81 FR 36816 - Certain Transfers of Property to Regulated Investment Companies [RICs] and Real Estate Investment Trusts [REITs]

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 81, Issue 110 (June 8, 2016)

Page Range		36816-36818
FR Document		2016-13425

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

Federal Register, Volume 81 Issue 110 (Wednesday, June 8, 2016)

[Federal Register Volume 81, Number 110 (Wednesday, June 8, 2016)]
[Proposed Rules]
[Pages 36816-36818]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-13425]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-126452-15]
RIN 1545-BN06


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

AGENCY: Internal Revenue Service (IRS), Treasury.

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

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

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

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

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-126452-15), Room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
126452-15), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC 20224 or sent electronically via the Federal 
eRulemaking Portal at http://

[[Page 36817]]

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

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

SUPPLEMENTARY INFORMATION: 

Background and Explanation of Provisions

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating to section 337(d). The temporary regulations impose 
corporate level tax on certain transactions in which property of a C 
corporation becomes the property of a REIT. The text of those 
regulations also serves as the text of these proposed regulations. The 
preamble to the temporary regulations explains the amendments.
    The proposed regulations also include a modification to the 
definition of converted property that is not addressed in the temporary 
regulations. This modification treats as converted property any 
property the basis of which is determined, directly or indirectly, in 
whole or in part, by reference to the basis of property owned by a C 
corporation that becomes the property of a RIC or a REIT. The Treasury 
Department and the IRS believe that such property presents similar 
concerns with regard to the purposes of General Utilities repeal as 
other property of a C corporation that becomes the property of a RIC or 
REIT.

Special Analyses

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

Comments and Requests for Public Hearing

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

Drafting Information

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

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

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

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

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


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

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

[[Page 36818]]

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

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

36816 Federal Register / Vol. 81, No. 110 / Wednesday, June 8, 2016 / Proposed Rules

Availability of NPRMs Regulatory Notices and Analyses (Lat. 48°01′44″ N., long. 098°19′33″ W.)
The FAA has determined that this That airspace extending upward from 700
An electronic copy of this document feet above the surface within a 6-mile radius
may be downloaded through the regulation only involves an established
of Lakota Municipal Airport.
Internet at http://www.regulations.gov. body of technical regulations for which
frequent and routine amendments are Issued in Fort Worth, TX, on May 26, 2016.
Recently published rulemaking
necessary to keep them operationally Walter Tweedy,
documents can also be accessed through
the FAA’s Web page at http:// current, is non-controversial and Acting Manager, Operations Support Group,
unlikely to result in adverse or negative ATO Central Service Center.
www.faa.gov/airports_airtraffic/air_
traffic/publications/airspace_ comments. It, therefore: (1) Is not a [FR Doc. 2016–13304 Filed 6–7–16; 8:45 am]

amendments/. ‘‘significant regulatory action’’ under BILLING CODE 4910–13–P
Executive Order 12866; (2) is not a
You may review the public docket ‘‘significant rule’’ under DOT
containing the proposal, any comments Regulatory Policies and Procedures (44
received and any final disposition in DEPARTMENT OF THE TREASURY
FR 11034; February 26, 1979); and (3)
person in the Dockets Office (see does not warrant preparation of a Internal Revenue Service
ADDRESSES section for address and regulatory evaluation as the anticipated
phone number) between 9:00 a.m. and impact is so minimal. Since this is a 26 CFR Part 1
5:00 p.m., Monday through Friday, routine matter that will only affect air
except Federal holidays. An informal [REG–126452–15]
traffic procedures and air navigation, it
docket may also be examined during is certified that this rule, when RIN 1545–BN06
normal business hours at the Central promulgated, would not have a
Service Center, Operation Support significant economic impact on a Certain Transfers of Property to
Group, 10101 Hillwood Parkway, Fort substantial number of small entities Regulated Investment Companies
Worth, TX 76177. under the criteria of the Regulatory [RICs] and Real Estate Investment
Persons interested in being placed on Flexibility Act. Trusts [REITs]
a mailing list for future NPRMs should
Environmental Review AGENCY: Internal Revenue Service (IRS),
contact the FAA’s Office of Rulemaking
This proposal will be subject to an Treasury.
(202) 267–9677, to request a copy of
Advisory Circular No. 11–2A, Notice of environmental analysis in accordance ACTION: Notice of proposed rulemaking
Proposed Rulemaking Distribution with FAA Order 1050.1F, and notice of proposed rulemaking by
System, which describes the application ‘‘Environmental Impacts: Policies and cross-reference to temporary
procedure. Procedures’’ prior to any FAA final regulations.
regulatory action.
Availability and Summary of SUMMARY: In the Rules and Regulations
Documents Proposed for Incorporation List of Subjects in 14 CFR Part 71 section of this issue of the Federal
by Reference Airspace, Incorporation by reference, Register, the IRS is issuing temporary
Navigation (air). regulations effecting the repeal of the
This document would amend FAA General Utilities doctrine by the Tax
Order 7400.9Z, Airspace Designations The Proposed Amendment Reform Act of 1986. The text of those
and Reporting Points, dated August 6, In consideration of the foregoing, the regulations also serves as part of the text
2015, and effective September 15, 2015. Federal Aviation Administration of these proposed regulations. These
FAA Order 7400.9Z is publicly available proposes to amend 14 CFR part 71 as proposed regulations would impose
as listed in the ADDRESSES section of this follows: corporate level tax on certain
document. FAA Order 7400.9Z lists transactions in which property of a C
Class A, B, C, D, and E airspace areas, PART 71—DESIGNATION OF CLASS A, corporation becomes the property of a
air traffic service routes, and reporting B, C, D, AND E AIRSPACE AREAS; AIR REIT. The proposed regulations also
points. TRAFFIC SERVICE ROUTES; AND make an amendment not addressed in
REPORTING POINTS the temporary regulations. The
The Proposal
proposed regulations affect RICs, REITs,
The FAA is proposing an amendment ■ 1. The authority citation for 14 CFR C corporations the property of which
to Title 14, Code of Federal Regulations part 71 continues to read as follows: becomes the property of a RIC or a REIT,
(14 CFR) Part 71 by establishing Class E Authority: 49 U.S.C. 106(f), 106(g); 40103, and their shareholders.
airspace extending upward from 700 40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR, DATES: Comments and requests for a
feet above the surface within an 6-mile 1959–1963 Comp., p. 389.
public hearing must be received by
radius of Lakota Municipal Airport, § 71.1 [Amended] August 8, 2016.
Lakota, ND, to accommodate new ■ 2. The incorporation by reference in ADDRESSES: Send submissions to:
standard instrument approach 14 CFR 71.1 of FAA Order 7400.9Z, CC:PA:LPD:PR (REG–126452–15), Room
procedures. Controlled airspace is Airspace Designations and Reporting 5203, Internal Revenue Service, PO Box
needed for the safety and management Points, dated August 6, 2015, and 7604, Ben Franklin Station, Washington,
of IFR operations at the airport. effective September 15, 2015, is DC 20044. Submissions may be hand-
Class E airspace designations are delivered Monday through Friday
ehiers on DSK5VPTVN1PROD with PROPOSALS

amended as follows:
published in Section 6005 of FAA Order Section 6005 Class E Airspace Areas
between the hours of 8 a.m. and 4 p.m.
7400.9Z, dated August 6, 2015, and Extending Upward From 700 Feet or More to CC:PA:LPD:PR (REG–126452–15),
effective September 15, 2015, which is Above the Surface of the Earth. Courier’s Desk, Internal Revenue
incorporated by reference in 14 CFR * * * * * Service, 1111 Constitution Avenue NW.,
71.1. The Class E airspace designation Washington, DC 20224 or sent
listed in this document will be AGL ND E5 LAKOTA, ND [New] electronically via the Federal
published subsequently in the Order. Lakota Municipal Airport, ND eRulemaking Portal at http://

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Federal Register / Vol. 81, No. 110 / Wednesday, June 8, 2016 / Proposed Rules 36817

www.regulations.gov/ (IRS REG– Comments and Requests for Public ■ 2. Revising paragraph (b)(2)(iii).
126452–15). Hearing ■ 3. Adding paragraph (b)(4).
FOR FURTHER INFORMATION CONTACT: Before these proposed regulations are ■ 4. Revising paragraph (c)(1).
Concerning the proposed regulations, adopted as final regulations, ■ 5. Adding paragraph (c)(6).
Austin M. Diamond-Jones, (202) 317– consideration will be given to any ■ 6. Adding paragraph (f).
5085; concerning the submission of comments that are submitted timely to ■ 7. Revising paragraphs (g)(2)(ii) and
comments or to request a public the IRS as prescribed in this preamble (iii).
hearing, Regina Johnson, (202) 317– ■ 8. Adding paragraph (g)(2)(iv).
under the ADDRESSES heading. The
6901 (not toll-free numbers). Treasury Department and the IRS The additions and revisions read as
request comments on all aspects of the follows:
SUPPLEMENTARY INFORMATION:
proposed regulations. In particular, § 1.337(d)–7 Tax on property owned by a C
Background and Explanation of comments are requested regarding the corporation that becomes property of a RIC
Provisions scope of the terms predecessors and or REIT.
Temporary regulations in the Rules successors. In addition, although related (a) General rule. (1) [The text of the
and Regulations section of this issue of section 355 distributions occurring proposed amendment to § 1.337(d)–
the Federal Register amend the Income before or after conversion transactions 7(a)(1) is the same as the text of
Tax Regulations (26 CFR part 1) relating involving RICs do not present the same § 1.337(d)–7T(a)(1) published elsewhere
to section 337(d). The temporary degree of concern regarding the in this issue of the Federal Register].
regulations impose corporate level tax purposes of General Utilities repeal, (2) * * *
on certain transactions in which comments are requested as to whether (vi) [The text of the proposed
property of a C corporation becomes the the proposed regulations regarding amendment to § 1.337(d)–7(a)(2)(vi) is
property of a REIT. The text of those related section 355 distributions should, the same as the text of § 1.337(d)–
regulations also serves as the text of like the rules of § 1.337(d)–7 generally, 7T(a)(2)(vi) published elsewhere in this
these proposed regulations. The apply to both conversion transactions issue of the Federal Register].
preamble to the temporary regulations involving RICs and conversion (vii) Converted property. The term
explains the amendments. transactions involving REITs. All converted property means property
The proposed regulations also include comments will be available at owned by a C corporation that becomes
a modification to the definition of www.regulations.gov or upon request. A the property of a RIC or a REIT and any
converted property that is not addressed public hearing will be scheduled if other property the basis of which is
in the temporary regulations. This requested in writing by any person that determined, directly or indirectly, in
modification treats as converted timely submits written comments. If a whole or in part, by reference to the
property any property the basis of public hearing is scheduled, notice of basis of the property owned by a C
which is determined, directly or the date, time, and place of the public corporation that becomes the property
indirectly, in whole or in part, by hearing will be published in the Federal of a RIC or a REIT.
reference to the basis of property owned Register. (b) * * *
by a C corporation that becomes the (2) * * *
Drafting Information
property of a RIC or a REIT. The (iii) [The text of the proposed
Treasury Department and the IRS The principal author of these amendment to § 1.337(d)–7(b)(2)(iii) is
believe that such property presents regulations is Austin M. Diamond-Jones the same as the text of § 1.337(d)–
similar concerns with regard to the of the Office of Associate Chief Counsel 7T(b)(2)(iii) published elsewhere in this
purposes of General Utilities repeal as (Corporate). Other personnel from the issue of the Federal Register].
other property of a C corporation that Treasury Department and the IRS
* * * * *
becomes the property of a RIC or REIT. participated in their development.
(4) [The text of the proposed
Special Analyses List of Subjects in 26 CFR Part 1 amendment to § 1.337(d)–7(b)(4) is the
Income taxes, Reporting and same as the text of § 1.337(d)–7T(b)(4)
Certain IRS regulations, including this published elsewhere in this issue of the
one, are exempt from the requirements recordkeeping requirements.
Federal Register].
of Executive Order 12866, as Proposed Amendments to the
supplemented and reaffirmed by * * * * *
Regulations (c) Election of deemed sale treatment.
Executive Order 13653. Therefore, a
regulatory impact assessment is not Accordingly, 26 CFR part 1 is (1) [The text of the proposed
required. Pursuant to the Regulatory proposed to be amended as follows: amendment to § 1.337(d)–7(c)(1) is the
Flexibility Act (5 U.S.C. chapter 6), it is same as the text of § 1.337(d)–7T(c)(1)
PART 1—INCOME TAXES published elsewhere in this issue of the
hereby certified that these proposed
regulations would not have a significant Federal Register].
■ Paragraph 1. The authority citation
economic impact on a substantial for part 1 is amended by revising the * * * * *
number of small entities. This entry for § 1.337(d)–7 to read in part as (6) [The text of the proposed
certification is based on the fact that follows: amendment to § 1.337(d)–7(c)(6) is the
these proposed regulations would same as the text of § 1.337(d)–7T(c)(6)
Authority: 26 U.S.C. 7805 . . . published elsewhere in this issue of the
primarily affect large corporations with
a substantial number of shareholders. * * * * * Federal Register].
ehiers on DSK5VPTVN1PROD with PROPOSALS

Therefore, a regulatory flexibility Section 1.337(d)–7 also issued under 26
* * * * *
U.S.C. 337(d) and 355(h).
analysis is not required. Pursuant to (f) [The text of the proposed
section 7805(f) of the Code, this * * * * * amendment to § 1.337(d)–7(f) is the
regulation has been submitted to the ■ Par. 2. Section 1.337(d)–7 is amended same as the text of § 1.337(d)–7T(f)
Chief Counsel for Advocacy of the Small by: published elsewhere in this issue of the
Business Administration for comment ■ 1. Revising paragraph (a)(1) and Federal Register].
on its impact on small business. adding paragraphs (a)(2)(vi) and (vii). (g) * * *

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Document Created: 2016-06-08 03:10:47
Document Modified: 2016-06-08 03:10:47

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 and notice of proposed rulemaking by cross-reference to temporary regulations.
Dates		Comments and requests for a public hearing must be received by August 8, 2016.
Contact		Concerning the proposed regulations, Austin M. Diamond-Jones, (202) 317-5085; concerning the submission of comments or to request a public hearing, Regina Johnson, (202) 317-6901 (not toll-free numbers).
FR Citation		81 FR 36816
RIN Number		1545-BN06
CFR Associated		Income Taxes and Reporting and Recordkeeping Requirements

81 FR 36816 - Certain Transfers of Property to Regulated Investment Companies [RICs] and Real Estate Investment Trusts [REITs]

DEPARTMENT OF THE TREASURYInternal Revenue Service

Federal Register Volume 81, Issue 110 (June 8, 2016)

DEPARTMENT OF THE TREASURY
Internal Revenue Service