[Federal Register Volume 84, Number 62 (Monday, April 1, 2019)]
[Proposed Rules]
[Pages 12169-12170]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06159]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-124627-11]
RIN 1545-BK43


Corporate Reorganizations; Guidance on the Measurement of 
Continuity of Interest

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of notice of proposed rulemaking.

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SUMMARY: This document withdraws a notice of proposed rulemaking that 
would have provided guidance on how to determine whether certain 
transactions satisfy the continuity of interest (COI) requirement under 
Sec.  1.368-1(e), applicable to certain corporate reorganizations 
described in section 368 of the Internal Revenue Code of 1986 (Code). 
The proposed regulations being withdrawn would have affected 
corporations and their shareholders.

DATES: As of April 1, 2019, the proposed amendment to Sec.  1.368-1 in 
the notice of proposed rulemaking (REG-124627-11) that was published in 
the Federal Register (76 FR 78591) on December 19, 2011, is withdrawn.

FOR FURTHER INFORMATION CONTACT: Jean R. Broderick at (202) 317-6848 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    The provisions of subchapter C, chapter 1, of the Code generally 
provide nonrecognition treatment for corporate transactions that are 
described as reorganizations in section 368. The COI requirement is one 
of a number of requirements that a transaction must satisfy in order to 
qualify as a reorganization. The COI requirement

[[Page 12170]]

prevents transactions that resemble sales from qualifying as 
reorganizations. Pinellas Ice & Cold Storage Co. v. Commissioner, 287 
U.S. 462 (1933).
    The COI requirement requires that, in substance, a substantial part 
of the value of the target corporation (Target) shareholders' 
proprietary interests (i.e., stock) in Target be preserved. Section 
1.368-1(e)(1)(i); John A. Nelson Co. v. Helvering, 296 U.S. 374 (1935). 
A Target shareholder's proprietary interest in Target is preserved to 
the extent it is exchanged for either the stock of the acquiring 
corporation (Acquiror) or, in the case of a triangular reorganization 
(as defined in Sec.  1.358-6(b)(2)), the stock of a corporation in 
control (within the meaning of section 368(c)) of Acquiror (in either 
case, Issuing Corporation stock). To the extent the Target 
shareholders' proprietary interests are exchanged for money or other 
property, their proprietary interests are not preserved. Section 1.368-
1(e)(1)(i).
    To determine whether a substantial part of the Target shareholders' 
proprietary interests has been preserved, the value of the Issuing 
Corporation stock the Target shareholders received is compared to the 
aggregate value of the consideration the Target shareholders received. 
Prior to 2011, the determination of whether the COI requirement is 
satisfied had been based on the value of the Issuing Corporation stock 
``as of the effective date of the reorganization'' (Closing Date). Rev. 
Proc. 77-37 (1977-2 C.B. 568).
    On December 19, 2011, the Department of the Treasury (Treasury 
Department) and the IRS issued final regulations (TD 9565, 76 FR 78540) 
that include a special rule (Signing Date Rule) that applies if a 
binding contract to effect a potential reorganization provides for 
fixed consideration (as defined in Sec.  1.368-1(e)(2)(iii)(A)) to be 
exchanged for the Target shareholders' proprietary interests. Section 
1.368-1(e)(2)(i). If the Signing Date Rule applies, the consideration 
is valued as of the end of the last business day before the first date 
there is a binding contract (Pre-signing Date), rather than on the 
Closing Date.
    On the same date, the Treasury Department and the IRS published 
proposed regulations (2011 Proposed Regulations) (REG-124627-11, 76 FR 
78591) that identified situations, other than those covered by the 
Signing Date Rule, in which the value of Issuing Corporation stock 
could be determined based on a value other than its actual trading 
price on the Closing Date. In one of these situations, the 2011 
Proposed Regulations would have allowed the parties to use an average 
of the trading prices of Issuing Corporation stock over a number of 
days, in lieu of its actual trading price on the Closing Date, for 
purposes of determining whether the COI requirement is satisfied.
    The Treasury Department and the IRS have determined that current 
law generally provides sufficient guidance to taxpayers with respect to 
the COI requirement. Therefore, the Treasury Department and the IRS 
have decided to withdraw the 2011 Proposed Regulations. However, after 
considering comments received on the 2011 Proposed Regulations, the IRS 
has concluded that, in certain circumstances, taxpayers should be able 
to rely on certain average stock valuation methods for purposes of 
measuring COI. Accordingly, the IRS issued a revenue procedure 
effective January 23, 2018, that provides the circumstances under which 
the IRS will not challenge a taxpayer's use of certain stock valuation 
methods to value certain Issuing Corporation stock for purposes of 
determining whether the COI requirement is satisfied. See Rev. Proc. 
2018-12, I.R.B. 2018-6.

Statement of Availability of IRS Documents

    Rev. Proc. 2018-12 is published in the Internal Revenue Bulletin 
and is available from the Superintendent of Documents, U.S. Government 
Publishing Office, Washington, DC 20402, or by visiting the IRS website 
at http://www.irs.gov.

Drafting Information

    The principal author of this withdrawal notice is Jean Broderick of 
the Office of Associate Chief Counsel (Corporate). However, other 
personnel from the Treasury Department and the IRS participated in its 
development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Withdrawal of Notice of Proposed Rulemaking

0
Accordingly, under the authority of 26 U.S.C. 7805, the notice of 
proposed rulemaking (REG-124627-11) that was published in the Federal 
Register (76 FR 78591) on December 19, 2011, is withdrawn.

Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2019-06159 Filed 3-29-19; 8:45 am]
BILLING CODE 4830-01-P