[Federal Register Volume 71, Number 105 (Thursday, June 1, 2006)]
[Proposed Rules]
[Pages 31128-31129]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-4827]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-111578-06]
RIN 1545-BF56


Computer Software Under Section 199(c)(5)(B)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations and notice of public hearing.

-----------------------------------------------------------------------

SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations concerning 
the application of section 199 of the Internal Revenue Code, which 
provides a deduction for income attributable to domestic production 
activities, to certain transactions involving computer software. The 
text of those regulations also serves as the text of these proposed 
regulations. This document also provides notice of a public hearing on 
these proposed regulations.

DATES: Written or electronic comments must be received by August 30, 
2006. Outlines of topics to be discussed at the public hearing 
scheduled for Tuesday, August 29, 2006, must be received by August 8, 
2006.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-111578-06), Room 
5203, 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 4 p.m. to: CC:PA:LPD:PR (REG-
111578-06), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC, or sent electronically, via the IRS 
Internet site at http://www.irs.gov/regs or via the Federal eRulemaking 
Portal at http://www.regulations.gov (IRS-REG-111578-06). The public 
hearing will be held in the IRS Auditorium, Internal Revenue Building, 
1111 Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Paul 
Handleman or Lauren Ross Taylor, (202) 622-3040; concerning submission 
of comments, the hearing, and/or to be placed on the building access 
list to attend the hearing, Richard A. Hurst, (202) 622-7180 (not toll-
free numbers).

SUPPLEMENTARY INFORMATION:

Background

    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 199. The temporary regulations provide 
guidance under section 199 for taxpayers providing computer software to 
customers for the customers' direct use while connected to the 
Internet. The text of those regulations also serves as the text of 
these proposed regulations. The preamble to the temporary regulations 
explains the amendments.

Special Analyses

    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 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 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 their 
impact on small business.

Comments and 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) or electronic comments that are submitted timely 
to the IRS. Comments are requested on all aspects of the proposed 
regulations. In addition, the IRS and Treasury Department specifically 
request comments on the clarity of the proposed rules and how they can 
be made easier to understand. All comments will be available for public 
inspection and copying.
    A public hearing has been scheduled for Tuesday, August 29, 2006, 
at 10 a.m. in the IRS Auditorium, Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing.
    Persons who wish to present oral comments at the hearing must 
submit electronic or written comments and an outline of the topics to 
be discussed and the time to be devoted to each topic (a signed 
original and eight (8) copies) by August 8, 2006. A period of 10 
minutes will be allotted to each person for making comments. An agenda 
showing the scheduling of the speakers will be prepared after the 
deadline for receiving outlines has passed. Copies of the agenda will 
be available free of charge at the hearing.

Drafting Information

    The principal authors of these regulations are Paul Handleman and 
Lauren Ross Taylor, 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 recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

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

    Authority: 26 U.S.C. 7805 * * *
    Section 1.199-3 also issued under 26 U.S.C. 199(d). * * *
    Section 1.199-8 also issued under 26 U.S.C. 199(d). * * *

    Par. 2. Section 1.199-3 is amended to read as follows:


Sec.  1.199-3  Domestic production gross receipts.

    [The text of the amendments to this proposed section is the same as 
the text of Sec.  1.199-3T published elsewhere in this issue of the 
Federal Register.]
    Par. 3. Section 1.199-8 is amended to read as follows:

[[Page 31129]]

Sec.  1.199-8  Other rules.

    [The text of the amendments to this proposed section is the same as 
the text of Sec.  1.199-8T published elsewhere in this issue of the 
Federal Register.]

Mark E. Mathews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 06-4827 Filed 5-24-06; 11:47 am]
BILLING CODE 4830-01-P