[Federal Register Volume 71, Number 88 (Monday, May 8, 2006)]
[Rules and Regulations]
[Pages 26687-26688]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-4273]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9261]
RIN 1545-BF32


Intercompany Transactions; Manufacturer Incentive Payments

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations under section 1502 of 
the Internal Revenue Code. Example 13 of the intercompany transaction 
regulations illustrates the treatment of manufacturer incentive 
payments. Because a premise underlying the example is under 
reconsideration, these final regulations remove and reserve this 
example. The regulations will affect corporations filing consolidated 
returns.

DATES: Effective Date: These regulations are effective May 8, 2006.

FOR FURTHER INFORMATION CONTACT: Frances Kelly, (202) 622-7770 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    Section 1.1502-13 of the consolidated return regulations provides 
rules for taking into account items of income, gain, deduction, and 
loss of members from intercompany transactions. In particular, Sec.  
1.1502-13(c)(7)(ii), Example 13 illustrates how the matching rule of 
the intercompany transaction regulations treats a transaction involving 
manufacturer incentive payments. On August 13, 2004, the IRS and 
Treasury Department published a notice of proposed rulemaking (REG-
131264-04) in the Federal Register (69 FR 50112) proposing regulations 
to address additional transactions involving manufacturer incentive 
payments and to clarify the proper treatment of such incentive payments 
under the intercompany transaction regulations.
    On April 25, 2005, the IRS and Treasury Department published Rev. 
Rul. 2005-28 (2005-19 IRB 997), which suspends, in part, Rev. Rul. 76-
96 (1976-1 CB 23). Rev. Rul. 2005-28 states that the IRS will not 
apply, and taxpayers may not rely upon, the conclusion reached in Rev. 
Rul. 76-96 that certain rebates made by a manufacturer to retail 
customers are ordinary and necessary business expenses deductible under 
section 162, pending the IRS's reconsideration of the issue and 
publication of subsequent guidance.

Explanation of Provisions

    The manufacturer incentive payment transaction described in Sec.  
1.1502-13(c)(7)(ii), Example 13 relies, in part, upon the premise that 
the manufacturer incentive payment is an ordinary and necessary 
business expense deductible under section 162. To the extent that this 
premise is correct, this example illustrates the proper application of 
the intercompany transaction regulations. However, because Rev. Rul. 
2005-28 suspends Rev. Rul. 76-96, in pertinent part, these final 
regulations remove Sec.  1.1502-13(c)(7)(ii), Example 13 pending 
further guidance on the section 162 issue considered in Rev. Rul. 76-
96.

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 regulations will not have a significant economic 
impact on a substantial number of small entities. These final 
regulations do not alter substantive provisions of the intercompany 
transaction regulations. They merely remove an example which may be 
misleading and cause confusion for taxpayers. Accordingly, good cause 
is found for dispensing with prior notice and comment pursuant to 5 
U.S.C. 553(b), and for dispensing with a delayed effective date 
pursuant to 5 U.S.C. 553(d). Because no notice of proposed rulemaking 
is required, the provisions of the Regulatory Flexibility Act (5 U.S.C. 
chapter 6) do not apply. Pursuant to section 7805(f) of the Internal 
Revenue Code, this regulation was submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comments on its 
impact on small business.

Drafting Information

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

[[Page 26688]]

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 is amended by adding an 
entry in numerical order to read in part as follows:

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

    Section 1.1502-13 also issued under 26 U.S.C. 1502. * * *


Sec.  1.1502-13  [Amended]

0
Par. 2. In Sec.  1.1502-13, paragraph (c)(7)(ii), Example 13 is removed 
and reserved.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: April 28, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 06-4273 Filed 5-5-06; 8:45 am]
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