80 FR 26873 - Application of Modified Carryover Basis to General Basis Rules

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 80, Issue 90 (May 11, 2015)

Page Range		26873-26882
FR Document		2015-11210
This document contains proposed regulations that provide guidance regarding the application of the modified carryover basis rules of section 1022 of the Internal Revenue Code (Code). Specifically, the proposed regulations will modify provisions of the Treasury Regulations involving basis rules by including a reference to section 1022 where appropriate. The regulations will affect property transferred from certain decedents who died in 2010. The regulations reflect changes to the law made by the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
Federal Register, Volume 80 Issue 90 (Monday, May 11, 2015)
[Federal Register Volume 80, Number 90 (Monday, May 11, 2015)]
[Proposed Rules]
[Pages 26873-26882]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-11210]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-107595-11]
RIN 1545-BK09


Application of Modified Carryover Basis to General Basis Rules

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations that provide 
guidance regarding the application of the modified carryover basis 
rules of section 1022 of the Internal Revenue Code (Code). 
Specifically, the proposed regulations will modify provisions of the 
Treasury Regulations involving basis rules by including a reference to 
section 1022 where appropriate. The regulations will affect property 
transferred from certain decedents who died in 2010. The regulations 
reflect changes to the law made by the Economic Growth and Tax Relief 
Reconciliation Act of 2001 and the Tax Relief, Unemployment Insurance 
Reauthorization, and Job Creation Act of 2010.

DATES: Written or electronic comments and requests for a public hearing 
must be received by August 10, 2015.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-107595-11), Room 5205, 
Internal Revenue Service, P.O. 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-
107595-11), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at www.regulations.gov (REG-107595-11).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Mayer R. Samuels, (202) 317-6859; concerning submissions of comments or 
a request for a public hearing, Oluwafunmilayo Taylor, (202) 317-6901 
(not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    Subtitle A of title V of the Economic Growth and Tax Relief 
Reconciliation Act of 2001, Public Law 107-16 (EGTRRA) enacted section 
2210 of the Code, which made chapter 11 (the estate tax) inapplicable 
to the estate of any decedent who died in 2010. Subtitle E of title V 
of EGTRRA enacted section 1022 regarding a modified carryover basis 
system applicable during 2010. On December 17, 2010, the Tax Relief, 
Unemployment Insurance Reauthorization, and Job Creation Act of 2010, 
Public Law 111-312 (TRUIRJCA) became law, and section 301(a) of 
TRUIRJCA retroactively reinstated the estate and generation-skipping 
transfer taxes. However, section 301(c) of TRUIRJCA allows the executor 
of the estate of a decedent who died in 2010 to elect to apply the Code 
as though section 301(a) of TRUIRJCA did not apply with respect to 
chapter 11 and with respect to property acquired or passing from the 
decedent (within the meaning of section 1014(b) of the Code). Thus, 
section 301(c) of TRUIRJCA allows the executor of the estate of a 
decedent who died in 2010 to elect not to have the provisions of 
chapter 11 apply to the decedent's estate, but rather to have the 
provisions of section 1022 apply (Section 1022 Election).
    Generally, under section 1014(a), the basis of property in the 
hands of a person acquiring the property from a decedent or to whom the 
property passed from a decedent is the fair market value of the 
property at the date of the decedent's death. However, if the decedent 
died in 2010 and the decedent's executor, as defined in section 2203, 
makes the Section 1022 Election, then the basis of property in the 
hands of a person acquiring the property from that decedent is governed 
by section 1022 and not by section 1014.
    Section 1022(a)(1) generally provides that property acquired from a 
decedent

[[Page 26874]]

(within the meaning of section 1022(e)) is treated as having been 
transferred by gift. If the decedent's adjusted basis is less than or 
equal to the property's fair market value (FMV) determined as of the 
decedent's date of death, the recipient's basis is the adjusted basis 
of the decedent. If the decedent's adjusted basis is greater than that 
FMV, the recipient's basis is limited to that FMV. See section 
1022(a)(2).
    If the decedent's adjusted basis in the property is less than the 
property's FMV on the decedent's date of death, sections 1022(b) and 
1022(c) allow the executor of a decedent's estate to allocate 
additional basis (Basis Increase) to certain assets that both are owned 
by the decedent (within the meaning of section 1022(d)) at death and 
are acquired from the decedent (within the meaning of section 1022(e)). 
However, the property's total basis may not exceed the property's FMV 
on the date of death.
    Although section 1022 was applicable only to decedents dying in 
calendar year 2010, basis determined pursuant to that section will 
continue to be relevant until all of the property whose basis is 
determined under that section has been sold or otherwise disposed of. 
Accordingly, the existing regulations need to be updated to incorporate 
appropriate references to basis determined under section 1022.

Explanation of Provisions

    These proposed regulations incorporate into the existing 
regulations, as appropriate, references to section 1022 to ensure that 
references to basis also include basis as determined under that 
section. Some changes involve simply inserting the words ``or section 
1022'', ``and 1022'', or similar references. Others (such as Sec.  
1.742-1) require the insertion of a new sentence or an example to 
expressly address the applicability of section 1022. A few changes 
(such as proposed Sec.  1.684-3) require the inclusion of a new section 
to provide a detailed explanation of the application of section 1022 in 
the particular context of the existing regulation. The proposed 
regulations also provide cross references for section 1022 when 
appropriate and make other minor, non-substantive changes. Language 
revisions serve solely to conform the existing regulations to the 
provisions of section 1022 and no additional changes are intended. The 
more significant changes are briefly described below.
    Section 1.48-12(b)(2)(vii)(B) of the proposed regulations provides 
that, if a transferee's basis is determined under section 1022, any 
qualified rehabilitation expenditures incurred by the decedent under 
section 48 within the measuring period that are treated as having been 
incurred by the transferee decrease the transferee's basis for purposes 
of the substantial rehabilitation test.
    Section 1.83-4(b)(1) of the proposed regulations provides that, if 
property to which section 83 applies is acquired by any person while 
such property is substantially nonvested, such person's basis in the 
property reflects any adjustments to basis provided under section 1022, 
as well as under sections 1015 and 1016.
    Sections 1.179-4(c)(1)(iv), 1.267(d)-1(a)(3), 1.336-1(b)(5)(i)(A) 
and 1.355-6(d)(1)(i)(A)(2) of the proposed regulations provide that 
property acquired from a decedent in a transaction in which the 
recipient's basis is determined under section 1022 is not acquired by 
purchase or exchange for purposes of sections 179, 267, 336, and 
355(d).
    Section 1.197-2(h)(5)(i) of the proposed regulations provides that 
the anti-churning rules of Sec.  1.197-2(h) do not apply to the 
acquisition of a section 197(f)(9) intangible if the acquiring 
taxpayer's basis in the intangible is determined under section 1022.
    Section 1.306-3(e) of the proposed regulations provides that 
section 306 stock continues to be classified as section 306 stock if 
the basis of such stock is determined by reference to the decedent-
stockholder's basis under section 1022. In addition, the revision of 
the last sentence of the existing regulation clarifies the reference to 
``the optional valuation date under section 1014'' by changing the 
language to refer expressly to the election to use the alternate 
valuation date under section 2032.
    Section 1.382-9 of the proposed regulations provides that for 
purposes of Sec.  1.382-9(d)(5)(i), the definition of qualified 
transfer is expanded to include situations where the transferee's basis 
in the indebtedness is determined under section 1022.
    Section 1.421-2(c)(4) of the proposed regulations provides that an 
option granted under an employee stock purchase plan acquires a basis, 
determined under section 1014 (or section 1022, if applicable), only if 
the transfer of the share pursuant to the exercise of such option 
qualifies for the special tax treatment provided by section 421(a).
    Section 1.423-2(k)(2) of the proposed regulations provides that if 
the special rules provided under Sec.  1.423-2(k) are applicable to a 
share of stock upon the death of an employee, then the basis of the 
share in the hands of the estate or the person receiving the stock by 
bequest or inheritance shall be determined under section 1014 (or 
section 1022, if applicable).
    Section 1.467-7(c)(2) of the proposed regulations provides that 
section 467 recapture does not apply to a disposition on death of the 
transferor if the basis of the property in the hands of the transferee 
is determined under section 1022. However, section 467 recapture does 
apply to property that constitutes a right to receive an item of income 
in respect of a decedent. Section 1.467-7(c)(4) of the proposed 
regulations provides that, if the transferee subsequently disposes of 
the property in a transaction to which Sec.  1.467-7(a) applies, the 
prior understated inclusion is computed by taking into account the 
amounts attributable to the period of the transferor's ownership of the 
property prior to the first disposition.
    Section 1.617-3(d)(5)(ii)(b) of the proposed regulations provides 
that the amount of the adjusted exploration expenditures for mining 
property in the hands of the transferee immediately after a disposition 
of property that is subject to section 1022 is equal to the amount of 
the adjusted exploration expenditures for mining property in the hands 
of the transferor immediately before the disposition, minus the amount 
of any gain taken into account under section 617(d). In addition, under 
Sec.  1.617-4(c)(1)(i), no gain is recognized on the gift of mining 
property. For purposes of determining gain from the disposition of 
certain mining property, the term ``gift'' is expanded to include 
disposition of property with a basis that is determined under section 
1022.
    Section 684 generally requires gain to be recognized on any 
transfer of appreciated property by a U.S. person to a foreign non-
grantor trust or foreign estate. For decedents dying in 2010, section 
684 also applies to certain transfers of property by reason of death to 
nonresident aliens. Gain is determined by reference to the fair market 
value of the property over the adjusted basis of such property in the 
hands of the transferor. Section 1.684-3(c) currently provides that, in 
the case of a transfer of property by reason of death of a U.S. 
transferor to a foreign non-grantor trust, no gain recognition is 
required if the basis of the property in the hands of the trust is 
determined under section 1014(a).
    Section 1.684-3(c) of the proposed regulations provides that this 
rule is modified to clarify the application of section 684 to transfers 
of property by reason of death of U.S. transferor decedents dying in 
2010. If the executor

[[Page 26875]]

of a U.S. decedent does not make a Section 1022 Election, the proposed 
regulations confirm that the general exception to gain recognition will 
apply. If the executor of a U.S. decedent does make a Section 1022 
Election, the proposed regulations provide, consistent with Rev. Proc. 
2011-41 (2011-35 IRB 188 (August 29, 2011)) (see Sec.  
601.601(d)(2)(ii)(b) of this chapter) and Notice 2011-66 (2011-35 IRB 
184 (August 29, 2011)) (see Sec.  601.601(d)(2)(ii)(b) of this 
chapter), that there is gain recognition. Any basis increase that the 
executor allocates under section 1022 will reduce the amount of gain in 
that property for purposes of section 684.
    Section 1.742-1(a) of the proposed regulations provides that the 
basis of a partnership interest acquired from a decedent who died in 
2010, and whose executor made a Section 1022 Election, is the lower of 
the adjusted basis of the decedent or fair market value of the interest 
at the date of decedent's death. The basis of property acquired from a 
decedent may be further increased under section 1022(b) and/or 1022(c), 
but not above the fair market value of the interest on the date of the 
decedent's death.
    Section 1.995-4(d)(2) of the proposed regulations provides that the 
period during which a shareholder of stock in a DISC has held stock 
includes the period he is considered to have held it by reason of the 
application of section 1223 and, if his basis is determined in whole or 
in part under the provisions of section 1022, the holding period of the 
decedent.
    Section 1.1014-4(a) of the proposed regulations provides that the 
basis of property acquired from a decedent, including basis determined 
under section 1022, is uniform in the hands of every person having 
possession or enjoyment of the property at any time, whether obtained 
under the will or other instrument or under the laws of descent and 
distribution.
    Section 1.1014-5(b) of the proposed regulations provides that, in 
determining gain or loss from the sale or other disposition of a term 
interest in property the adjusted basis of which is determined pursuant 
to section 1022, that part of the adjusted uniform basis assignable 
under the rules of Sec.  1.1014-5(a) to the interest sold or otherwise 
disposed of is disregarded to the extent and in the manner provided by 
section 1001(e).
    Section 1.1223-1(b) of the proposed regulations provides that the 
holding period under section 1223 of the recipient of property acquired 
from a decedent who died in 2010, and whose executor made a Section 
1022 Election, includes the period that the property was held by the 
decedent.
    Sections 1.1245-2(c)(2)(ii)(d) and 1.1245-3(a)(3) of the proposed 
regulations provide that, if section 1245 property is acquired from a 
decedent who died in 2010 and whose executor made a Section 1022 
Election, the amount of the adjustments reflected in the adjusted basis 
of the property in the hands of the transferee immediately after the 
transfer is equal to the amount of the adjustments reflected in the 
adjusted basis of the property in the hands of the transferor 
immediately before the transfer, minus the amount of any gain taken 
into account under section 1245(a)(1) by the transferor upon the 
transfer. Further, even though property is not of a character subject 
to the allowance for depreciation in the hands of the taxpayer, the 
property is section 1245 property if the taxpayer's basis in the 
property is determined under section 1022 and the property was of a 
character subject to the allowance for depreciation in the hands of the 
decedent.
    Section 1.1245-4(a)(1) of the proposed regulations provides that no 
gain is recognized under section 1245(a)(1) upon a transfer of section 
1245 property from a decedent whose executor made the Section 1022 
Election.
    Section 1.1250-4(c)(5) of the proposed regulations provides that 
the holding period under section 1250(e) for the recipient of property 
acquired from a decedent who died in 2010, and whose executor made a 
Section 1022 Election, includes the period that the property was held 
by the decedent.
    Section 1.1254-2(a)(1) of the proposed regulations provides that no 
gain is recognized under section 1254(a)(1) upon a transfer of natural 
resource recapture property from a decedent who died in 2010 and whose 
executor made a Section 1022 Election.
    Sections 1.1254-3(b), 1.1254-4(e)(4), and 1.1254-5(c)(2)(iv) of the 
proposed regulations provide that, for purposes of determining the 
amount of section 1254 costs from the disposition of natural resource 
recapture property, the term ``gift'' is expanded to include the 
transfer of property with a basis that is determined under section 
1022.
    Section 1.1296-1(d)(4) of the proposed regulations provides that 
the basis of stock of a passive foreign investment company for which a 
section 1296 election was in effect as of the date of the decedent's 
death that is acquired from a decedent is the lower of the adjusted 
basis of the stock in the hands of the decedent immediately before his 
death or the basis that would have been determined under section 1014 
or section 1022, as applicable, without regard to this paragraph.
    Section 1.1312-7(b) of the proposed regulations provides that the 
taxpayer with respect to whom the erroneous treatment occurred must be 
a taxpayer who had title to the property at the time of the erroneously 
treated transaction and from whom, mediately or immediately, the 
taxpayer with respect to whom the determination is made derived title, 
if the basis of the property in the hands of the taxpayer with respect 
to whom the determination is made is determined under section 1022.

Proposed Effective/Applicability Date

    These regulations are proposed to apply on and after the date the 
regulations are published as final regulations in the Federal Register.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866, as supplemented by Executive Order 13563. 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 these regulations do 
not impose a collection of information requirement on small entities, 
the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. 
Pursuant to section 7805(f) of the Code, 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 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. All comments will be available at www.regulations.gov or upon 
request for public inspection and copying. A public hearing will be 
scheduled if requested in writing by any person that timely submits 
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 Mayer R. Samuels, 
Office of the Associate Chief Counsel

[[Page 26876]]

(Passthroughs and Special Industries). However, other personnel from 
the IRS and the Treasury Department 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 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

0
Par. 2. Section 1.48-12 is amended by revising the last sentence of 
paragraph (b)(2)(vii)(B) and adding paragraph (g) to read as follows:


Sec.  1.48-12  Qualified rehabilitated building; expenditures incurred 
after December 31, 1981.

* * * * *
    (b) * * *
    (2) * * *
    (vii) * * *
    (B) * * * If a transferee's basis is determined under section 1014 
or section 1022, any expenditures incurred by the decedent within the 
measuring period that are treated as having been incurred by the 
transferee under paragraph (c)(3)(ii) of this section shall decrease 
the transferee's basis for purposes of the substantial rehabilitation 
test.
* * * * *
    (g) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  1.48-
12 as contained in 26 CFR (revised as of the April 1 preceding the date 
these regulations are published as final regulations in the Federal 
Register).
0
Par. 3. Section 1.83-4 is amended by revising the last sentence of 
paragraph (b)(1) and adding paragraph (d) to read as follows:


Sec.  1.83-4  Special rules.

* * * * *
    (b) * * *
    (1) * * * Such basis shall also reflect any adjustments to basis 
provided under sections 1015, 1016, and 1022.
* * * * *
    (d) Effective/applicability date. The provisions in this section 
are applicable for taxable years beginning on or after July 21, 1978. 
The provisions of paragraph (b)(1) of this section relating to section 
1022 are effective on and after the date these regulations are 
published as final regulations in the Federal Register.
0
Par. 4. Section 1.179-4 is amended by revising the first sentence of 
paragraph (c)(1)(iv) to read as follows:


Sec.  1.179-4  Definitions.

* * * * *
    (c) * * *
    (1) * * *
    (iv) The property is not acquired by purchase if the basis of the 
property in the hands of the person acquiring it is determined in whole 
or in part by reference to the adjusted basis of such property in the 
hands of the person from whom acquired, is determined under section 
1014(a), relating to property acquired from a decedent, or is 
determined under section 1022, relating to the basis of property 
acquired from certain decedents who died in 2010. * * *
* * * * *
0
Par. 5. Section 1.179-6 is amended by:
0
a. Revising the section heading and the first sentence of paragraph 
(a).
0
b. Adding paragraph (d).
    The revision and addition read as follows:


Sec.  1.179-6  Effective/applicability dates.

    (a) * * * Except as provided in paragraphs (b), (c), and (d) of 
this section, the provisions of Sec. Sec.  1.179-1 through 1.179-5 
apply for property placed in service by the taxpayer in taxable years 
ending after January 25, 1993. * * *
* * * * *
    (d) Application of Sec.  1.179-4(c)(1)(iv). The provisions of Sec.  
1.179-4(c)(1)(iv) relating to section 1022 are effective on and after 
the date these regulations are published as final regulations in the 
Federal Register.
0
Par. 6. Section 1.197-2 is amended by revising paragraphs (h)(5)(i) and 
(h)(12)(viii) and adding paragraph (l)(5) to read as follows:


Sec.  1.197-2  Amortization of goodwill and certain other intangibles.

* * * * *
    (h) * * *
    (5) * * *
    (i) The acquisition of a section 197(f)(9) intangible if the 
acquiring taxpayer's basis in the intangible is determined under 
section 1014(a) or 1022; or
* * * * *
    (12) * * *
    (viii) Operating rule for transfers upon death. For purposes of 
this paragraph (h)(12), if the basis of a partner's interest in a 
partnership is determined under section 1014(a) or 1022, such partner 
is treated as acquiring such interest from a person who is not related 
to such partner, and such interest is treated as having previously been 
held by a person who is not related to such partner.
* * * * *
    (l) * * *
    (5) Application of section 1022. The provisions of Sec.  1.197-2 
relating to section 1022 are effective on and after the date these 
regulations are published as final regulations in the Federal Register.
0
Par. 7. Section 1.267(d)-1 is amended by revising paragraph (a)(3) to 
read as follows:


Sec.  1.267(d)-1  Amount of gain where loss previously disallowed.

    (a) * * *
    (3) The benefit of the general rule is available only to the 
original transferee but does not apply to any original transferee (for 
example, a donee or a person acquiring property from a decedent where 
the basis of property is determined under section 1014 or 1022) who 
acquired the property in any manner other than by purchase or exchange.
* * * * *
0
Par. 8. Section 1.267(d)-2 is amended by revising the section heading 
and adding a sentence to the end of the paragraph to read as follows:


Sec.  1.267(d)-2  Effective/applicability dates.

    * * * The provisions of Sec.  1.267(d)-1(a)(3) relating to section 
1022 are effective on and after the date these regulations are 
published as final regulations in the Federal Register.
0
Par. 9. Section 1.273-1 is revised to read as follows:


Sec.  1.273-1  Life or terminable interests.

    (a) In general. Amounts paid as income to the holder of a life or a 
terminable interest acquired by gift, bequest, or inheritance shall not 
be subject to any deduction for shrinkage (whether called by 
depreciation or any other name) in the value of such interest due to 
the lapse of time. In other words, the holder of such an interest so 
acquired may not set up the value of the expected future payments as 
corpus or principal and claim deduction for shrinkage or exhaustion 
thereof due to the passage of time. For the treatment generally of 
distributions to beneficiaries of an estate or trust, see Subparts A, 
B, C, and D (section 641 and following), Subchapter J, Chapter 1 of the 
Code, and corresponding regulations. For basis of property

[[Page 26877]]

acquired from a decedent and by gifts and transfers in trust, see 
sections 1014, 1015, and 1022, and corresponding regulations.
    (b) Effective/applicability date. The provisions in this section 
are applicable for taxable years beginning on or after September 16, 
1958. The provisions of this section relating to section 1022 are 
effective on and after the date these regulations are published as 
final regulations in the Federal Register.
0
Par. 10. Section 1.306-3 is amended by removing the last sentence of 
paragraph (e) and adding two sentences in its place to read as follows:


Sec.  1.306-3  Section 306 stock defined.

* * * * *
    (e) * * * Section 306 stock ceases to be so classified if the basis 
of such stock is determined by reference to its fair market value on 
the date of the decedent-stockholder's death under section 1014 or the 
optional valuation date under section 2032. Section 306 stock continues 
to be so classified if the basis of such stock is determined under 
section 1022.
* * * * *
0
Par. 11. Section 1.306-4 is added to read as follows:


Sec.  1.306-4  Effective/applicability date.

    The provisions of Sec. Sec.  1.306-1 through 1.306-3 are applicable 
on or after June 22, 1954. The provisions of Sec.  1.306-3 relating to 
section 1022 are effective on and after the date these regulations are 
published as final regulations in the Federal Register.
0
Par. 12. Section 1.336-1 is amended by revising paragraph (b)(5)(i)(A) 
to read as follows:


Sec.  1.336-1  General principles, nomenclature, and definitions for a 
section 336(e) election.

* * * * *
    (b) * * *
    (5) * * *
    (i) * * *
    (A) The basis of the stock in the hands of the purchaser is not 
determined in whole or in part by reference to the adjusted basis of 
such stock in the hands of the person from whom the stock is acquired, 
is not determined under section 1014(a) (relating to property acquired 
from a decedent), or is not determined under section 1022 (relating to 
the basis of property acquired from certain decedents who died in 
2010);
* * * * *
0
Par. 13. Section 1.336-5 is amended by revising the section heading and 
adding a sentence to the end of the paragraph to read as follows:


Sec.  1.336-5  Effective/applicability dates.

    * * * The provisions of Sec.  1.336-1(b)(5)(i)(A) relating to 
section 1022 are effective on and after the date these regulations are 
published as final regulations in the Federal Register.
0
Par. 14. Section 1.355-6 is amended by revising paragraphs 
(d)(1)(i)(A)(2) and (g) to read as follows:


Sec.  1.355-6  Recognition of gain on certain distributions of stock or 
securities in controlled corporation.

* * * * *
    (d) * * *
    (1) * * *
    (i) * * *
    (A) * * *
    (2) Under section 1014(a) or 1022; and
* * * * *
    (g) Effective/applicability dates. This section applies to 
distributions occurring after December 20, 2000, except that they do 
not apply to any distributions occurring pursuant to a written 
agreement that is (subject to customary conditions) binding on December 
20, 2000, and at all later times. The provisions of paragraph 
(d)(1)(i)(A)(2) of this section relating to section 1022 are effective 
on and after the date these regulations are published as final 
regulations in the Federal Register.
0
Par. 15. Section 1.382-9 is amended by revising paragraphs 
(d)(5)(ii)(D) and (d)(6)(i) to read as follows:


Sec.  1.382-9  Special rules under section 382 for corporations under 
the jurisdiction of a court in a title 11 or similar case.

* * * * *
    (d) * * *
    (5) * * *
    (ii) * * *
    (D) The transferee's basis in the indebtedness is determined under 
section 1014, 1015, or 1022 or with reference to the transferor's basis 
in the indebtedness;
* * * * *
    (6) Effective/applicability date--(i) In general. This paragraph 
(d) applies to ownership changes occurring on or after March 17, 1994. 
The provisions of paragraph (d)(5)(ii)(D) of this section relating to 
section 1022 are effective on and after the date these regulations are 
published as final regulations in the Federal Register.
* * * * *
0
Par. 16. Section 1.421-2 is amended by:
0
a. Revising paragraphs (c)(4)(i)(a) and (c)(4)(ii).
0
b. Revising paragraph (f) heading and adding paragraph (f)(3).
    The revisions and addition read as follows:


Sec.  1.421-2  General rules.

* * * * *
    (c) * * *
    (4)(i)(a) In the case of the death of an optionee, the basis of any 
share of stock acquired by the exercise of an option under this 
paragraph (c), determined under section 1011, shall be increased by an 
amount equal to the portion of the basis of the option attributable to 
such share. For example, if a statutory option to acquire 10 shares of 
stock has a basis of $100, the basis of one share acquired by a partial 
exercise of the option, determined under section 1011, would be 
increased by 1/10th of $100, or $10. The option acquires a basis, 
determined under section 1014(a) or under section 1022, if applicable, 
only if the transfer of the share pursuant to the exercise of such 
option qualifies for the special tax treatment provided by section 
421(a). To the extent the option is so exercised, in whole or in part, 
it will acquire a basis equal to its fair market value (or the basis as 
determined under section 1022, if applicable) at the date of the 
employee's death or, if an election is made under section 2032, its 
value at its applicable valuation date. In certain cases, the basis of 
the share is subject to the adjustments provided by paragraphs 
(c)(4)(i)(b) and (c) of this section, but such adjustments are only 
applicable in the case of an option that is subject to section 423(c).
* * * * *
    (ii) If a statutory option is not exercised by the estate of the 
individual to whom the option was granted, or by the person who 
acquired such option by bequest or inheritance or by reason of the 
death of such individual, the option shall be considered to be property 
that constitutes a right to receive an item of income in respect of a 
decedent to which the rules of sections 691 and 1014(c) (or section 
1022(f), if applicable) apply.
* * * * *
    (f) Effective/applicability date. * * *
* * * * *
    (3) Application of section 1022. The provisions of Sec.  1.421-2(c) 
relating to section 1022 are effective on and after the date these 
regulations are published as final regulations in the Federal Register.
0
Par. 17. Section 1.423-2 is amended by:
0
a. Revising the third sentence of paragraph (k)(2).
0
b. Adding a sentence to the end of paragraph (l).
    The revision and addition read as follows:

[[Page 26878]]

Sec.  1.423-2  Employee stock purchase plan defined.

* * * * *
    (k) * * *
    (2) * * * If the special rules provided in this paragraph (k) are 
applicable to a share of stock upon the death of an employee, then the 
basis of the share in the hands of the estate or the person receiving 
the stock by bequest or inheritance shall be determined under section 
1014 or under section 1022, if applicable, and shall not be increased 
by reason of the inclusion upon the decedent's death of any amount in 
the decedent's gross income under this paragraph (k). * * *
* * * * *
    (l) * * * The provisions of Sec.  1.423-2 relating to section 1022 
are effective on and after the date these regulations are published as 
final regulations in the Federal Register.
0
Par. 18. Section 1.424-1 is amended by revising the last sentence of 
paragraph (c)(2) and adding paragraph (g)(3) to read as follows:


Sec.  1.424-1  Definitions and special rules applicable to statutory 
options.

* * * * *
    (c) * * *
    (2) * * * For determination of basis in the hands of the survivor 
where joint ownership is terminated by the death of one of the owners, 
see section 1014 or section 1022, if applicable.
* * * * *
    (g) * * *
    (3) Application of section 1022. The provisions of Sec.  1.424-
1(c)(2) relating to section 1022 are effective on and after the date 
these regulations are published as final regulations in the Federal 
Register.
0
Par. 19. Section 1.467-7 is amended by revising paragraph (c)(2) and 
revising the first sentence of paragraph (c)(4) to read as follows:


Sec.  1.467-7  Section 467 recapture and other rules relating to 
dispositions and modifications.

* * * * *
    (c) * * *
    (2) Dispositions at death. Paragraph (a) of this section does not 
apply to a disposition if the basis of the property in the hands of the 
transferee is determined under section 1014(a) or section 1022. 
However, see paragraph (c)(4) of this section for dispositions of 
property subject to section 1022 by transferees. This paragraph (c)(2) 
does not apply to property that constitutes a right to receive an item 
of income in respect of a decedent. See sections 691, 1014(c), and 
1022(f).
* * * * *
    (4) * * * If the recapture amount with respect to a disposition of 
property (the first disposition) is limited under paragraph (c)(1), 
(c)(2) (if the basis of the property in the hands of the transferee is 
determined under section 1022), or (c)(3) of this section and the 
transferee subsequently disposes of the property in a transaction to 
which paragraph (a) of this section applies, the prior understated 
inclusion determined under paragraph (b)(2) of this section is computed 
by taking into account the amounts attributable to the period of the 
transferor's ownership of the property prior to the first disposition. 
* * *
* * * * *
0
Par. 20. Section 1.467-9 is amended by revising the section heading and 
adding paragraph (f) to read as follows:


Sec.  1.467-9  Effective/applicability dates and automatic method 
changes for certain agreements.

* * * * *
    (f) Application of section 1022. The provisions of Sec.  1.467-7(c) 
relating to section 1022 are effective on and after the date these 
regulations are published as final regulations in the Federal Register.
0
Par. 21. Section 1.617-3 is amended by revising paragraph (d)(5)(ii)(b) 
to read as follows:


Sec.  1.617-3  Recapture of exploration expenditures.

* * * * *
    (d) * * *
    (5) * * *
    (ii) * * *
    (b) The transactions referred to in paragraph (d)(5)(ii)(a) of this 
section are: (1) A disposition that is in part a sale or exchange and 
in part a gift;
     (2) A disposition that is described in section 617(d) through the 
incorporation by reference of the provisions of section 1245(b)(3) 
(relating to certain tax free transactions); or
    (3) A transfer at death where basis of property in the hands of the 
transferee is determined under section 1022.
* * * * *
0
Par. 22. Section 1.617-4 is amended by revising the second sentence of 
paragraph (c)(1)(i) to read as follows:


Sec.  1.617-4  Treatment of gain from disposition of certain mining 
property.

* * * * *
    (c) * * *
    (1)(i) * * * For purposes of this paragraph (c), the term ``gift'' 
means, except to the extent that paragraph (c)(1)(ii) of this section 
applies, a transfer of mining property that, in the hands of the 
transferee, has a basis determined under the provisions of section 
1015(a) or 1015(d) (relating to basis of property acquired by gift) or 
section 1022 (relating to the basis of property acquired from certain 
decedents who died in 2010). * * *
* * * * *
0
Par. 23. Section 1.617-5 is added to read as follows:


Sec.  1.617-5  Effective/applicability date.

    Sections 1.617-3 and 1.617-4 apply on and after the date these 
regulations are published as final regulations in the Federal Register. 
For rules before the date these regulations are published as final 
regulations in the Federal Register, see Sec. Sec.  1.617-3 and 1.617-4 
as contained in 26 CFR (revised as of the April 1 preceding the date 
these regulations are published as final regulations in the Federal 
Register).
0
Par. 24. Section 1.684-3 is amended by revising paragraph (c) to read 
as follows:


Sec.  1.684-3  Exceptions to general rule of gain recognition.

* * * * *
    (c) Certain transfers at death--(1) Section 1014 basis. The general 
rule of gain recognition under Sec.  1.684-1 shall not apply to any 
transfer of property to a foreign trust or foreign estate or, in the 
case of a transfer of property by a U.S. transferor decedent dying in 
2010, to a foreign trust, foreign estate, or a nonresident alien, by 
reason of death of the U.S. transferor, if the basis of the property in 
the hands of the transferee is determined under section 1014(a).
    (2) Section 1022 basis election. For U.S. transferor decedents 
dying in 2010, the general rule of gain recognition under Sec.  1.684-1 
shall apply to any transfer of property by reason of death of the U.S. 
transferor if the basis of the property in the hands of the foreign 
trust, foreign estate, or the nonresident alien individual is 
determined under section 1022. The gain on the transfer shall be 
calculated as set out under Sec.  1.684-1(a), except that adjusted 
basis will reflect any increases allocated to such property under 
section 1022.
* * * * *
0
Par. 25. Section 1.684-5 is revised to read as follows:


Sec.  1.684-5  Effective/applicability dates.

    (a) Sections 1.684-1 through 1.684-4 apply to transfers of property 
to foreign trusts and foreign estates after August 7, 2000, except as 
provided in paragraph (b) of this section.
    (b) In the case a U.S. transferor decedent dying in 2010, Sec.  
1.684-3(c) applies to transfers of property to foreign trusts, foreign 
estates, and

[[Page 26879]]

nonresident aliens after December 31, 2009, and before January 1, 2011.
0
Par. 26. Section 1.691(a)-3 is amended by revising the last two 
sentences of paragraph (a) and adding paragraph (c) to read as follows:


Sec.  1.691(a)-3  Character of gross income.

    (a) * * * The provisions of section 1014(a), relating to the basis 
of property acquired from a decedent, and section 1022, relating to the 
basis of property acquired from certain decedents who died in 2010, do 
not apply to these amounts in the hands of the estate and such persons. 
See sections 1014(c) and 1022(f).
* * * * *
    (c) Effective/applicability dates. The last two sentences of 
paragraph (a) of this section apply on and after the date these 
regulations are published as final regulations in the Federal Register. 
For rules before the date these regulations are published as final 
regulations in the Federal Register, see Sec.  1.691(a)-3 as contained 
in 26 CFR (revised as of the April 1 preceding the date these 
regulations are published as final regulations in the Federal 
Register).
0
Par. 27. Section 1.742-1 is revised to read as follows:


Sec.  1.742-1  Basis of transferee partner's interest.

    (a) In general. The basis to a transferee partner of an interest in 
a partnership shall be determined under the general basis rules for 
property provided by part II (section 1011 and following), Subchapter 
O, Chapter 1 of the Internal Revenue Code. Thus, the basis of a 
purchased interest will be its cost. Generally, the basis of a 
partnership interest acquired from a decedent is the fair market value 
of the interest at the date of his death or at the alternate valuation 
date, increased by his estate's or other successor's share of 
partnership liabilities, if any, on that date, and reduced to the 
extent that such value is attributable to items constituting income in 
respect of a decedent (see section 753 and Sec. Sec.  1.706-1(c)(3)(v) 
and 1.753-1(b)) under section 691. See section 1014(c). However, the 
basis of a partnership interest acquired from a decedent is determined 
under section 1022 if the decedent died in 2010 and the decedent's 
executor elected to have section 1022 apply to the decedent's estate. 
For basis of contributing partner's interest, see section 722. The 
basis so determined is then subject to the adjustments provided in 
section 705.
    (b) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.742-1 as contained in 26 CFR (revised as of the April 1 preceding the 
date these regulations are published as final regulations in the 
Federal Register).
0
Par. 28. Section 1.743-1 is amended by revising paragraphs (k)(2)(ii) 
and (l) to read as follows:


Sec.  1.743-1  Optional adjustment to basis of partnership property.

* * * * *
    (k) * * *
    (2) * * *
    (ii) Special rule. A transferee that acquires, on the death of a 
partner, an interest in a partnership with an election under section 
754 in effect for the taxable year of the transfer, must notify the 
partnership, in writing, within one year of the death of the deceased 
partner. The written notice to the partnership must be signed under 
penalties of perjury and must include the names and addresses of the 
deceased partner and the transferee, the taxpayer identification 
numbers of the deceased partner and the transferee, the relationship 
(if any) between the transferee and the transferor, the deceased 
partner's date of death, the date on which the transferee became the 
owner of the partnership interest, the fair market value of the 
partnership interest on the applicable date of valuation set forth in 
section 1014 or section 1022, the manner in which the fair market value 
of the partnership interest was determined, and the carryover basis as 
adjusted under section 1022 (if applicable).
* * * * *
    (l) Effective/applicability date. The provisions in this section 
apply to transfers of partnership interests that occur on or after 
December 15, 1999. The provisions of this section relating to section 
1022 are effective on and after the date these regulations are 
published as final regulations in the Federal Register.
0
Par. 29. Section 1.755-1 is amended by:
0
a. Revising paragraphs (a)(4)(i)(C) and the first sentence of 
(b)(4)(i).
0
b. Revising the heading of paragraph (e) and paragraph (e)(2).
    The revisions read as follows:


Sec.  1.755-1  Rules for allocation of basis.

    (a) * * *
    (4) * * *
    (i) * * *
    (C) Income in respect of a decedent. Solely for the purpose of 
determining partnership gross value under this paragraph (a)(4)(i), 
where a partnership interest is transferred as a result of the death of 
a partner, the transferee's basis in its partnership interest is 
determined without regard to section 1014(c) or section 1022(f), and is 
deemed to be adjusted for that portion of the interest, if any, that is 
attributable to items representing income in respect of a decedent 
under section 691.
* * * * *
    (b) * * *
    (4) * * *
    (i) * * * Where a partnership interest is transferred as a result 
of the death of a partner, under section 1014(c) or section 1022(f), 
the transferee's basis in its partnership interest is not adjusted for 
that portion of the interest, if any, that is attributable to items 
representing income in respect of a decedent under section 691. * * *
* * * * *
    (e) Effective/applicability dates. * * *
    (2) Special rules. Paragraphs (a) and (b)(3)(iii) of this section 
apply to transfers of partnership interests and distributions of 
property from a partnership that occur on or after June 9, 2003. The 
provisions of paragraphs (a)(4)(i)(C) and (b)(4)(i) of this section 
relating to section 1022 are effective on and after the date these 
regulations are published as final regulations in the Federal Register.
0
Par. 30. Section 1.995-4 is amended by revising the first sentence of 
paragraph (d)(2) and adding paragraph (f) to read as follows:


Sec.  1.995-4  Gain on disposition of stock in a DISC.

* * * * *
    (d) * * *
    (2) * * * For purposes of this section, the period during which a 
shareholder has held stock includes the period he is considered to have 
held it by reason of the application of section 1223 and, if his basis 
is determined in whole or in part under the provisions of section 
1014(d) (relating to special rule for DISC stock acquired from 
decedent) or section 1022 (relating to property acquired from certain 
decedents who died in 2010), the holding period of the decedent. * * *
* * * * *
    (f) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.995-4 as contained in 26 CFR (revised as of the April 1 preceding the 
date these regulations are published as final regulations in the 
Federal Register).

[[Page 26880]]

0
Par. 31. Section 1.1001-1 is amended by revising the last sentence of 
paragraph (a), revising paragraph (f)(1), and adding paragraph (f)(5) 
to read as follows:


Sec.  1.1001-1  Computation of gain or loss.

    (a) * * * Section 1001(e) and paragraph (f) of this section 
prescribe the method of computing gain or loss upon the sale or other 
disposition of a term interest in property the adjusted basis (or a 
portion) of which is determined pursuant, or by reference, to section 
1014 (relating to the basis of property acquired from a decedent), 
section 1015 (relating to the basis of property acquired by gift or by 
a transfer in trust), or section 1022 (relating to the basis of 
property acquired from certain decedents who died in 2010).
* * * * *
    (f) * * *
    (1) General rule. Except as otherwise provided in paragraph (f)(3) 
of this section, for purposes of determining gain or loss from the sale 
or other disposition after October 9, 1969, of a term interest in 
property (as defined in paragraph (f)(2) of this section), a taxpayer 
shall not take into account that portion of the adjusted basis of such 
interest that is determined pursuant, or by reference, to section 1014 
(relating to the basis of property acquired from a decedent), section 
1015 (relating to the basis of property acquired by gift or by a 
transfer in trust), or section 1022 (relating to the basis of property 
acquired from certain decedents who died in 2010) to the extent that 
such adjusted basis is a portion of the adjusted uniform basis of the 
entire property (as defined in Sec.  1.1014-5). Where a term interest 
in property is transferred to a corporation in connection with a 
transaction to which section 351 applies and the adjusted basis of the 
term interest:
    (i) Is determined pursuant to sections 1014, 1015, or 1022; and
    (ii) Is also a portion of the adjusted uniform basis of the entire 
property, a subsequent sale or other disposition of such term interest 
by the corporation will be subject to the provisions of section 1001(e) 
and this paragraph (f) to the extent that the basis of the term 
interest so sold or otherwise disposed of is determined by reference to 
its basis in the hands of the transferor as provided by section 362(a). 
See paragraph (f)(2) of this section for rules relating to the 
characterization of stock received by the transferor of a term interest 
in property in connection with a transaction to which section 351 
applies. That portion of the adjusted uniform basis of the entire 
property that is assignable to such interest at the time of its sale or 
other disposition shall be determined under the rules provided in Sec.  
1.1014-5. Thus, gain or loss realized from a sale or other disposition 
of a term interest in property shall be determined by comparing the 
amount of the proceeds of such sale with that part of the adjusted 
basis of such interest that is not a portion of the adjusted uniform 
basis of the entire property.
* * * * *
    (5) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.1001-1 as contained in 26 CFR (revised as of the April 1 preceding 
the date these regulations are published as final regulations in the 
Federal Register).
* * * * *
0
Par. 32. Section 1.1014-1 is amended by revising paragraph (a) and 
adding paragraph (d) to read as follows:


Sec.  1.1014-1  Basis of property acquired from a decedent.

    (a) General rule. The purpose of section 1014 is, in general, to 
provide a basis for property acquired from a decedent that is equal to 
the value placed upon such property for purposes of the Federal estate 
tax. Accordingly, the general rule is that the basis of property 
acquired from a decedent is the fair market value of such property at 
the date of the decedent's death, or, if the decedent's executor so 
elects, at the alternate valuation date prescribed in section 2032, or 
in section 811(j) of the Internal Revenue Code (Code) of 1939. However, 
the basis of property acquired from certain decedents who died in 2010 
is determined under section 1022, if the decedent's executor made an 
election under section 301(c) of the Tax Relief, Unemployment Insurance 
Reauthorization, and Job Creation Act of 2010, Public Law 111-312 (124 
Stat. 3296, 3300 (2010)). See section 1022. Property acquired from a 
decedent includes, principally, property acquired by bequest, devise, 
or inheritance, and, in the case of decedents dying after December 31, 
1953, property required to be included in determining the value of the 
decedent's gross estate under any provision of the Code of 1954 or the 
Code of 1939. The general rule governing basis of property acquired 
from a decedent, as well as other rules prescribed elsewhere in this 
section, shall have no application if the property is sold, exchanged, 
or otherwise disposed of before the decedent's death by the person who 
acquired the property from the decedent. For general rules on the 
applicable valuation date where the executor of a decedent's estate 
elects under section 2032, or under section 811(j) of the Code of 1939, 
to value the decedent's gross estate at the alternate valuation date 
prescribed in such sections, see Sec.  1.1014-3(e).
* * * * *
    (d) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.1014-1 as contained in 26 CFR (revised as of the April 1 preceding 
the date these regulations are published as final regulations in the 
Federal Register).
0
Par. 33. Section 1.1014-4 is amended by revising the first sentence of 
paragraph (a)(1), revising the second sentence of paragraph (a)(2), and 
adding paragraph (d) to read as follows:


Sec.  1.1014-4  Uniformity of basis; adjustment to basis.

    (a) * * *
    (1) The basis of property acquired from a decedent, as determined 
under section 1014(a) or section 1022, is uniform in the hands of every 
person having possession or enjoyment of the property at any time under 
the will or other instrument or under the laws of descent and 
distribution. * * *
    (2) * * * Accordingly, there is a common acquisition date for all 
titles to property acquired from a decedent within the meaning of 
section 1014 or section 1022, and, for this reason, a common or uniform 
basis for all such interests. * * *
* * * * *
    (d) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.1014-4 as contained in 26 CFR (revised as of the April 1 preceding 
the date these regulations are published as final regulations in the 
Federal Register).
0
Par. 34. Section 1.1014-5 is amended by revising paragraph (b), adding 
and reserving paragraph (d), and adding paragraph (e) to read as 
follows:


Sec.  1.1014-5  Gain or loss.

* * * * *
    (b) Sale or other disposition of certain term interests. In 
determining gain or loss from the sale or other disposition after 
October 9, 1969, of a term interest in property (as defined in Sec.  
1.1001-1(f)(2)) the adjusted basis of which is

[[Page 26881]]

determined pursuant, or by reference, to section 1014 (relating to the 
basis of property acquired from a decedent), section 1015 (relating to 
the basis of property acquired by gift or by a transfer in trust), or 
section 1022 (relating to the basis of property acquired from certain 
decedents who died in 2010), that part of the adjusted uniform basis 
assignable under the rules of paragraph (a) of this section to the 
interest sold or otherwise disposed of shall be disregarded to the 
extent and in the manner provided by section 1001(e) and Sec.  1.1001-
1(f).
* * * * *
    (d) [Reserved]
    (e) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.1014-5 as contained in 26 CFR (revised as of the April 1 preceding 
the date these regulations are published as final regulations in the 
Federal Register).
0
Par. 35. Section 1.1223-1 is amended by adding a sentence to the end of 
paragraph (b) and adding paragraph (l) to read as follows:


Sec.  1.1223-1  Determination of period for which capital assets are 
held.

* * * * *
    (b) * * * Similarly, the period for which property acquired from a 
decedent who died in 2010 was held by the decedent must be included in 
determining the period during which the property was held by the 
recipient, if the recipient's basis in the property is determined under 
section 1022.
* * * * *
    (l) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.1223-1 as contained in 26 CFR (revised as of the April 1 preceding 
the date these regulations are published as final regulations in the 
Federal Register).
0
Par. 36. Section 1.1245-2 is amended by revising paragraph (c)(2)(ii) 
and adding paragraph (d) to read as follows:


Sec.  1.1245-2  Definition of recomputed basis.

* * * * *
    (c) * * *
    (2) * * *
    (ii) The transactions referred to in paragraph (c)(2)(i) of this 
section are:
    (a) A disposition that is in part a sale or exchange and in part a 
gift (see Sec.  1.1245-4(a)(3));
    (b) A disposition (other than a disposition to which section 
1245(b)(6)(A) applies) that is described in section 1245(b)(3) 
(relating to certain tax-free transactions);
    (c) An exchange described in Sec.  1.1245-4(e)(2) (relating to 
transfers described in section 1081(d)(1)(A)); or
    (d) A transfer at death where the basis of property in the hands of 
the transferee is determined under section 1022.
* * * * *
    (d) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.1245-2 as contained in 26 CFR (revised as of the April 1 preceding 
the date these regulations are published as final regulations in the 
Federal Register).
0
Par. 37. Section 1.1245-3 is amended by revising paragraph (a)(3) and 
adding paragraph (d) to read as follows:


Sec.  1.1245-3  Definition of section 1245 property.

    (a) * * *
    (3) Even though property may not be of a character subject to the 
allowance for depreciation in the hands of the taxpayer, such property 
may nevertheless be section 1245 property if the taxpayer's basis for 
the property is determined by reference to its basis in the hands of a 
prior owner of the property and such property was of a character 
subject to the allowance for depreciation in the hands of such prior 
owner, or if the taxpayer's basis for the property is determined by 
reference to the basis of other property that in the hands of the 
taxpayer was property of a character subject to the allowance for 
depreciation, or if the taxpayer's basis for the property is determined 
under section 1022 and such property was of a character subject to the 
allowance for depreciation in the hands of the decedent. Thus, for 
example, if a father uses an automobile in his trade or business during 
a period after December 31, 1961, and then gives the automobile to his 
son as a gift for the son's personal use, the automobile is section 
1245 property in the hands of the son.
* * * * *
    (d) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.1245-3 as contained in 26 CFR (revised as of the April 1 preceding 
the date these regulations are published as final regulations in the 
Federal Register).
0
Par. 38. Section 1.1245-4 is amended by revising the second sentence of 
paragraph (a)(1) and adding paragraph (i) to read as follows:


Sec.  1.1245-4  Exceptions and Limitations.

    (a) * * *
    (1) * * * For purposes of this paragraph (a), the term ``gift'' 
means, except to the extent that paragraph (a)(3) of this section 
applies, a transfer of property that, in the hands of the transferee, 
has a basis determined under the provisions of section 1015(a) or 
1015(d) (relating to basis of property acquired by gifts) or section 
1022 (relating to basis of property acquired from certain decedents who 
died in 2010). * * *
* * * * *
    (i) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.1245-4 as contained in 26 CFR (revised as of the April 1 preceding 
the date these regulations are published as final regulations in the 
Federal Register).
0
Par. 39. Section 1.1250-4 is amended by adding paragraphs (c)(5) and 
(h) to read as follows:


Sec.  1.1250-4  Holding period.

* * * * *
    (c) * * *
    (5) A transfer at death where the basis of the property in the 
hands of the transferee is determined under section 1022.
* * * * *
    (h) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.1250-4 as contained in 26 CFR (revised as of the April 1 preceding 
the date these regulations are published as final regulations in the 
Federal Register).
0
Par. 40. Section 1.1254-2 is amended by revising the second sentence of 
paragraph (a)(1) to read as follows:


Sec.  1.1254-2  Exceptions and limitations.

    (a) * * *
    (1) * * * For purposes of this paragraph (a), the term ``gift'' 
means, except to the extent that paragraph (a)(2) of this section 
applies, a transfer of natural resource recapture property that, in the 
hands of the transferee, has a basis determined under the provisions

[[Page 26882]]

of section 1015(a) or 1015(d) (relating to basis of property acquired 
by gift) or section 1022 (relating to the basis of property acquired 
from certain decedents who died in 2010). * * *
* * * * *
0
Par. 41. Section 1.1254-3 is amended by revising paragraphs (b)(2)(ii) 
and (iii) and adding paragraph (b)(2)(iv) to read as follows:


Sec.  1.1254-3  Section 1254 costs immediately after certain 
acquisitions.

* * * * *
    (b) * * *
    (2) * * *
    (ii) A transaction described in section 1041(a);
    (iii) A disposition described in Sec.  1.1254-2(c)(3) (relating to 
certain tax-free transactions); or
    (iv) A transfer at death where basis of property in the hands of 
the transferee is determined under section 1022.
* * * * *
0
Par. 42. Section 1.1254-4 is amended by revising paragraph (e)(4) 
introductory text to read as follows:


Sec.  1.1254-4  Special rules for S corporations and their 
shareholders.

* * * * *
    (e) * * *
    (4) * * * If stock is acquired in a transfer that is a gift, in a 
transfer that is a part sale or exchange and part gift, in a transfer 
that is described in section 1041(a), or in a transfer at death where 
the basis of property in the hands of the transferee is determined 
under section 1022, the amount of section 1254 costs with respect to 
the property held by the corporation in the acquiring shareholder's 
hands immediately after the transfer is an amount equal to--
* * * * *
0
Par.43. Section 1.1254-5 is amended by revising paragraph (c)(2)(iv) 
introductory text to read as follows:


Sec.  1.1254-5  Special rules for partnerships and their partners.

* * * * *
    (c) * * *
    (2) * * *
    (iv) * * * If an interest in a partnership is transferred in a 
transfer that is a gift, in a transfer that is a part sale or exchange 
and part gift, in a transfer that is described in section 1041(a), or 
in a transfer at death where the basis of property in the hands of the 
transferee is determined under section 1022, the amount of the 
transferee partner's section 1254 costs with respect to property held 
by the partnership immediately after the transfer is an amount equal 
to--
* * * * *
0
Par. 44. Section 1.1254-6 is revised to read as follows:


Sec.  1.1254-6  Effective/applicability date.

    (a) Sections 1.1254-1 through 1.1254-3 and 1.1254-5 are effective 
with respect to any disposition of natural resource recapture property 
occurring after March 13, 1995. The rule in Sec.  1.1254-
1(b)(2)(iv)(A)(2), relating to a nonoperating mineral interest carved 
out of an operating mineral interest with respect to which an 
expenditure has been deducted, is effective with respect to any 
disposition occurring after March 13, 1995, of property (within the 
meaning of section 614) that is placed in service by the taxpayer after 
December 31, 1986. Section 1.1254-4 applies to dispositions of natural 
resource recapture property by an S corporation (and a corporation that 
was formerly an S corporation) and dispositions of S corporation stock 
occurring on or after October 10, 1996. Sections 1.1254-2(d)(1)(ii), 
1.1254-3(b)(1)(i), (b)(1)(ii), (d)(1)(i), and (d)(1)(ii) are effective 
for dispositions of property occurring on or after October 10, 1996.
    (b) The provisions of Sec. Sec.  1.1254-2(a)(1), 1.1254-3(b)(2), 
1.1254-4(e)(4), and 1.1254-5(c)(2)(iv) that relate to section 1022 are 
effective on and after the date these regulations are published as 
final regulations in the Federal Register.
0
Par. 45. Section 1.1296-1 is amended by revising paragraphs (d)(4) and 
(j) to read as follows:


Sec.  1.1296-1  Mark to market election for marketable stock.

* * * * *
    (d) * * *
    (4) Stock acquired from a decedent. In the case of stock of a PFIC 
that is acquired by bequest, devise, or inheritance (or by the 
decedent's estate) and with respect to which a section 1296 election 
was in effect as of the date of the decedent's death, notwithstanding 
section 1014 or section 1022, the basis of such stock in the hands of 
the person so acquiring it shall be the adjusted basis of such stock in 
the hands of the decedent immediately before his death (or, if lesser, 
the basis that would have been determined under section 1014 or section 
1022 without regard to this paragraph (d)).
* * * * *
    (j) Effective/applicability date. The provisions in this section 
are applicable for taxable years beginning on or after May 3, 2004. The 
provisions of paragraph (d)(4) of this section relating to section 1022 
are effective on and after the date these regulations are published as 
final regulations in the Federal Register.
0
Par. 46. Section 1.1312-7 is amended by revising paragraph (b) and 
adding paragraph (d) to read as follows:


Sec.  1.1312-7  Basis of property after erroneous treatment of a prior 
transaction.

* * * * *
    (b)(1) For this section to apply, the taxpayer with respect to whom 
the erroneous treatment occurred must be:
    (i) The taxpayer with respect to whom the determination is made; or
    (ii) A taxpayer who acquired title to the property in the 
erroneously treated transaction and from whom, mediately or 
immediately, the taxpayer with respect to whom the determination is 
made derived title in such a manner that he will have a basis 
ascertained by reference to the basis in the hands of the taxpayer who 
acquired title to the property in the erroneously treated transaction; 
or
    (iii) A taxpayer who had title to the property at the time of the 
erroneously treated transaction and from whom, mediately or 
immediately, the taxpayer with respect to whom the determination is 
made derived title, if the basis of the property in the hands of the 
taxpayer with respect to whom the determination is made is determined 
under section 1015(a) (relating to the basis of property acquired by 
gift) or section 1022 (relating to the basis of property acquired from 
certain decedents who died in 2010). (2) No adjustment is authorized 
with respect to the transferor of the property in a transaction upon 
which the basis of the property depends, when the determination is with 
respect to the original transferee or a subsequent transferee of the 
original transferee.
* * * * *
    (d) Effective/applicability date. This section applies on and after 
the date these regulations are published as final regulations in the 
Federal Register. For rules before the date these regulations are 
published as final regulations in the Federal Register, see Sec.  
1.1312-7 as contained in 26 CFR (revised as of the April 1 preceding 
the date these regulations are published as final regulations in the 
Federal Register).

 John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2015-11210 Filed 5-8-15; 8:45 am]
 BILLING CODE 4830-01-P
Federal Register / Vol. 80, No. 90 / Monday, May 11, 2015 / Proposed Rules 26873

preparation of a Regulatory Evaluation Paragraph 6005 Class E Airspace Areas Washington, DC 20044. Submissions
as the anticipated impact is so minimal. Extending Upward From 700 Feet or More may be hand-delivered Monday through
Since this is a routine matter that will Above the Surface of the Earth Friday between the hours of 8 a.m. and
only affect air traffic procedures and air * * * * * 4 p.m. to: CC:PA:LPD:PR (REG–107595–
navigation, it is certified that this rule, ASW LA E5 Jonesboro, LA [Amended] 11), Courier’s Desk, Internal Revenue
when promulgated, will not have a Service, 1111 Constitution Avenue NW.,
Jonesboro Airport, LA
significant economic impact on a (Lat. 32°12′07″ N., long. 92°43′59″ W.)
Washington, DC, or sent electronically
substantial number of small entities via the Federal eRulemaking Portal at
That airspace extending upward from 700
under the criteria of the Regulatory feet above the surface within a 6.3-mile
www.regulations.gov (REG–107595–11).
Flexibility Act. radius of Jonesboro Airport. FOR FURTHER INFORMATION CONTACT:
The FAA’s authority to issue rules * * * * * Concerning the proposed regulations,
regarding aviation safety is found in Mayer R. Samuels, (202) 317–6859;
ASW LA E5 Winnfield LA [Amended] concerning submissions of comments or
Title 49 of the U.S. Code. Subtitle 1,
Section 106 describes the authority of David G. Joyce Airport, LA a request for a public hearing,
(Lat. 31°57′49″ N., long. 92°39′37″ W.) Oluwafunmilayo Taylor, (202) 317–6901
the FAA Administrator. Subtitle VII,
Aviation Programs, describes in more That airspace extending upward from 700 (not toll-free numbers).
feet above the surface within a 6.3-mile SUPPLEMENTARY INFORMATION:
detail the scope of the agency’s radius of David G. Joyce Airport.
authority. This rulemaking is Background
promulgated under the authority Issued in Fort Worth, TX, on April 24,
described in Subtitle VII, Part A, 2015. Subtitle A of title V of the Economic
Subpart I, Section 40103. Under that Robert W. Beck, Growth and Tax Relief Reconciliation
section, the FAA is charged with Manager, Operations Support Group, ATO Act of 2001, Public Law 107–16
prescribing regulations to assign the use Central Service Center. (EGTRRA) enacted section 2210 of the
of airspace necessary to ensure the [FR Doc. 2015–11223 Filed 5–8–15; 8:45 am] Code, which made chapter 11 (the estate
safety of aircraft and the efficient use of BILLING CODE 4910–13–P tax) inapplicable to the estate of any
airspace. This regulation is within the decedent who died in 2010. Subtitle E
scope of that authority as it would of title V of EGTRRA enacted section
amend controlled airspace at the DEPARTMENT OF THE TREASURY 1022 regarding a modified carryover
Louisiana airports listed in this NPRM. basis system applicable during 2010. On
Internal Revenue Service December 17, 2010, the Tax Relief,
Environmental Review Unemployment Insurance
26 CFR Part 1 Reauthorization, and Job Creation Act of
This proposal will be subject to an 2010, Public Law 111–312 (TRUIRJCA)
environmental analysis in accordance [REG–107595–11] became law, and section 301(a) of
with FAA Order 1050.1E, TRUIRJCA retroactively reinstated the
RIN 1545–BK09
‘‘Environmental Impacts: Policies and estate and generation-skipping transfer
Procedures’’ prior to any FAA final Application of Modified Carryover taxes. However, section 301(c) of
regulatory action. Basis to General Basis Rules TRUIRJCA allows the executor of the
List of Subjects in 14 CFR Part 71 estate of a decedent who died in 2010
AGENCY: Internal Revenue Service (IRS), to elect to apply the Code as though
Airspace, Incorporation by reference, Treasury. section 301(a) of TRUIRJCA did not
Navigation (air). ACTION: Notice of proposed rulemaking. apply with respect to chapter 11 and
with respect to property acquired or
The Proposed Amendment SUMMARY: This document contains passing from the decedent (within the
proposed regulations that provide meaning of section 1014(b) of the Code).
In consideration of the foregoing, the guidance regarding the application of
Federal Aviation Administration Thus, section 301(c) of TRUIRJCA
the modified carryover basis rules of allows the executor of the estate of a
proposes to amend 14 CFR part 71 as section 1022 of the Internal Revenue
follows: decedent who died in 2010 to elect not
Code (Code). Specifically, the proposed to have the provisions of chapter 11
regulations will modify provisions of apply to the decedent’s estate, but rather
PART 71—DESIGNATION OF CLASS A, the Treasury Regulations involving basis
B, C, D, AND E AIRSPACE AREAS; AIR to have the provisions of section 1022
rules by including a reference to section apply (Section 1022 Election).
TRAFFIC SERVICE ROUTES; AND 1022 where appropriate. The regulations
REPORTING POINTS Generally, under section 1014(a), the
will affect property transferred from basis of property in the hands of a
certain decedents who died in 2010. person acquiring the property from a
■ 1. The authority citation for part 71 The regulations reflect changes to the
continues to read as follows: decedent or to whom the property
law made by the Economic Growth and passed from a decedent is the fair
Authority: 49 U.S.C. 106(f), 106(g), 40103, Tax Relief Reconciliation Act of 2001 market value of the property at the date
40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR, and the Tax Relief, Unemployment of the decedent’s death. However, if the
1959–1963 Comp., p. 389. Insurance Reauthorization, and Job decedent died in 2010 and the
Creation Act of 2010.
tkelley on DSK3SPTVN1PROD with PROPOSALS

§ 71.1 [Amended]
decedent’s executor, as defined in
DATES: Written or electronic comments section 2203, makes the Section 1022
■ 2. The incorporation by reference in and requests for a public hearing must Election, then the basis of property in
14 CFR 71.1 of FAA Order 7400.9Y, be received by August 10, 2015. the hands of a person acquiring the
Airspace Designations and Reporting ADDRESSES: Send submissions to property from that decedent is governed
Points, dated August 6, 2014, and CC:PA:LPD:PR (REG–107595–11), Room by section 1022 and not by section 1014.
effective September 15, 2014, is 5205, Internal Revenue Service, P.O. Section 1022(a)(1) generally provides
amended as follows: Box 7604, Ben Franklin Station, that property acquired from a decedent

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Federal Register / Vol. 80, No. 90 / Monday, May 11, 2015 / Proposed Rules 26875

of a U.S. decedent does not make a executor made a Section 1022 Election, death or the basis that would have been
Section 1022 Election, the proposed includes the period that the property determined under section 1014 or
regulations confirm that the general was held by the decedent. section 1022, as applicable, without
exception to gain recognition will apply. Sections 1.1245–2(c)(2)(ii)(d) and regard to this paragraph.
If the executor of a U.S. decedent does 1.1245–3(a)(3) of the proposed Section 1.1312–7(b) of the proposed
make a Section 1022 Election, the regulations provide that, if section 1245 regulations provides that the taxpayer
proposed regulations provide, property is acquired from a decedent with respect to whom the erroneous
consistent with Rev. Proc. 2011–41 who died in 2010 and whose executor treatment occurred must be a taxpayer
(2011–35 IRB 188 (August 29, 2011)) made a Section 1022 Election, the who had title to the property at the time
(see § 601.601(d)(2)(ii)(b) of this chapter) amount of the adjustments reflected in of the erroneously treated transaction
and Notice 2011–66 (2011–35 IRB 184 the adjusted basis of the property in the and from whom, mediately or
(August 29, 2011)) (see hands of the transferee immediately immediately, the taxpayer with respect
§ 601.601(d)(2)(ii)(b) of this chapter), after the transfer is equal to the amount to whom the determination is made
that there is gain recognition. Any basis of the adjustments reflected in the derived title, if the basis of the property
increase that the executor allocates adjusted basis of the property in the in the hands of the taxpayer with
under section 1022 will reduce the hands of the transferor immediately respect to whom the determination is
amount of gain in that property for before the transfer, minus the amount of made is determined under section 1022.
purposes of section 684. any gain taken into account under
Section 1.742–1(a) of the proposed section 1245(a)(1) by the transferor upon Proposed Effective/Applicability Date
regulations provides that the basis of a the transfer. Further, even though These regulations are proposed to
partnership interest acquired from a property is not of a character subject to apply on and after the date the
decedent who died in 2010, and whose the allowance for depreciation in the regulations are published as final
executor made a Section 1022 Election, hands of the taxpayer, the property is regulations in the Federal Register.
is the lower of the adjusted basis of the section 1245 property if the taxpayer’s
Special Analyses
decedent or fair market value of the basis in the property is determined
interest at the date of decedent’s death. under section 1022 and the property It has been determined that this notice
The basis of property acquired from a was of a character subject to the of proposed rulemaking is not a
decedent may be further increased allowance for depreciation in the hands significant regulatory action as defined
under section 1022(b) and/or 1022(c), of the decedent. in Executive Order 12866, as
but not above the fair market value of Section 1.1245–4(a)(1) of the supplemented by Executive Order
the interest on the date of the decedent’s proposed regulations provides that no 13563. Therefore, a regulatory
death. gain is recognized under section assessment is not required. It also has
Section 1.995–4(d)(2) of the proposed 1245(a)(1) upon a transfer of section been determined that section 553(b) of
regulations provides that the period 1245 property from a decedent whose the Administrative Procedure Act (5
during which a shareholder of stock in executor made the Section 1022 U.S.C. chapter 5) does not apply to these
a DISC has held stock includes the Election. regulations, and, because these
period he is considered to have held it Section 1.1250–4(c)(5) of the regulations do not impose a collection
by reason of the application of section proposed regulations provides that the of information requirement on small
1223 and, if his basis is determined in holding period under section 1250(e) for entities, the Regulatory Flexibility Act
whole or in part under the provisions of the recipient of property acquired from (5 U.S.C. chapter 6) does not apply.
section 1022, the holding period of the a decedent who died in 2010, and Pursuant to section 7805(f) of the Code,
decedent. whose executor made a Section 1022 this notice of proposed rulemaking has
Section 1.1014–4(a) of the proposed Election, includes the period that the been submitted to the Chief Counsel for
regulations provides that the basis of property was held by the decedent. Advocacy of the Small Business
property acquired from a decedent, Section 1.1254–2(a)(1) of the Administration for comment on its
including basis determined under proposed regulations provides that no impact on small business.
section 1022, is uniform in the hands of gain is recognized under section
every person having possession or 1254(a)(1) upon a transfer of natural Comments and Requests for a Public
enjoyment of the property at any time, resource recapture property from a Hearing
whether obtained under the will or decedent who died in 2010 and whose Before these proposed regulations are
other instrument or under the laws of executor made a Section 1022 Election. adopted as final regulations,
descent and distribution. Sections 1.1254–3(b), 1.1254–4(e)(4), consideration will be given to any
Section 1.1014–5(b) of the proposed and 1.1254–5(c)(2)(iv) of the proposed written (a signed original and eight (8)
regulations provides that, in regulations provide that, for purposes of copies) or electronic comments that are
determining gain or loss from the sale or determining the amount of section 1254 submitted timely to the IRS. All
other disposition of a term interest in costs from the disposition of natural comments will be available at
property the adjusted basis of which is resource recapture property, the term www.regulations.gov or upon request for
determined pursuant to section 1022, ‘‘gift’’ is expanded to include the public inspection and copying. A public
that part of the adjusted uniform basis transfer of property with a basis that is hearing will be scheduled if requested
assignable under the rules of § 1.1014– determined under section 1022. in writing by any person that timely
5(a) to the interest sold or otherwise Section 1.1296–1(d)(4) of the submits comments. If a public hearing is
tkelley on DSK3SPTVN1PROD with PROPOSALS

disposed of is disregarded to the extent proposed regulations provides that the scheduled, notice of the date, time, and
and in the manner provided by section basis of stock of a passive foreign place for the public hearing will be
1001(e). investment company for which a section published in the Federal Register.
Section 1.1223–1(b) of the proposed 1296 election was in effect as of the date
regulations provides that the holding of the decedent’s death that is acquired Drafting Information
period under section 1223 of the from a decedent is the lower of the The principal author of these
recipient of property acquired from a adjusted basis of the stock in the hands regulations is Mayer R. Samuels, Office
decedent who died in 2010, and whose of the decedent immediately before his of the Associate Chief Counsel

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26876 Federal Register / Vol. 80, No. 90 / Monday, May 11, 2015 / Proposed Rules

(Passthroughs and Special Industries). July 21, 1978. The provisions of (h)(12), if the basis of a partner’s interest
However, other personnel from the IRS paragraph (b)(1) of this section relating in a partnership is determined under
and the Treasury Department to section 1022 are effective on and after section 1014(a) or 1022, such partner is
participated in their development. the date these regulations are published treated as acquiring such interest from
as final regulations in the Federal a person who is not related to such
List of Subjects in 26 CFR Part 1
Register. partner, and such interest is treated as
Income taxes, Reporting and ■ Par. 4. Section 1.179–4 is amended by having previously been held by a person
recordkeeping requirements. revising the first sentence of paragraph who is not related to such partner.
(c)(1)(iv) to read as follows: * * * * *
Proposed Amendments to the
Regulations § 1.179–4 Definitions. (l) * * *
(5) Application of section 1022. The
Accordingly, 26 CFR part 1 is * * * * *
provisions of § 1.197–2 relating to
proposed to be amended as follows: (c) * * *
(1) * * * section 1022 are effective on and after
PART 1—INCOME TAXES (iv) The property is not acquired by the date these regulations are published
purchase if the basis of the property in as final regulations in the Federal
■ Paragraph 1. The authority citation the hands of the person acquiring it is Register.
for part 1 continues to read in part as determined in whole or in part by ■ Par. 7. Section 1.267(d)–1 is amended
follows: reference to the adjusted basis of such by revising paragraph (a)(3) to read as
property in the hands of the person from follows:
Authority: 26 U.S.C. 7805 * * *
whom acquired, is determined under § 1.267(d)–1 Amount of gain where loss
■ Par. 2. Section 1.48–12 is amended by section 1014(a), relating to property
revising the last sentence of paragraph previously disallowed.
acquired from a decedent, or is (a) * * *
(b)(2)(vii)(B) and adding paragraph (g) to determined under section 1022, relating
read as follows: (3) The benefit of the general rule is
to the basis of property acquired from available only to the original transferee
§ 1.48–12 Qualified rehabilitated building; certain decedents who died in 2010. but does not apply to any original
expenditures incurred after December 31, * * * transferee (for example, a donee or a
1981. * * * * * person acquiring property from a
* * * * * ■ Par. 5. Section 1.179–6 is amended decedent where the basis of property is
(b) * * * by: determined under section 1014 or 1022)
(2) * * * ■ a. Revising the section heading and who acquired the property in any
(vii) * * * the first sentence of paragraph (a). manner other than by purchase or
(B) * * * If a transferee’s basis is ■ b. Adding paragraph (d).
exchange.
determined under section 1014 or The revision and addition read as
follows: * * * * *
section 1022, any expenditures incurred
■ Par. 8. Section 1.267(d)–2 is amended
by the decedent within the measuring § 1.179–6 Effective/applicability dates. by revising the section heading and
period that are treated as having been
(a) * * * Except as provided in adding a sentence to the end of the
incurred by the transferee under
paragraphs (b), (c), and (d) of this paragraph to read as follows:
paragraph (c)(3)(ii) of this section shall
section, the provisions of §§ 1.179–1
decrease the transferee’s basis for § 1.267(d)–2 Effective/applicability dates.
through 1.179–5 apply for property
purposes of the substantial * * * The provisions of § 1.267(d)–
placed in service by the taxpayer in
rehabilitation test. 1(a)(3) relating to section 1022 are
taxable years ending after January 25,
* * * * * 1993. * * * effective on and after the date these
(g) Effective/applicability date. This regulations are published as final
* * * * *
section applies on and after the date (d) Application of § 1.179–4(c)(1)(iv). regulations in the Federal Register.
these regulations are published as final The provisions of § 1.179–4(c)(1)(iv) ■ Par. 9. Section 1.273–1 is revised to
regulations in the Federal Register. For relating to section 1022 are effective on read as follows:
rules before the date these regulations and after the date these regulations are
are published as final regulations in the § 1.273–1 Life or terminable interests.
published as final regulations in the (a) In general. Amounts paid as
Federal Register, see § 1.48–12 as Federal Register.
contained in 26 CFR (revised as of the income to the holder of a life or a
■ Par. 6. Section 1.197–2 is amended by
April 1 preceding the date these terminable interest acquired by gift,
revising paragraphs (h)(5)(i) and bequest, or inheritance shall not be
regulations are published as final (h)(12)(viii) and adding paragraph (l)(5)
regulations in the Federal Register). subject to any deduction for shrinkage
to read as follows: (whether called by depreciation or any
■ Par. 3. Section 1.83–4 is amended by
revising the last sentence of paragraph § 1.197–2 Amortization of goodwill and other name) in the value of such interest
(b)(1) and adding paragraph (d) to read certain other intangibles. due to the lapse of time. In other words,
as follows: * * * * * the holder of such an interest so
(h) * * * acquired may not set up the value of the
§ 1.83–4 Special rules. (5) * * * expected future payments as corpus or
* * * * * (i) The acquisition of a section principal and claim deduction for
(b) * * *
tkelley on DSK3SPTVN1PROD with PROPOSALS

197(f)(9) intangible if the acquiring shrinkage or exhaustion thereof due to
(1) * * * Such basis shall also reflect taxpayer’s basis in the intangible is the passage of time. For the treatment
any adjustments to basis provided under determined under section 1014(a) or generally of distributions to
sections 1015, 1016, and 1022. 1022; or beneficiaries of an estate or trust, see
* * * * * * * * * * Subparts A, B, C, and D (section 641 and
(d) Effective/applicability date. The (12) * * * following), Subchapter J, Chapter 1 of
provisions in this section are applicable (viii) Operating rule for transfers upon the Code, and corresponding
for taxable years beginning on or after death. For purposes of this paragraph regulations. For basis of property

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26880 Federal Register / Vol. 80, No. 90 / Monday, May 11, 2015 / Proposed Rules

■ Par. 31. Section 1.1001–1 is amended interest at the time of its sale or other property from the decedent. For general
by revising the last sentence of disposition shall be determined under rules on the applicable valuation date
paragraph (a), revising paragraph (f)(1), the rules provided in § 1.1014–5. Thus, where the executor of a decedent’s
and adding paragraph (f)(5) to read as gain or loss realized from a sale or other estate elects under section 2032, or
follows: disposition of a term interest in property under section 811(j) of the Code of 1939,
shall be determined by comparing the to value the decedent’s gross estate at
§ 1.1001–1 Computation of gain or loss. amount of the proceeds of such sale the alternate valuation date prescribed
(a) * * * Section 1001(e) and with that part of the adjusted basis of in such sections, see § 1.1014–3(e).
paragraph (f) of this section prescribe such interest that is not a portion of the * * * * *
the method of computing gain or loss adjusted uniform basis of the entire (d) Effective/applicability date. This
upon the sale or other disposition of a property. section applies on and after the date
term interest in property the adjusted
* * * * * these regulations are published as final
basis (or a portion) of which is (5) Effective/applicability date. This regulations in the Federal Register. For
determined pursuant, or by reference, to section applies on and after the date rules before the date these regulations
section 1014 (relating to the basis of these regulations are published as final are published as final regulations in the
property acquired from a decedent), regulations in the Federal Register. For Federal Register, see § 1.1014–1 as
section 1015 (relating to the basis of rules before the date these regulations contained in 26 CFR (revised as of the
property acquired by gift or by a transfer are published as final regulations in the April 1 preceding the date these
in trust), or section 1022 (relating to the Federal Register, see § 1.1001–1 as
basis of property acquired from certain regulations are published as final
contained in 26 CFR (revised as of the regulations in the Federal Register).
decedents who died in 2010). April 1 preceding the date these ■ Par. 33. Section 1.1014–4 is amended
* * * * * regulations are published as final by revising the first sentence of
(f) * * * regulations in the Federal Register). paragraph (a)(1), revising the second
(1) General rule. Except as otherwise
* * * * * sentence of paragraph (a)(2), and adding
provided in paragraph (f)(3) of this
■ Par. 32. Section 1.1014–1 is amended paragraph (d) to read as follows:
section, for purposes of determining
by revising paragraph (a) and adding
gain or loss from the sale or other § 1.1014–4 Uniformity of basis; adjustment
paragraph (d) to read as follows:
disposition after October 9, 1969, of a to basis.
term interest in property (as defined in § 1.1014–1 Basis of property acquired (a) * * *
paragraph (f)(2) of this section), a from a decedent. (1) The basis of property acquired
taxpayer shall not take into account that (a) General rule. The purpose of from a decedent, as determined under
portion of the adjusted basis of such section 1014 is, in general, to provide a section 1014(a) or section 1022, is
interest that is determined pursuant, or basis for property acquired from a uniform in the hands of every person
by reference, to section 1014 (relating to decedent that is equal to the value having possession or enjoyment of the
the basis of property acquired from a placed upon such property for purposes property at any time under the will or
decedent), section 1015 (relating to the of the Federal estate tax. Accordingly, other instrument or under the laws of
basis of property acquired by gift or by the general rule is that the basis of descent and distribution. * * *
a transfer in trust), or section 1022 property acquired from a decedent is the (2) * * * Accordingly, there is a
(relating to the basis of property fair market value of such property at the common acquisition date for all titles to
acquired from certain decedents who date of the decedent’s death, or, if the property acquired from a decedent
died in 2010) to the extent that such decedent’s executor so elects, at the within the meaning of section 1014 or
adjusted basis is a portion of the alternate valuation date prescribed in section 1022, and, for this reason, a
adjusted uniform basis of the entire section 2032, or in section 811(j) of the common or uniform basis for all such
property (as defined in § 1.1014–5). Internal Revenue Code (Code) of 1939. interests. * * *
Where a term interest in property is However, the basis of property acquired * * * * *
transferred to a corporation in from certain decedents who died in (d) Effective/applicability date. This
connection with a transaction to which 2010 is determined under section 1022, section applies on and after the date
section 351 applies and the adjusted if the decedent’s executor made an these regulations are published as final
basis of the term interest: election under section 301(c) of the Tax regulations in the Federal Register. For
(i) Is determined pursuant to sections Relief, Unemployment Insurance rules before the date these regulations
1014, 1015, or 1022; and Reauthorization, and Job Creation Act of are published as final regulations in the
(ii) Is also a portion of the adjusted 2010, Public Law 111–312 (124 Stat. Federal Register, see § 1.1014–4 as
uniform basis of the entire property, a 3296, 3300 (2010)). See section 1022. contained in 26 CFR (revised as of the
subsequent sale or other disposition of Property acquired from a decedent April 1 preceding the date these
such term interest by the corporation includes, principally, property acquired regulations are published as final
will be subject to the provisions of by bequest, devise, or inheritance, and, regulations in the Federal Register).
section 1001(e) and this paragraph (f) to in the case of decedents dying after ■ Par. 34. Section 1.1014–5 is amended
the extent that the basis of the term December 31, 1953, property required to by revising paragraph (b), adding and
interest so sold or otherwise disposed of be included in determining the value of reserving paragraph (d), and adding
is determined by reference to its basis in the decedent’s gross estate under any paragraph (e) to read as follows:
the hands of the transferor as provided provision of the Code of 1954 or the
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by section 362(a). See paragraph (f)(2) of Code of 1939. The general rule § 1.1014–5 Gain or loss.
this section for rules relating to the governing basis of property acquired * * * * *
characterization of stock received by the from a decedent, as well as other rules (b) Sale or other disposition of certain
transferor of a term interest in property prescribed elsewhere in this section, term interests. In determining gain or
in connection with a transaction to shall have no application if the property loss from the sale or other disposition
which section 351 applies. That portion is sold, exchanged, or otherwise after October 9, 1969, of a term interest
of the adjusted uniform basis of the disposed of before the decedent’s death in property (as defined in § 1.1001–
entire property that is assignable to such by the person who acquired the 1(f)(2)) the adjusted basis of which is

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determined pursuant, or by reference, to (b) A disposition (other than a regulations are published as final
section 1014 (relating to the basis of disposition to which section regulations in the Federal Register).
property acquired from a decedent), 1245(b)(6)(A) applies) that is described ■ Par. 38. Section 1.1245–4 is amended
section 1015 (relating to the basis of in section 1245(b)(3) (relating to certain by revising the second sentence of
property acquired by gift or by a transfer tax-free transactions); paragraph (a)(1) and adding paragraph
in trust), or section 1022 (relating to the (c) An exchange described in (i) to read as follows:
basis of property acquired from certain § 1.1245–4(e)(2) (relating to transfers
described in section 1081(d)(1)(A)); or § 1.1245–4 Exceptions and Limitations.
decedents who died in 2010), that part
of the adjusted uniform basis assignable (d) A transfer at death where the basis (a) * * *
under the rules of paragraph (a) of this of property in the hands of the (1) * * * For purposes of this
section to the interest sold or otherwise transferee is determined under section paragraph (a), the term ‘‘gift’’ means,
disposed of shall be disregarded to the 1022. except to the extent that paragraph (a)(3)
extent and in the manner provided by * * * * * of this section applies, a transfer of
section 1001(e) and § 1.1001–1(f). (d) Effective/applicability date. This property that, in the hands of the
section applies on and after the date transferee, has a basis determined under
* * * * * the provisions of section 1015(a) or
(d) [Reserved] these regulations are published as final
regulations in the Federal Register. For 1015(d) (relating to basis of property
(e) Effective/applicability date. This acquired by gifts) or section 1022
rules before the date these regulations
section applies on and after the date (relating to basis of property acquired
are published as final regulations in the
these regulations are published as final from certain decedents who died in
Federal Register, see § 1.1245–2 as
regulations in the Federal Register. For 2010). * * *
contained in 26 CFR (revised as of the
rules before the date these regulations
April 1 preceding the date these * * * * *
are published as final regulations in the
regulations are published as final (i) Effective/applicability date. This
Federal Register, see § 1.1014–5 as
regulations in the Federal Register). section applies on and after the date
contained in 26 CFR (revised as of the ■ Par. 37. Section 1.1245–3 is amended these regulations are published as final
April 1 preceding the date these by revising paragraph (a)(3) and adding regulations in the Federal Register. For
regulations are published as final paragraph (d) to read as follows: rules before the date these regulations
regulations in the Federal Register).
are published as final regulations in the
■ Par. 35. Section 1.1223–1 is amended § 1.1245–3 Definition of section 1245
property. Federal Register, see § 1.1245–4 as
by adding a sentence to the end of
contained in 26 CFR (revised as of the
paragraph (b) and adding paragraph (l) (a) * * *
(3) Even though property may not be April 1 preceding the date these
to read as follows:
of a character subject to the allowance regulations are published as final
§ 1.1223–1 Determination of period for for depreciation in the hands of the regulations in the Federal Register).
which capital assets are held. ■ Par. 39. Section 1.1250–4 is amended
taxpayer, such property may
* * * * * nevertheless be section 1245 property if by adding paragraphs (c)(5) and (h) to
(b) * * * Similarly, the period for the taxpayer’s basis for the property is read as follows:
which property acquired from a determined by reference to its basis in § 1.1250–4 Holding period.
decedent who died in 2010 was held by the hands of a prior owner of the * * * * *
the decedent must be included in property and such property was of a (c) * * *
determining the period during which character subject to the allowance for (5) A transfer at death where the basis
the property was held by the recipient, depreciation in the hands of such prior of the property in the hands of the
if the recipient’s basis in the property is owner, or if the taxpayer’s basis for the transferee is determined under section
determined under section 1022. property is determined by reference to 1022.
* * * * * the basis of other property that in the
* * * * *
(l) Effective/applicability date. This hands of the taxpayer was property of a
(h) Effective/applicability date. This
section applies on and after the date character subject to the allowance for
section applies on and after the date
these regulations are published as final depreciation, or if the taxpayer’s basis
these regulations are published as final
regulations in the Federal Register. For for the property is determined under
regulations in the Federal Register. For
rules before the date these regulations section 1022 and such property was of
rules before the date these regulations
are published as final regulations in the a character subject to the allowance for
are published as final regulations in the
Federal Register, see § 1.1223–1 as depreciation in the hands of the
Federal Register, see § 1.1250–4 as
contained in 26 CFR (revised as of the decedent. Thus, for example, if a father
contained in 26 CFR (revised as of the
April 1 preceding the date these uses an automobile in his trade or
April 1 preceding the date these
regulations are published as final business during a period after December
regulations are published as final
regulations in the Federal Register). 31, 1961, and then gives the automobile
regulations in the Federal Register).
■ Par. 36. Section 1.1245–2 is amended to his son as a gift for the son’s personal ■ Par. 40. Section 1.1254–2 is amended
by revising paragraph (c)(2)(ii) and use, the automobile is section 1245 by revising the second sentence of
adding paragraph (d) to read as follows: property in the hands of the son. paragraph (a)(1) to read as follows:
* * * * *
§ 1.1245–2 Definition of recomputed basis. (d) Effective/applicability date. This § 1.1254–2 Exceptions and limitations.
* * * * *
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section applies on and after the date (a) * * *
(c) * * * these regulations are published as final (1) * * * For purposes of this
(2) * * * regulations in the Federal Register. For paragraph (a), the term ‘‘gift’’ means,
(ii) The transactions referred to in rules before the date these regulations except to the extent that paragraph (a)(2)
paragraph (c)(2)(i) of this section are: are published as final regulations in the of this section applies, a transfer of
(a) A disposition that is in part a sale Federal Register, see § 1.1245–3 as natural resource recapture property that,
or exchange and in part a gift (see contained in 26 CFR (revised as of the in the hands of the transferee, has a
§ 1.1245–4(a)(3)); April 1 preceding the date these basis determined under the provisions

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26882 Federal Register / Vol. 80, No. 90 / Monday, May 11, 2015 / Proposed Rules

of section 1015(a) or 1015(d) (relating to ■ Par. 44. Section 1.1254–6 is revised to as final regulations in the Federal
basis of property acquired by gift) or read as follows: Register.
section 1022 (relating to the basis of ■ Par. 46. Section 1.1312–7 is amended
§ 1.1254–6 Effective/applicability date.
property acquired from certain by revising paragraph (b) and adding
decedents who died in 2010). * * * (a) Sections 1.1254–1 through 1.1254–
3 and 1.1254–5 are effective with paragraph (d) to read as follows:
* * * * *
■ Par. 41. Section 1.1254–3 is amended
respect to any disposition of natural § 1.1312–7 Basis of property after
by revising paragraphs (b)(2)(ii) and (iii) resource recapture property occurring erroneous treatment of a prior transaction.
and adding paragraph (b)(2)(iv) to read after March 13, 1995. The rule in
§ 1.1254–1(b)(2)(iv)(A)(2), relating to a * * * * *
as follows:
nonoperating mineral interest carved (b)(1) For this section to apply, the
§ 1.1254–3 Section 1254 costs immediately out of an operating mineral interest with taxpayer with respect to whom the
after certain acquisitions. respect to which an expenditure has erroneous treatment occurred must be:
* * * * * been deducted, is effective with respect (i) The taxpayer with respect to whom
(b) * * * to any disposition occurring after March the determination is made; or
(2) * * * 13, 1995, of property (within the
(ii) A transaction described in section meaning of section 614) that is placed (ii) A taxpayer who acquired title to
1041(a); in service by the taxpayer after the property in the erroneously treated
(iii) A disposition described in December 31, 1986. Section 1.1254–4 transaction and from whom, mediately
§ 1.1254–2(c)(3) (relating to certain tax- applies to dispositions of natural or immediately, the taxpayer with
free transactions); or resource recapture property by an S respect to whom the determination is
(iv) A transfer at death where basis of corporation (and a corporation that was made derived title in such a manner that
property in the hands of the transferee formerly an S corporation) and he will have a basis ascertained by
is determined under section 1022. dispositions of S corporation stock reference to the basis in the hands of the
* * * * * occurring on or after October 10, 1996. taxpayer who acquired title to the
■ Par. 42. Section 1.1254–4 is amended Sections 1.1254–2(d)(1)(ii), 1.1254– property in the erroneously treated
by revising paragraph (e)(4) introductory 3(b)(1)(i), (b)(1)(ii), (d)(1)(i), and transaction; or
text to read as follows: (d)(1)(ii) are effective for dispositions of (iii) A taxpayer who had title to the
property occurring on or after October
§ 1.1254–4 Special rules for S corporations property at the time of the erroneously
10, 1996.
and their shareholders.
(b) The provisions of §§ 1.1254– treated transaction and from whom,
* * * * * 2(a)(1), 1.1254–3(b)(2), 1.1254–4(e)(4), mediately or immediately, the taxpayer
(e) * * * and 1.1254–5(c)(2)(iv) that relate to with respect to whom the determination
(4) * * * If stock is acquired in a section 1022 are effective on and after is made derived title, if the basis of the
transfer that is a gift, in a transfer that the date these regulations are published property in the hands of the taxpayer
is a part sale or exchange and part gift, as final regulations in the Federal with respect to whom the determination
in a transfer that is described in section Register. is made is determined under section
1041(a), or in a transfer at death where ■ Par. 45. Section 1.1296–1 is amended 1015(a) (relating to the basis of property
the basis of property in the hands of the by revising paragraphs (d)(4) and (j) to acquired by gift) or section 1022
transferee is determined under section read as follows: (relating to the basis of property
1022, the amount of section 1254 costs acquired from certain decedents who
with respect to the property held by the § 1.1296–1 Mark to market election for
marketable stock. died in 2010). (2) No adjustment is
corporation in the acquiring authorized with respect to the transferor
shareholder’s hands immediately after * * * * *
(d) * * * of the property in a transaction upon
the transfer is an amount equal to—
(4) Stock acquired from a decedent. In which the basis of the property
* * * * * depends, when the determination is
■ Par.43. Section 1.1254–5 is amended
the case of stock of a PFIC that is
acquired by bequest, devise, or with respect to the original transferee or
by revising paragraph (c)(2)(iv)
inheritance (or by the decedent’s estate) a subsequent transferee of the original
introductory text to read as follows:
and with respect to which a section transferee.
§ 1.1254–5 Special rules for partnerships 1296 election was in effect as of the date * * * * *
and their partners. of the decedent’s death,
(d) Effective/applicability date. This
* * * * * notwithstanding section 1014 or section
section applies on and after the date
(c) * * * 1022, the basis of such stock in the
(2) * * * hands of the person so acquiring it shall these regulations are published as final
(iv) * * * If an interest in a be the adjusted basis of such stock in regulations in the Federal Register. For
partnership is transferred in a transfer the hands of the decedent immediately rules before the date these regulations
that is a gift, in a transfer that is a part before his death (or, if lesser, the basis are published as final regulations in the
sale or exchange and part gift, in a that would have been determined under Federal Register, see § 1.1312–7 as
transfer that is described in section section 1014 or section 1022 without contained in 26 CFR (revised as of the
1041(a), or in a transfer at death where regard to this paragraph (d)). April 1 preceding the date these
the basis of property in the hands of the regulations are published as final
tkelley on DSK3SPTVN1PROD with PROPOSALS

* * * * *
transferee is determined under section (j) Effective/applicability date. The regulations in the Federal Register).
1022, the amount of the transferee provisions in this section are applicable John Dalrymple,
partner’s section 1254 costs with respect for taxable years beginning on or after
to property held by the partnership Deputy Commissioner for Services and
May 3, 2004. The provisions of Enforcement.
immediately after the transfer is an paragraph (d)(4) of this section relating
amount equal to— [FR Doc. 2015–11210 Filed 5–8–15; 8:45 am]
to section 1022 are effective on and after
* * * * * the date these regulations are published BILLING CODE 4830–01–P

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Document Created: 2018-02-21 10:26:19
Document Modified: 2018-02-21 10:26:19
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Proposed Rules
Action		Notice of proposed rulemaking.
Dates		Written or electronic comments and requests for a public hearing must be received by August 10, 2015.
Contact		Concerning the proposed regulations, Mayer R. Samuels, (202) 317-6859; concerning submissions of comments or a request for a public hearing, Oluwafunmilayo Taylor, (202) 317-6901 (not toll-free numbers).
FR Citation		80 FR 26873
RIN Number		1545-BK09
CFR Associated		Income Taxes and Reporting and Recordkeeping Requirements
80 FR 26873 - Application of Modified Carryover Basis to General Basis Rules

DEPARTMENT OF THE TREASURYInternal Revenue Service

Federal Register Volume 80, Issue 90 (May 11, 2015)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
