[Federal Register Volume 79, Number 62 (Tuesday, April 1, 2014)]
[Rules and Regulations]
[Pages 18159-18161]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-07160]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9644]
RIN 1545-BK44


Net Investment Income Tax; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendment.

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SUMMARY: This document contains corrections to final regulations (TD 
9644) that were published in the Federal Register on Monday, December 
2, 2013 (78 FR 72394). The final regulations provide guidance on the 
general application of the Net Investment Income Tax and the 
computation of Net Investment Income.

DATES: This correction is effective April 1, 2014 and applicable 
December 2, 2013.

FOR FURTHER INFORMATION CONTACT: Adrienne M. Mikolashek, at (202) 317-
6852 (not a toll free number).

SUPPLEMENTARY INFORMATION: 

Background

    The final regulations (TD 9644) that are the subject of this 
correction is under section 1411 of the Internal Revenue Code.

Need for Correction

    As published, the final regulations (TD 9644) contain errors that 
may prove to be misleading and are in need of clarification.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Correction of Publication

    Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:

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 1.469-11 is amended by revising the first sentence of 
paragraph (b)(3)(iv)(C)(1) and the last sentence of paragraph 
(b)(3)(iv)(C)(3) Example 4. to read as follows:


Sec.  1.469-11  Effective date and transition rules.

* * * * *
    (b) * * *
    (3) * * *
    (iv) * * *
    (C) * * * (1) * * * An individual, estate, or trust also may 
regroup activities, in the manner described in paragraph (b)(3)(iv)(A) 
of this section, on an amended return only if the changes reported on 
such amended return cause the taxpayer to meet the Eligibility Criteria 
for the first time beginning in the taxable year for which the amended 
return is applicable and that the taxable year is not closed by the

[[Page 18160]]

period of limitations on assessments under section 6501. * * *
* * * * *
    (3) * * *
    Example 4. * * * Third, Y may file an original or an amended 
return to regroup in a manner different from groupings in effect 
prior to Year 1 and different from the Year 1 groupings (for 
example, Y could choose to group Activity C and D into a single 
activity, thus causing Y to have two groups; Group A-B and Group C-
D).
* * * * *

0
Par. 3. Section 1.1411-0 is amended by revising the entries in the 
table of contents for Sec.  1.1411-3(c)(2)(ii) and (iii) to read as 
follows:


Sec.  1.1411-0  Table of contents of provisions applicable to section 
1411.

* * * * *


Sec.  1.1411-3  Application to Estates and Trusts.

* * * * *
    (c) * * *
    (2) * * *
    (ii) Step two.
    (iii) Step three.
* * * * *

0
Par. 4. Section 1.1411-2 is amended by revising the first sentence of 
paragraph (b)(2) to read as follows:


Sec.  1.1411-2  Application to individuals.

* * * * *
    (b) * * *
    (2)
    Example. During Year 1 (a year in which section 1411 is in 
effect), A, an unmarried United States citizen, has modified 
adjusted gross income (as defined in paragraph (c) of this section) 
of $190,000, which includes $50,000 of net investment income. * * *
* * * * *

0
Par. 5. Section 1.1411-3 is amended by revising the second sentence of 
paragraph (c)(3)(ii)(A) and the first sentence of paragraph 
(c)(3)(iii)(B) to read as follows:


Sec.  1.1411-3  Application to estates and trusts.

* * * * *
    (c) * * *
    (3) * * *
    (ii) * * * (A) * * * The undistributed net investment income for 
the S portion is $27,600 and is determined as follows:
* * * * *
    (iii) * * *
    (B) The adjusted gross income for the ESBT is $40,000 and is 
determined as follows: * * *
* * * * *

0
Par. 6. Section 1.1411-4 is amended as follows:
0
1. The first sentence of paragraph (d)(4)(i)(C) Example 2. (i) is 
revised.
0
2. The language ``deduction'' in the last sentence of paragraph 
(f)(2)(v) Example 1. (iv) is removed and ``deductions'' is added in its 
place.
0
3. The language ``A'' in the third sentence of paragraph (f)(2)(v) 
Example 2. (iii) is removed and ``A's'' is added in its place.
0
4. Paragraph (f)(3)(iii) is revised.
0
5. The language ``Sec.  1.171-2T(a)(4)(i)(C)'' in paragraph (f)(3)(vii) 
is removed and ``Sec.  1.171-2(a)(4)(i)(C)'' is added in its place.
0
6. The second sentence of paragraph (f)(4)(ii) Example 1. (iii) is 
revised.
0
7. The language ``one or more'' in paragraph (g)(7)(i) introductory 
text is removed and ``a'' is added in its place.
0
8. The language ``activities'' in paragraph (g)(7)(i) introductory text 
is removed and ``activity'' is added in its place.
0
9. Paragraph (h)(2) introductory text is revised.
0
10. The language ``.2'' in paragraph (h)(5) Example 1. (ii) is removed 
and added in its place ``0.2''.
    The revisions read as follows:


Sec.  1.1411-4  Definition of net investment income.

* * * * *
    (d) * * *
    (4) * * *
    (i) * * *
    (C) * * *

    Example 2. * * * (i) PRS, a partnership for Federal income tax 
purposes, operates an automobile dealership. * * *
* * * * *
    (f) * * *
    (3) * * *
    (iii) Taxes described in section 164(a)(3). State, local, and 
foreign income, war profits, and excess profit taxes described in 
section 164(a)(3) that are allocable to net investment income pursuant 
to paragraph (g)(1) of this section. Except to the extent specifically 
expected from section 275(a)(4), foreign income, war profits, and 
excess profit taxes are not allowed as deductions under section 
164(a)(3) in determining net investment income if the taxpayer claims 
the benefit of the foreign tax credit under section 901 with respect to 
the same taxable year. For rules applicable to refunds of taxes 
described in this paragraph, see paragraph (g)(2) of this section.
* * * * *
    (4) * * *
    (ii) * * *

    Example 1. * * *
    (iii) * * * Pursuant to paragraph (d) of this section, A takes 
into account the $60,000 at ordinary loss from PRS and the $50,000 
of long term capital gain in the computation of A's net gain. * * *
* * * * *
    (h) * * *
    (2) Applicable portion of a net operating loss. In any taxable year 
beginning after December 31, 2012, in which a taxpayer incurs a net 
operating loss, the applicable portion of such loss is the lesser of:
* * * * *

0
Par. 7. Section 1.1411-5 is amended by revising paragraph (b)(2)(i) and 
(b)(2)(iii) to read as follows:


Sec.  1.1411-5  Trades or businesses to which tax applies.

* * * * *
    (b) * * *
    (2) * * * (i) Income and gain recharacterization. To the extent 
that any income or gain from a trade or business is recharaterized as 
``not from a passive activity'' by reason of Sec.  1.469-2T(f)(2), 
Sec.  1.469-2(f)(5), or Sec.  1.469-2(f)(6), such trade or business 
does not constitute a passive activity within the meaning of paragraph 
(b)(1)(ii) of this section solely with respect to such recharaterized 
income or gain.
* * * * *
    (iii) Exception for certain portfolio recharacterizations. To the 
extent that any income or gain from a trade or business is 
recharacterized as ``not from a passive activity'' and is further 
characterized as portfolio income under Sec.  1.469-2(f)(10) or Sec.  
1.469-2(c)(2)(iii)(F), then such trade or business constitutes a 
passive activity within the meaning of paragraph (b)(1)(ii) of this 
section solely with respect to such recharacterized income or gain.
* * * * *

0
Par. 8. Section 1.1411-10 is amended as follows:
0
1. Revise paragraph (c)(5)(i)(B).
0
2. In paragraph (h) Example 2. (ii)(A), revise the first sentence.
    The revisions read as follows:


Sec.  1.1411-10  Controlled foreign corporations and passive foreign 
investment companies.

* * * * *
    (c) * * *
    (5) * * *
    (i) * * *
    (B) Decreasing the amount of investment income determined for 
chapter 1 purposes under section 163(d)(4)(B) by the amount included in 
gross income for chapter 1 purposes under section 951(a) or section 
1293(a) that is attributable to a CFC or QEF with respect to which an 
election under paragraph (g) of this section is not in effect; and
* * * * *
    (h) * * *

    Example 2.  * * *

[[Page 18161]]

    (ii) * * * (A) In 2016, A does not include the $15,000 section 
951(a)(1)(A) income inclusion in A's net investment income under 
section 1411(c)(1)(A)(i) and Sec.  1.1411-1(a)(1)(i). * * *
* * * * *

Martin V. Franks,
Chief, Publications and Regulations Branch, Legal Processing Division, 
Associate Chief Counsel, (Procedure and Administration).
[FR Doc. 2014-07160 Filed 3-31-14; 8:45 am]
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