[Federal Register Volume 71, Number 243 (Tuesday, December 19, 2006)]
[Proposed Rules]
[Pages 75898-75899]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-21572]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-125632-06]
RIN 1545-BF83


Corporate Reorganizations; Distributions Under Sections 
368(a)(1)(D) and 354(b)(1)(B)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rule making by cross-reference to temporary 
regulations.

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SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations that provide 
guidance regarding the qualification of certain transactions as 
reorganizations described in section 368(a)(1)(D) where no stock and/or 
securities of the acquiring corporation is issued and distributed in 
the transaction. These regulations affect corporations engaging in such 
transactions and their

[[Page 75899]]

shareholders. The text of those regulations also serves as the text of 
these proposed regulations.

DATES: Written or electronic comments and requests for a public hearing 
must be received by March 19, 2007.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-125632-06), Internal 
Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 
20044. Submissions may be hand delivered to CC:PA:LPD:PR (REG-125632-
06), Courier Desk, Internal Revenue Service, Crystal Mall 4, 1901 South 
Bell Street, Arlington, Virginia, 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-125632-06).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Bruce A. Decker, (202) 622-7550; concerning submissions of comments, 
the hearing, and/or to be placed on the access list to attend the 
hearing, Kelly Banks, (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 26 CFR part 1. The temporary 
regulations provide guidance on circumstances where the distribution of 
stock and/or securities under section 354(b)(1)(B) will be deemed 
satisfied in the absence of an actual issuance of stock and/or 
securities pursuant to a reorganization described in section 
368(a)(1)(D). The text of those regulations also serves as the text of 
these proposed regulations. The preamble to the temporary regulations 
explains the amendments.

Explanation of Provisions

    These temporary regulations provide guidance regarding the 
circumstances in which the distribution requirement under sections 
368(a)(1)(D) and 354(b)(1)(B) is deemed satisfied despite the fact that 
no stock and/or securities are actually issued in a transaction 
otherwise described in section 368(a)(1)(D). These regulations will 
affect certain cash sales of assets between two corporations that have 
the same direct or indirect shareholders or a de minimis variation in 
shareholder identity and proportionality.

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 regulation does 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 its 
impact on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The IRS and Treasury Department request comments on the clarity of 
the proposed rules and how they can be made easier to understand. The 
IRS and Treasury Department request comments on several issues relating 
to acquisitive reorganizations described in section 368(a)(1)(D). 
Specifically, the IRS and Treasury Department request comments on 
whether the meaningless gesture doctrine is inconsistent with the 
distribution requirement in sections 368(a)(1)(D) and 354(b)(1)(B), 
especially in situations in which the cash consideration received 
equals the full fair market value of the property transferred such that 
there is no missing consideration for which the nominal share of stock 
deemed received and distributed could substitute. The IRS and Treasury 
Department also request comments on the extent, if any, to which the 
continuity of interest requirement should apply to a reorganization 
described in section 368(a)(1)(D). The IRS and Treasury Department 
request comments on whether these temporary regulations should apply 
when the parties to the reorganization are members of a consolidated 
group. Finally, the IRS and Treasury Department request comments on the 
continued vitality of various liquidation-reincorporation authorities 
after the enactment of the Tax Reform Act of 1986, Public Law 99-514 
(100 Stat. 2085 (1986)). All comments will be available for public 
inspection and copying. A public hearing will be scheduled if requested 
in writing by any person that timely submits written comments. If a 
public hearing is scheduled, notice of the date, time, and place for 
the public hearing will be published in the Federal Register.

Drafting Information

    The principal author of these regulations is Bruce A. Decker, 
Office of Associate Chief Counsel (Corporate).

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 * * *

    Par. 2. Section 1.368-2 is amended by revising paragraph (l) to 
read as follows:


Sec.  1.368-2  Definition of terms.

* * * * *
    (l) [The text of this proposed amendment to Sec.  1.368-2(l) is the 
same as the text of Sec.  1.368-2T(l)(1) through (l)(4)(i) published 
elsewhere in this issue of the Federal Register]

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E6-21572 Filed 12-18-06; 8:45 am]
BILLING CODE 4830-01-P