[Federal Register Volume 70, Number 52 (Friday, March 18, 2005)]
[Rules and Regulations]
[Pages 13100-13101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-5433]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9191]
RIN 1545-BD16


Time and Manner of Making Section 163(d)(4)(B) Election To Treat 
Qualified Dividend Income as Investment Income

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 an 
election that may be made by noncorporate taxpayers to treat qualified 
dividend income as investment income for purposes of calculating the 
deduction for investment interest. The regulations reflect changes to 
the law made by the Jobs and Growth Tax Relief Reconciliation Act of 
2003. The regulations affect taxpayers making the election under 
section 163(d)(4)(B) to treat qualified dividend income as investment 
income.

DATES: Effective Date: These regulations are effective March 18, 2005.
    Applicability Dates: For dates of applicability, see Sec.  
1.163(d)-1(d).

FOR FURTHER INFORMATION CONTACT: Amy Pfalzgraf, (202) 622-4950 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains amendments to 26 CFR part 1 under section 
163(d) of the Internal Revenue Code (Code). On August 5, 2004, 
temporary regulations (TD 9147) were published in the Federal Register 
(69 FR 47364) relating to an election that may be made by noncorporate 
taxpayers to treat qualified dividend income as investment income for 
purposes of calculating the deduction for investment interest. A notice 
of proposed rulemaking (REG-171386-03) cross-referencing the temporary 
regulations also was published in the Federal Register (69 FR 47395) on 
August 5, 2004. No comments in response to the notice of proposed 
rulemaking or requests to speak at a public hearing were received, and 
no hearing was held. This Treasury decision adopts the proposed 
regulations and removes the temporary 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 also has 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 the 
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 proposed 
regulations preceding these regulations were submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on their impact on small business.

Drafting Information

    The principal author of these regulations is Amy Pfalzgraf of the 
Office of Associate Chief Counsel (Income Tax & Accounting). 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.

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 1.163(d)-1 is revised to read as follows:


Sec.  1.163(d)-1  Time and manner for making elections under the 
Omnibus Budget Reconciliation Act of 1993 and the Jobs and Growth Tax 
Relief Reconciliation Act of 2003.

    (a) Description. Section 163(d)(4)(B)(iii), as added by section 
13206(d) of the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-
66, 107 Stat. 467), allows an electing taxpayer to take all or a 
portion of certain net capital gain attributable to dispositions of 
property held for investment into account as investment income. Section 
163(d)(4)(B), as amended by section 302(b) of the Jobs and Growth Tax 
Relief Reconciliation Act of 2003 (Pub. L. 108-27, 117 Stat. 762), 
allows an electing taxpayer to take all or a portion of qualified 
dividend income, as defined in section 1(h)(11)(B), into account as 
investment income. As a consequence, the net capital gain and qualified 
dividend

[[Page 13101]]

income taken into account as investment income under these elections 
are not eligible to be taxed at the capital gains rates. An election 
may be made for net capital gain recognized by noncorporate taxpayers 
during any taxable year beginning after December 31, 1992. An election 
may be made for qualified dividend income received by noncorporate 
taxpayers during any taxable year beginning after December 31, 2002, 
but before January 1, 2009.
    (b) Time and manner for making the elections. The elections for net 
capital gain and qualified dividend income must be made on or before 
the due date (including extensions) of the income tax return for the 
taxable year in which the net capital gain is recognized or the 
qualified dividend income is received. The elections are to be made on 
Form 4952, ``Investment Interest Expense Deduction,'' in accordance 
with the form and its instructions.
    (c) Revocability of elections. The elections described in this 
section are revocable with the consent of the Commissioner.
    (d) Effective date. The rules set forth in this section regarding 
the net capital gain election apply beginning December 12, 1996. The 
rules set forth in this section regarding the qualified dividend income 
election apply to any taxable year beginning after December 31, 2002, 
but before January 1, 2009.

0
Par. 3. Section 1.163-1T is removed.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: March 10, 2005.
Eric Solomon,
Acting Assistant Secretary of the Treasury.
[FR Doc. 05-5433 Filed 3-17-05; 8:45 am]
BILLING CODE 4830-01-P