (202) 622-3050 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On July 2, 2003, proposed regulations [68 FR 39498] relating to the 
capital account maintenance rules under section 704 of the Internal 
Revenue Code (Code) were published in the Federal Register. The 
proposed regulations expanded the circumstances under which a 
partnership is permitted to increase or decrease the capital accounts 
of the partners to reflect a revaluation of partnership property on the 
partnership's books. Specifically, the regulations proposed to allow 
revaluations in connection with the grant of an interest in the 
partnership (other than a de minimis interest) on or after the date 
these final regulations are published in the Federal Register as 
consideration for the provision of services to or for the benefit of 
the partnership by an existing partner acting in a partner capacity, or 
by a new partner acting in a partner capacity or in anticipation of 
being a partner. In addition, the notice of proposed rulemaking 
requested comments on other situations in which revaluations of 
partnership property should be permitted. No written or electronic 
comments were received in response to the notice of proposed 
rulemaking. No requests for a public hearing were received, and 
accordingly, no hearing was held.

Explanation of Provisions

    This Treasury decision adopts the proposed regulations without 
change. The regulations apply to the grant of an interest in a 
partnership (other than a de minimis interest) on or after May 6, 2004, 
as consideration for the provision of services to or for the benefit of 
the partnership by an existing partner acting in a partner capacity, or 
by a new partner acting in a partner capacity or in anticipation of 
being a partner.

Special Analysis

    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, 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 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 businesses.

Drafting Information

    The principal author of these regulations is Laura Nash, Office of 
Associate Chief Counsel (Passthroughs and 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 record keeping requirements.

Adoption of Amendments to the Regulations

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

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read, in 
part, as follows:

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


0
Par. 2. Section 1.704-1 is amended as follows:
0
1. Paragraph (b)(2)(iv)(f)(5)(iii) is redesignated as paragraph 
(b)(2)(iv)(f)(5)(iv).
0
2. New paragraph (b)(2)(iv)(f)(5)(iii) is added to read as follows:


Sec.  1.704-1  Partner's distributive share.

* * * * *
    (b) * * *
    (2) * * *
    (iv) * * *
    (f) * * *
    (5) * * *
    (iii) In connection with the grant of an interest in the 
partnership (other than a de minimis interest) on or after May 6, 2004, 
as consideration for the provision of services to or for the benefit of 
the partnership by an existing partner acting in a partner capacity, or 
by a new partner acting in a partner capacity or in anticipation of 
being a partner.
* * * * *

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: April 29, 2004.
Gregory F. Jenner,
Acting Assistant Secretary of the Treasury.
[FR Doc. 04-10360 Filed 5-5-04; 8:45 am]
BILLING CODE 4830-01-P