[Federal Register Volume 85, Number 9 (Tuesday, January 14, 2020)]
[Proposed Rules]
[Pages 2061-2064]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00469]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-125710-18]
RIN 1545-BP07


Revised Applicability Dates for Regulations Under Section 382(h) 
Related to Built-in Gain and Loss

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Partial withdrawal of notice of proposed rulemaking; notice of 
proposed rulemaking.

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SUMMARY: This document withdraws a portion of a notice of proposed 
rulemaking published in the Proposed Rules section of the Federal 
Register on September 10, 2019. That notice of proposed rulemaking 
contained proposed rules to provide guidance regarding the items of 
income and deduction that are included in the calculation of built-in 
gains and losses under section 382 of the Internal Revenue Code (Code). 
If adopted, those proposed rules would apply to any ownership change 
occurring after the date the Treasury decision adopting those proposed 
rules as a final regulation is published in the Federal Register. This 
notice of proposed rulemaking would delay the applicability of those 
proposed rules and provide transition relief for eligible taxpayers. 
The proposed regulations in this notice of proposed rulemaking would 
affect corporations that experience an ownership change for purposes of 
section 382.

DATES: Written or electronic comments must be received by March 16, 
2020. Written or electronic requests for a public hearing and outlines 
of topics to be discussed at the public hearing must be received by 
March 16, 2020.

ADDRESSES: Submit electronic submissions via the Federal eRulemaking 
Portal at www.regulations.gov (indicate IRS and REG-125710-18) by 
following the online instructions for submitting comments. Once 
submitted to the Federal eRulemaking Portal, comments cannot be edited 
or withdrawn. The Department of the Treasury (Treasury Department) and 
the IRS will publish for public availability any comment received to 
its public docket, whether submitted electronically or in hard copy. 
Send hard copy submissions to: Internal Revenue Service, CC:PA:LPD:PR 
(REG-125710-18), Room 5203, Post Office Box 7604, Ben Franklin Station, 
Washington, DC 20044.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Jonathan R. Neuville at (202) 317-5363; concerning submissions of 
comments or requests for a public hearing, Regina L. Johnson at (202) 
317-6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background

    On September 10, 2019, the Treasury Department and the IRS 
published in the Federal Register (84 FR 47455) a notice of proposed 
rulemaking (REG-125710-18) proposing revisions to the rules in 
Sec. Sec.  1.382-2 and 1.382-7 (September 2019 proposed regulations). 
These rules would affect the determination of net built-in gains and 
losses and recognized built-in gains and losses under section 382(h) 
that, in turn, affect the limitation under section 382 on net operating 
losses and disallowed business interest expense under section 163(j).

[[Page 2062]]

    Proposed Sec. Sec.  1.382-2(b)(4) and 1.382-7(g)(1), as set forth 
in the September 2019 proposed regulations, provided that the September 
2019 proposed regulations would apply to ownership changes that occur 
after the date the Treasury decision adopting the September 2019 
proposed regulations as final regulations is published in the Federal 
Register. As noted in part II of the Background in the September 2019 
proposed regulations, section V of Notice 2003-65 (2003-2 C.B. 747) 
provides that taxpayers may rely on either of two safe harbor 
approaches for applying section 382(h) to an ownership change ``prior 
to the effective date of temporary or final regulations under section 
382(h).''
    Taxpayers and practitioners have expressed concern that the 
applicability date set forth in the September 2019 proposed regulations 
would impose a significant burden on taxpayers evaluating and 
negotiating business transactions, due to their uncertainty regarding 
when those transactions will close and when the September 2019 proposed 
regulations will be finalized. As a result, taxpayers and practitioners 
have requested transition relief with regard to ownership changes 
caused by pending transactions. In connection with this request, 
taxpayers and practitioners also have expressed concern that transition 
relief limited to transactions for which a binding agreement is in 
effect on or before the applicability date of final regulations would 
be inadequate, because pending transactions regularly are modified or 
delayed prior to closing.
    As explained more fully in the Explanation of Provisions, this 
notice of proposed rulemaking modifies the applicability dates for the 
September 2019 proposed regulations by withdrawing the text of proposed 
Sec. Sec.  1.382-2(b)(4) and 1.382-7(g), as set forth in the September 
2019 proposed regulations, and proposing revised applicability dates.

Explanation of Provisions

I. Delay of Applicability Date and Applicability of Pre-Existing 
Guidance

    To address the concerns raised by taxpayers and practitioners, the 
Treasury Department and the IRS are withdrawing the text of proposed 
Sec. Sec.  1.382-2(b)(4) and 1.382-7(g) contained in the September 2019 
proposed regulations. In its place, the Treasury Department and the IRS 
are proposing the revised applicability date text set forth in proposed 
Sec. Sec.  1.382-2(b)(4) and 1.382-7(g) as contained in this notice of 
proposed rulemaking.
    The Treasury Department and the IRS do not intend there to be any 
gap between the date on which taxpayers can no longer rely on Notice 
2003-65 and the date on which the final regulations are applicable. 
Other than in the case of the two exceptions described in parts II and 
III of this Explanation of Provisions, the applicability date of the 
final regulations will be 30 days after the date the Treasury decision 
containing such regulations is published in the Federal Register 
(delayed applicability date). As provided in this proposed regulation, 
Notice 2003-65 will remain applicable to ownership changes to which the 
final regulations do not apply.

II. Limiting Duplicative Application of Section 382

    The first exception to the delayed applicability date relates to 
the rule in proposed Sec.  1.382-7(d)(5), which provides that certain 
carryforwards of business interest expense disallowed under section 
163(j) would not be treated as recognized built-in losses under section 
382(h)(6)(B) if such amounts were allowable as deductions during the 
five-year recognition period set forth in section 382(h)(7)(A). This 
rule eliminates the possible duplicative application of section 382 to 
certain disallowed business interest expense carryforwards. Due to the 
noncontroversial nature of this rule, the Treasury Department and the 
IRS have determined that proposed Sec.  1.382-7(d)(5) should be 
finalized before the remainder of the rules in the September 2019 
proposed regulations, and that taxpayers should be allowed to 
retroactively apply this rule. To that end, the Treasury Department and 
IRS expect that proposed Sec.  1.382-7(d)(5) will be finalized as part 
of the Treasury decision that finalizes the proposed section 163(j) 
regulations (see 83 FR 67490) and taxpayers will be permitted to apply 
the rule to prior periods. The Treasury Department and the IRS continue 
to actively study the remainder of the rules in the September 2019 
proposed regulations.

III. Transition Relief Provisions

    Under the transition relief provisions proposed in this notice of 
proposed rulemaking, the final regulations would not apply to certain 
ownership changes that occur after the delayed applicability date. As 
discussed in part I of this Explanation of Provisions, the delayed 
applicability date will be 30 days after the date these regulations are 
published in the Federal Register. In order for an ownership change 
after the delayed applicability date to qualify for transition relief, 
the ownership change must occur immediately after an owner shift or 
equity structure shift that occurs:
    (1) Pursuant to a binding agreement in effect on or before the 
delayed applicability date and at all times thereafter;
    (2) Pursuant to a specific transaction described in a public 
announcement made on or before the delayed applicability date;
    (3) Pursuant to a specific transaction described in a filing with 
the Securities and Exchange Commission submitted on or before the 
delayed applicability date;
    (4) By order of a court (or pursuant to a plan confirmed, or a sale 
approved, by order of a court) in a title 11 or similar case (as 
defined in section 382(l)(5)(F)), provided that the taxpayer was a 
debtor in a case before such court on or before the delayed 
applicability date; or
    (5) Pursuant to a transaction described in a private letter ruling 
request submitted to the IRS on or before the delayed applicability 
date.
    The relevant owner shift or equity structure shift must be a 
specific, identifiable transaction. For example, a stock buyback 
pursuant to an announced, on-going program would not qualify.
    Taxpayers may continue to rely on Notice 2003-65 with respect to 
any ownership change qualifying for transition relief, even though the 
Notice will be obsoleted on the delayed applicability date. However, a 
taxpayer may choose to apply the final regulations to such an ownership 
change.

Special Analyses

    These proposed regulations are not subject to review under section 
6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement 
(April 11, 2018) between the Treasury Department and the Office of 
Management and Budget regarding review of tax regulations.
    Pursuant to the Regulatory Flexibility Act (RFA), 5 U.S.C. chapter 
6, the Treasury Department and the IRS hereby certify that these 
proposed regulations will not have a significant economic impact on a 
substantial number of small entities. This proposed rule is limited to 
revising the proposed applicability date of proposed regulations under 
section 382(h) of the Internal Revenue Code that were published in the 
Federal Register (84 FR 47455) on September 10, 2019. Based on the 
narrow scope of corporate transactions covered by the proposed 
regulations' delayed applicability rules,

[[Page 2063]]

the Treasury Department and the IRS have determined that these proposed 
regulations are unlikely to affect a substantial number of small 
entities and are unlikely to have a significant economic impact on any 
small entities affected.
    The Treasury Department and the IRS invite comments on any impact 
that these regulations would have on small entities.
    Pursuant to section 7805(f), this notice of proposed rulemaking 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

    The Treasury Department and the IRS appreciate the comments that 
taxpayers and practitioners already have provided regarding the 
September 2019 proposed regulations and encourage taxpayers and 
practitioners to provide comments on the proposed regulations contained 
in this notice of proposed rulemaking. In particular, the Treasury 
Department and the IRS request comments on whether taxpayers should be 
permitted to apply the final regulations to ownership changes occurring 
before the applicability date and what restrictions, if any, should be 
placed on such retroactive application.
    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the Treasury Department and the IRS as prescribed in this preamble 
under the ADDRESSES heading. All comments will be available at http://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.

Statement of Availability of IRS Documents

    Notice 2003-65 is published in the Internal Revenue Bulletin (or 
Cumulative 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 authors of this notice of proposed rulemaking are 
Jonathan R. Neuville of the Office of Associate Chief Counsel 
(Corporate) and Kevin M. Jacobs, formerly of the Office of Associate 
Chief Counsel (Corporate). However, 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.

Partial Withdrawal of Notice of Proposed Rulemaking

    Accordingly, under the authority of 26 U.S.C. 382(h)(3)(B)(ii), 
382(m), and 7805, Sec. Sec.  1.382-2(b)(4) and 1.382-7(g) of the notice 
of proposed rulemaking (REG-125710-18) published in the Federal 
Register on September 10, 2019 (84 FR 47455) are withdrawn.

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.  1.382-7 to read as follows:

    Authority:  26 U.S.C. 7805 * * *
* * * * *
    Section 1.382-7 also issued under 26 U.S.C. 382(h)(3)(B)(ii) and 
(m).
* * * * *
0
Par. 2. Section 1.382-1, as proposed to be revised by 84 FR 47455, 
September 10, 2019, is further amended by revising the entry for Sec.  
1.382-7(g) to read as follows:


Sec.  1.382-1   Table of Contents.

* * * * *


Sec.  1.382-7   Built-in gains and losses.

* * * * *
    (g) Applicability dates.
    (1) In general.
    (2) Transition relief.
    (3) Paragraph (d)(2)(vi) of this section.
* * * * *
0
Par. 3. Section 1.382-2, as proposed to be amended by 84 FR 47455, 
September 10, 2019, is further amended by revising paragraph (b)(4) to 
read as follows:


Sec.  1.382-2   General rules for ownership change.

* * * * *
    (b) * * *
    (4) Rules provided in paragraphs (a)(9) through (13) of this 
section. The rules of paragraphs (a)(9) through (13) of this section 
apply to any ownership change that occurs after the date that is 30 
days after the date of publication in the Federal Register of a 
Treasury decision adopting these proposed regulations as final 
regulations, if Sec.  1.382-7(g)(2) does not apply to that ownership 
change. Notwithstanding the preceding sentence, a taxpayer may apply 
the rules of paragraphs (a)(9) through (13) of this section to an 
ownership change to which Sec.  1.382-7(g)(2) applies if the taxpayer 
applies the rules of Sec.  1.382-7 to such ownership change.
0
Par. 4. Section 1.382-7, as proposed to be revised by 84 FR 47455, 
September 10, 2019, is further amended by revising paragraph (g) to 
read as follows:


Sec.  1.382-7   Built-in gains and losses.

* * * * *
    (g) Applicability dates--(1) In general. Except as otherwise 
provided in this paragraph (g), this section applies to any ownership 
change that occurs after the date that is 30 days after the date of 
publication in the Federal Register of a Treasury decision adopting the 
rules of this section as final regulations (applicability date), if 
paragraph (g)(2) of this section does not apply to that ownership 
change. For ownership changes occurring on or before the applicability 
date and ownership changes to which paragraph (g)(2) of this section 
applies, see Sec.  1.382-7 as contained in 26 CFR part 1, revised April 
1, 2019, and other applicable guidance, including Notice 2003-65 (2003-
2 CB 747) (see Sec.  601.601(d)(2)(ii)(b) of this chapter). 
Notwithstanding the preceding sentences of this paragraph (g)(1), a 
taxpayer may apply this section to an ownership change to which 
paragraph (g)(2) of this section applies.
    (2) Certain ownership changes eligible for transition relief. This 
paragraph (g)(2) applies to an ownership change after the applicability 
date that occurs immediately after an owner shift or equity structure 
shift, if the owner shift or equity structure shift occurs--
    (i) Pursuant to a binding agreement in effect on or before the 
applicability date and at all times thereafter;
    (ii) Pursuant to a specific transaction described in a public 
announcement made on or before the applicability date;
    (iii) Pursuant to a specific transaction described in a filing with 
the Securities and Exchange Commission submitted on or before the 
applicability date;
    (iv) By order of a court (or pursuant to a plan confirmed, or a 
sale approved, by order of a court) in a title 11 or similar case (as 
defined in section 382(l)(5)(F)), provided that the taxpayer was a 
debtor in a case before such court on or before the applicability date; 
or
    (v) Pursuant to a transaction described in a ruling request 
submitted to the IRS on or before the applicability date.

[[Page 2064]]

    (3) Paragraph (d)(2)(vi) of this section. Paragraph (d)(2)(vi) of 
this section applies to loss corporations that have undergone an 
ownership change on or after June 11, 2010. For loss corporations that 
have undergone an ownership change before June 11, 2010, see Sec.  
[thinsp]1.382-7T as contained in 26 CFR part 1, revised April 1, 2009.

Sunita Lough,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2020-00469 Filed 1-10-20; 4:15 pm]
 BILLING CODE 4830-01-P