[Federal Register Volume 81, Number 110 (Wednesday, June 8, 2016)]
[Proposed Rules]
[Pages 36816-36818]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-13425]


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

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-126452-15]
RIN 1545-BN06


Certain Transfers of Property to Regulated Investment Companies 
[RICs] and Real Estate Investment Trusts [REITs]

AGENCY: Internal Revenue Service (IRS), Treasury.

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

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

SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations effecting 
the repeal of the General Utilities doctrine by the Tax Reform Act of 
1986. The text of those regulations also serves as part of the text of 
these proposed regulations. These proposed regulations would impose 
corporate level tax on certain transactions in which property of a C 
corporation becomes the property of a REIT. The proposed regulations 
also make an amendment not addressed in the temporary regulations. The 
proposed regulations affect RICs, REITs, C corporations the property of 
which becomes the property of a RIC or a REIT, and their shareholders.

DATES:  Comments and requests for a public hearing must be received by 
August 8, 2016.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-126452-15), Room 
5203, Internal Revenue Service, PO Box 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-
126452-15), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC 20224 or sent electronically via the Federal 
eRulemaking Portal at http://

[[Page 36817]]

www.regulations.gov/ (IRS REG-126452-15).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Austin M. Diamond-Jones, (202) 317-5085; concerning the submission of 
comments or to request a public hearing, Regina Johnson, (202) 317-6901 
(not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background and Explanation of Provisions

    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 337(d). The temporary regulations impose 
corporate level tax on certain transactions in which property of a C 
corporation becomes the property of a REIT. The text of those 
regulations also serves as the text of these proposed regulations. The 
preamble to the temporary regulations explains the amendments.
    The proposed regulations also include a modification to the 
definition of converted property that is not addressed in the temporary 
regulations. This modification treats as converted property any 
property the basis of which is determined, directly or indirectly, in 
whole or in part, by reference to the basis of property owned by a C 
corporation that becomes the property of a RIC or a REIT. The Treasury 
Department and the IRS believe that such property presents similar 
concerns with regard to the purposes of General Utilities repeal as 
other property of a C corporation that becomes the property of a RIC or 
REIT.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13653. Therefore, a regulatory impact assessment is 
not required. Pursuant to the Regulatory Flexibility Act (5 U.S.C. 
chapter 6), it is hereby certified that these proposed regulations 
would not have a significant economic impact on a substantial number of 
small entities. This certification is based on the fact that these 
proposed regulations would primarily affect large corporations with a 
substantial number of shareholders. Therefore, a regulatory flexibility 
analysis is not required. Pursuant to section 7805(f) of the Code, this 
regulation has been submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS as prescribed in this preamble under the ADDRESSES heading. 
The Treasury Department and the IRS request comments on all aspects of 
the proposed regulations. In particular, comments are requested 
regarding the scope of the terms predecessors and successors. In 
addition, although related section 355 distributions occurring before 
or after conversion transactions involving RICs do not present the same 
degree of concern regarding the purposes of General Utilities repeal, 
comments are requested as to whether the proposed regulations regarding 
related section 355 distributions should, like the rules of Sec.  
1.337(d)-7 generally, apply to both conversion transactions involving 
RICs and conversion transactions involving REITs. All comments will be 
available at www.regulations.gov or upon request. 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 of the public hearing will be published in the Federal 
Register.

Drafting Information

    The principal author of these regulations is Austin M. Diamond-
Jones of the Office of Associate Chief Counsel (Corporate). Other 
personnel from the Treasury Department and the IRS 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

0
Paragraph 1. The authority citation for part 1 is amended by revising 
the entry for Sec.  1.337(d)-7 to read in part as follows:

    Authority: 26 U.S.C. 7805 . . .
* * * * *
    Section 1.337(d)-7 also issued under 26 U.S.C. 337(d) and 
355(h).

* * * * *
0
Par. 2. Section 1.337(d)-7 is amended by:
0
1. Revising paragraph (a)(1) and adding paragraphs (a)(2)(vi) and 
(vii).
0
2. Revising paragraph (b)(2)(iii).
0
3. Adding paragraph (b)(4).
0
4. Revising paragraph (c)(1).
0
5. Adding paragraph (c)(6).
0
6. Adding paragraph (f).
0
7. Revising paragraphs (g)(2)(ii) and (iii).
0
8. Adding paragraph (g)(2)(iv).
    The additions and revisions read as follows:


Sec.  1.337(d)-7  Tax on property owned by a C corporation that becomes 
property of a RIC or REIT.

    (a) General rule. (1) [The text of the proposed amendment to Sec.  
1.337(d)-7(a)(1) is the same as the text of Sec.  1.337(d)-7T(a)(1) 
published elsewhere in this issue of the Federal Register].
    (2) * * *
    (vi) [The text of the proposed amendment to Sec.  1.337(d)-
7(a)(2)(vi) is the same as the text of Sec.  1.337(d)-7T(a)(2)(vi) 
published elsewhere in this issue of the Federal Register].
    (vii) Converted property. The term converted property means 
property owned by a C corporation that becomes the property of a RIC or 
a REIT and any other property the basis of which is determined, 
directly or indirectly, in whole or in part, by reference to the basis 
of the property owned by a C corporation that becomes the property of a 
RIC or a REIT.
    (b) * * *
    (2) * * *
    (iii) [The text of the proposed amendment to Sec.  1.337(d)-
7(b)(2)(iii) is the same as the text of Sec.  1.337(d)-7T(b)(2)(iii) 
published elsewhere in this issue of the Federal Register].
* * * * *
    (4) [The text of the proposed amendment to Sec.  1.337(d)-7(b)(4) 
is the same as the text of Sec.  1.337(d)-7T(b)(4) published elsewhere 
in this issue of the Federal Register].
* * * * *
    (c) Election of deemed sale treatment. (1) [The text of the 
proposed amendment to Sec.  1.337(d)-7(c)(1) is the same as the text of 
Sec.  1.337(d)-7T(c)(1) published elsewhere in this issue of the 
Federal Register].
* * * * *
    (6) [The text of the proposed amendment to Sec.  1.337(d)-7(c)(6) 
is the same as the text of Sec.  1.337(d)-7T(c)(6) published elsewhere 
in this issue of the Federal Register].
* * * * *
    (f) [The text of the proposed amendment to Sec.  1.337(d)-7(f) is 
the same as the text of Sec.  1.337(d)-7T(f) published elsewhere in 
this issue of the Federal Register].
    (g) * * *

[[Page 36818]]

    (2) * * *
    (ii) Conversion transactions occurring on or after June 7, 2016. 
Paragraphs (a)(1), (a)(2)(vi), (b)(4), (c)(1), (c)(6), and (f) of this 
section will apply to conversion transactions occurring on or after 
June 7, 2016 and to conversion transactions and related section 355 
distributions for which the conversion transaction occurs before, and 
the related section 355 distribution occurs on or after, June 7, 2016. 
For conversion transactions that occurred on or after January 2, 2002 
and before June 7, 2016, see Sec.  1.337(d)-7 as contained in 26 CFR 
part 1 in effect on April 1, 2016.
    (iii) [The text of the proposed amendment to Sec.  1.337(d)-
7(g)(2)(iii) is the same as the text of Sec.  1.337(d)-7T(g)(2)(iii) 
published elsewhere in this issue of the Federal Register].
    (iv) Converted property. Paragraph (a)(2)(vii) of this section 
applies to conversion transactions that occur on or after the date 
these regulations are published in the Federal Register as final 
regulations.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-13425 Filed 6-7-16; 8:45 am]
 BILLING CODE 4830-01-P