81 FR 66576 - Guidance under Section 851 Relating to Investments in Stock and Securities

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 81, Issue 188 (September 28, 2016)

Page Range		66576-66578
FR Document		2016-23408
This document provides guidance relating to the income test and the asset diversification requirements that are used to determine whether a corporation may qualify as a regulated investment company (RIC) for federal income tax purposes. These proposed regulations provide guidance to corporations that intend to qualify as RICs.
Federal Register, Volume 81 Issue 188 (Wednesday, September 28, 2016)
[Federal Register Volume 81, Number 188 (Wednesday, September 28, 2016)]
[Proposed Rules]
[Pages 66576-66578]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-23408]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-123600-16]
RIN 1545-BN55


Guidance under Section 851 Relating to Investments in Stock and 
Securities

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: This document provides guidance relating to the income test 
and the asset diversification requirements that are used to determine 
whether a corporation may qualify as a regulated investment company 
(RIC) for federal income tax purposes. These proposed regulations 
provide guidance to corporations that intend to qualify as RICs.

DATES: Written or electronic comments and requests for a public hearing 
must be received by December 27, 2016.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-123600-16), Room 
5203, 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-
123600-16), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC 20224, or sent electronically via the 
Federal eRulemaking Portal at www.regulations.gov (IRS REG-123600-16).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Matthew Howard of the Office of Associate Chief Counsel (Financial 
Institutions and Products) at (202) 317-7053; concerning submissions of 
comments and requests for a public hearing, Regina Johnson (202) 317-
6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background and Explanation of Provisions

    This document contains amendments to the Income Tax Regulations (26 
CFR part 1) relating to RICs. Section 851 of the Internal Revenue Code 
(Code) sets forth requirements for qualifying as a RIC.
    Section 851(a) provides that a RIC is any domestic corporation that 
(1) at all times during the taxable year is registered under the 
Investment Company Act of 1940, Public Law 76-768, 54 Stat. 789 
(codified as amended at 15 U.S.C. 80a-1--80a-64 (2016)) (the 1940 Act), 
as a management company or unit investment trust or has in effect an 
election under the 1940 Act to be treated as a business development 
company; or (2) is a common trust fund or other similar fund excluded 
by section 3(c)(3) of the 1940 Act from the definition of ``investment 
company'' and is not included in the definition of ``common trust 
fund'' by section 584(a).
    To be treated as a RIC for a taxable year, a corporation must 
satisfy the income test set forth in section 851(b). The income test 
under section 851(b)(2) requires that at least 90 percent of the 
corporation's gross income for the taxable year be derived from:

    (A) dividends, interest, payments with respect to securities 
loans (as defined in section 512(a)(5)), and gains from the sale or 
other disposition of stock or securities (as defined in section 
2(a)(36) of the [1940 Act]) or foreign currencies, or other income 
(including but not limited to gains from options, futures or forward 
contracts) derived with respect to its business of investing in such 
stock, securities, or currencies, and (B) net income derived from an 
interest in a qualified publicly traded partnership (as defined in 
[section 851(h)]).

    Section 851(b)(3) provides that to be treated as a RIC a 
corporation also must satisfy the following asset diversification 
requirements at the close of each quarter of the corporation's taxable 
year:

    (A) at least 50 percent of the value of its total assets is 
represented by--
    (i) cash and cash items (including receivables), Government 
securities and securities of other [RICs], and
    (ii) other securities for purposes of this calculation limited, 
except and to the extent provided in [section 851(e)], in respect of 
any one issuer to an amount not greater in value than 5 percent of 
the value of the total assets of the taxpayer and to not more than 
10 percent of the outstanding voting securities of such issuer, and
    (B) not more than 25 percent of the value of its total assets is 
invested in--
    (i) the securities (other than Government securities or the 
securities of other [RICs]) of any one issuer,
    (ii) the securities (other than the securities of other [RICs]) 
of two or more issuers which the taxpayer controls and which are 
determined, under regulations prescribed by the Secretary, to be 
engaged in the same or similar trades or businesses or related 
trades or businesses, or
    (iii) the securities of one or more qualified publicly traded 
partnerships (as defined in [section 851(h)]).

    These proposed regulations relate to the RIC income test and asset 
diversification requirements. Section A. of this preamble concerns the 
meaning of security. Section B. of this preamble addresses inclusions 
under sections 951(a)(1)(A)(i) and 1293(a). These proposed regulations 
also revise Sec.  1.851-2(b)(1) of the existing final regulations to 
merely incorporate changes to section 851(b)(2) since the existing 
final regulations were published in the Federal Register on November 
26, 1960, in TD 6500 (25 FR 11910).

A. Defining Securities

    The income test and asset diversification requirements both use the 
term ``securities.'' For purposes of the income test, a security is 
defined by reference to section 2(a)(36) of the 1940 Act, while section 
851(c) provides rules and definitions that apply for purposes of the 
asset diversification requirements of section 851(b)(3) but does not 
specifically define ``security.'' Section 851(c)(6), however, provides 
that the terms used in section 851(b)(3) and (c) have the same meaning 
as when used in the 1940 Act. An asset is therefore a security for 
purposes of the income test and the asset diversification requirements 
if it is a security under the 1940 Act.
    The Treasury Department and the IRS have in the past addressed 
whether certain instruments or positions are securities for purposes of 
section 851. In particular, Rev. Rul. 2006-1 (2006-1 CB 261) concludes 
that a derivative contract with respect to a commodity index is not a 
security for purposes of section 851(b)(2). The ruling also holds that 
income from such a contract is not qualifying other income for purposes 
of section 851(b)(2) because that income is not derived with respect to 
the RIC's business of investing in stocks, securities, or currencies. 
Rev. Rul. 2006-1 was modified and clarified by Rev. Rul. 2006-31 (2006-
1 CB 1133), which states that Rev. Rul. 2006-1 was not intended to 
preclude a conclusion that income from certain instruments (such as 
certain structured notes) that create commodity exposure for the holder 
is qualifying income under section 851(b)(2).
    After the issuance of Rev. Rul. 2006-31, the IRS received a number 
of private

[[Page 66577]]

letter ruling requests concerning whether certain instruments that 
provide RICs with commodity exposure were securities for purposes of 
the income test and the asset diversification requirements. By 2010, 
the IRS was devoting substantial resources to these private letter 
ruling requests. Moreover, it is not clear whether Congress intended to 
allow RICs to invest in securities that provided commodity exposure. 
Consequently, in July 2011, the IRS notified taxpayers that the IRS 
would not issue further private letter rulings addressing specific 
proposed RIC commodity-related investments while the IRS reviewed the 
issues and considered guidance of broader applicability.
    Finally, determining whether certain investments that provide RICs 
with commodity exposure are securities for purposes of the income test 
and the asset diversification requirements requires the IRS implicitly 
to determine what is a security within the meaning of section 2(a)(36) 
of the 1940 Act. Section 38 of the 1940 Act, however, grants exclusive 
rulemaking authority under the 1940 Act to the Securities and Exchange 
Commission (SEC), including ``defining accounting, technical, and trade 
terms'' used in the 1940 Act. Any future guidance regarding whether 
particular financial instruments, including investments that provide 
RICs with commodity exposure, are securities for purposes of the 1940 
Act is therefore within the jurisdiction of the SEC.
    Section 2.01 of Rev. Proc. 2016-3 (2016-1 IRB 126) provides that 
the IRS may decline to issue a letter ruling or a determination letter 
when appropriate in the interest of sound tax administration (including 
due to resource constraints) or on other grounds whenever warranted by 
the facts or circumstances of a particular case. If the IRS determines 
that it is not in the interest of sound tax administration to issue a 
letter ruling or determination letter due to resource constraints, the 
IRS will adopt a consistent approach with respect to taxpayers that 
request a ruling on the same issue. The IRS will also consider adding 
the issue to the no rule list at the first opportunity.
    The Treasury Department and the IRS have reviewed the issues, 
considered the concerns expressed, considered resource constraints, and 
determined that the IRS should no longer issue letter rulings on 
questions relating to the treatment of a corporation as a RIC that 
require a determination of whether a financial instrument or position 
is a security under the 1940 Act. Contemporaneously with the 
publication of these proposed regulations, the Treasury Department and 
the IRS are issuing Rev. Proc. 2016-50 (2016-43 IRB __), which provides 
that the IRS ordinarily will not issue rulings or determination letters 
on any issue relating to the treatment of a corporation as a RIC that 
requires a determination of whether a financial instrument or position 
is a security under the 1940 Act. Thus, for example, the IRS ordinarily 
will not issue a ruling on whether income is of a type described in the 
income test of section 851(b)(2) if that ruling depends on whether an 
instrument is a security under the 1940 Act.
    The Treasury Department and the IRS request comments as to whether 
Rev. Rul. 2006-1, Rev. Rul. 2006-31, and other previously issued 
guidance that involves determinations of whether a financial instrument 
or position held by a RIC is a security under the 1940 Act should be 
withdrawn effective as of the date of publication in the Federal 
Register of a Treasury decision adopting these proposed regulations as 
final regulations.

B. Inclusions Under Section 951(a)(1)(A)(i) or 1293(a)

    In certain circumstances, a U.S. person may be required under 
section 951(a)(1)(A)(i) or 1293(a) to include in taxable income certain 
earnings of a foreign corporation in which the U.S. person holds an 
interest, without regard to whether the foreign corporation makes a 
corresponding distribution of cash or property to the U.S. person. 
Section 851(b) was amended by the Tax Reduction Act of 1975, Public Law 
94-12, section 602, 89 Stat. 26, 58 (the ``1975 Act'') (for inclusions 
under section 951(a)(1)(A)(i)), and by the Tax Reform Act of 1986, 
Public Law 99-514, section 1235, 100 Stat. 2085, 2575 (the ``1986 
Act'') (for inclusions under section 1293(a)), to specify how a RIC 
treats amounts included in income under section 951(a)(1)(A)(i) or 
1293(a) for purposes of the income test of section 851(b)(2). The 
language added in those amendments provides:

    For purposes of [section 851(b)(2)], there shall be treated as 
dividends amounts included in gross income under section 
951(a)(1)(A)(i) or 1293(a) for the taxable year to the extent that, 
under section 959(a)(1) or 1293(c) (as the case may be), there is a 
distribution out of the earnings and profits of the taxable year 
which are attributable to the amounts so included.

The significance of treating an inclusion as a dividend under section 
851 is that a dividend is qualifying income under section 851(b)(2). 
The amendments to section 851(b) made by the 1975 Act and the 1986 Act 
unambiguously condition dividend treatment of an inclusion under 
section 951(a)(1)(A)(i) or 1293(a) on a distribution from the foreign 
corporation's earnings and profits attributable to the amount included. 
Absent a distribution, there is no support in the Code for treating an 
inclusion under section 951(a)(1)(A)(i) or 1293(a) as a dividend under 
section 851.
    Notwithstanding the distribution required by section 851(b), in 
certain circumstances the IRS has previously issued letter rulings 
under section 851(b)(2) that permit an inclusion under section 
951(a)(1)(A)(i) or 1293(a) to qualify as ``other income'' derived with 
respect to a RIC's business of investing in currencies or 1940 Act 
stock or securities even in the absence of a distribution. Reading 
section 851(b)(2) in this manner ignores the requirement in section 
851(b) that amounts be distributed in order to treat these inclusions 
as dividends. This distribution requirement is a more specific 
provision than the other income clause. In addition, it cannot be 
suggested that the distribution requirement was superseded by the other 
income clause because the other income clause and the distribution 
requirement for inclusions under section 1293(a) were both added by the 
1986 Act. Therefore, these proposed regulations specify that an 
inclusion under section 951(a)(1)(A)(i) or 1293(a) is treated as a 
dividend for purposes of section 851(b)(2) only to the extent that the 
distribution requirement in section 851(b) is met. These proposed 
regulations further provide that, for purposes of section 851(b)(2), an 
inclusion under section 951(a)(1) or 1293(a) does not qualify as other 
income derived with respect to a RIC's business of investing in stock, 
securities, or currencies.

Proposed Effective/Applicability Date

    The rule in Sec.  1.851-2(b)(2)(iii) of the proposed regulations 
applies to taxable years that begin on or after the date that is 90 
days after the date of publication in the Federal Register of a 
Treasury decision adopting these proposed regulations as final 
regulations.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented and reaffirmed 
by Executive Order 13563. Therefore, a regulatory impact 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

[[Page 66578]]

not apply to these regulations, and because the regulations do not 
impose a collection of information on small entities, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to 
section 7805(f) of the Internal Revenue Code, this notice of proposed 
rulemaking will be 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 comments that are submitted timely 
to the IRS as prescribed in this preamble under the ``Addresses'' 
heading. The Treasury Department and the IRS specifically request 
comments on the clarity of the proposed regulations and how they can be 
made easier to understand. All comments will be made available for 
public inspection 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 for the public hearing will be 
published in the Federal Register.

Drafting Information

    The principal author of these proposed regulations is Matthew 
Howard, Office of Associate Chief Council (Financial Institutions and 
Products). However, other personnel from the Treasury Department and 
the IRS participated in their development.

Statement of Availability of IRS Documents

    The IRS revenue rulings and revenue procedure cited in this 
preamble are published in the Internal Revenue Bulletin (or Cumulative 
Bulletin) and are available from the Superintendent of Documents, U.S. 
Government Publishing Office, Washington, DC 20402, or by visiting the 
IRS Web site at www.irs.gov.

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 1.851-2 is amended by:
0
1. Revising paragraphs (b)(1) and (b)(2)(i).
0
2. Adding paragraph (b)(2)(iii).
    The addition and revisions read as follows:


Sec.  1.851-2   Limitations.

* * * * *
    (b) Gross income requirement--(1) General rule. A corporation will 
not be a regulated investment company for a taxable year unless 90 
percent of its gross income for that year is income described in 
paragraph (b)(1)(i) of this section or in paragraph (b)(1)(ii) of this 
section. Any loss from the sale or other disposition of stock or 
securities is not taken into account in the gross income computation.
    (i) Gross income amounts. Income is described in this paragraph 
(b)(1)(i) if it is gross income derived from:
    (A) Dividends;
    (B) Interest;
    (C) Payments with respect to securities loans (as defined in 
section 512(a)(5));
    (D) Gains from the sale or other disposition of stocks or 
securities (as defined in section 2(a)(36) of the Investment Company 
Act of 1940, as amended);
    (E) Gains from the sale or other disposition of foreign currencies; 
or
    (F) Other income (including but not limited to gains from options, 
futures, or forward contracts) derived with respect to a regulated 
investment company's business of investing in such stock, securities, 
or currencies.
    (ii) Income from a publicly traded partnership. Income is described 
in this paragraph (b)(1)(ii) if it is net income derived from an 
interest in a qualified publicly traded partnership (as defined in 
section 851(h)).
    (2) Special rules--(i) For purposes of section 851(b)(2)(A) and 
paragraph (b)(1)(i)(A) of this section, amounts included in gross 
income for the taxable year under section 951(a)(1)(A)(i) or 1293(a) 
are treated as dividends only to the extent that, under section 
959(a)(1) or 1293(c) (as the case may be), there is a distribution out 
of the earnings and profits of the taxable year that are attributable 
to the amounts included in gross income for the taxable year under 
section 951(a)(1)(A)(i) or 1293(a). For allocation of distributions to 
earnings and profits of foreign corporations, see Sec.  1.959-3.
* * * * *
    (iii) For purposes of section 851(b)(2)(A) and paragraph 
(b)(1)(i)(F) of this section, amounts included in gross income under 
section 951(a)(1) or 1293(a) are not treated as other income derived 
with respect to a corporation's business of investing in stock, 
securities, or currencies. The rule in this paragraph (b)(2)(iii) 
applies to taxable years that begin on or after the date that is 90 
days after the date of publication in the Federal Register of a 
Treasury decision adopting these proposed regulations as final 
regulations.

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-23408 Filed 9-27-16; 8:45 am]
 BILLING CODE 4830-01-P
Federal Register / Vol. 81, No. 188 / Wednesday, September 28, 2016 / Proposed Rules 66577

letter ruling requests concerning publication of these proposed and the 1986 Act unambiguously
whether certain instruments that regulations, the Treasury Department condition dividend treatment of an
provide RICs with commodity exposure and the IRS are issuing Rev. Proc. 2016– inclusion under section 951(a)(1)(A)(i)
were securities for purposes of the 50 (2016–43 IRB ll), which provides or 1293(a) on a distribution from the
income test and the asset diversification that the IRS ordinarily will not issue foreign corporation’s earnings and
requirements. By 2010, the IRS was rulings or determination letters on any profits attributable to the amount
devoting substantial resources to these issue relating to the treatment of a included. Absent a distribution, there is
private letter ruling requests. Moreover, corporation as a RIC that requires a no support in the Code for treating an
it is not clear whether Congress determination of whether a financial inclusion under section 951(a)(1)(A)(i)
intended to allow RICs to invest in instrument or position is a security or 1293(a) as a dividend under section
securities that provided commodity under the 1940 Act. Thus, for example, 851.
exposure. Consequently, in July 2011, the IRS ordinarily will not issue a ruling Notwithstanding the distribution
the IRS notified taxpayers that the IRS on whether income is of a type required by section 851(b), in certain
would not issue further private letter described in the income test of section circumstances the IRS has previously
rulings addressing specific proposed 851(b)(2) if that ruling depends on issued letter rulings under section
RIC commodity-related investments whether an instrument is a security 851(b)(2) that permit an inclusion under
while the IRS reviewed the issues and under the 1940 Act. section 951(a)(1)(A)(i) or 1293(a) to
considered guidance of broader The Treasury Department and the IRS qualify as ‘‘other income’’ derived with
applicability. request comments as to whether Rev. respect to a RIC’s business of investing
Finally, determining whether certain Rul. 2006–1, Rev. Rul. 2006–31, and in currencies or 1940 Act stock or
investments that provide RICs with other previously issued guidance that securities even in the absence of a
commodity exposure are securities for involves determinations of whether a distribution. Reading section 851(b)(2)
purposes of the income test and the financial instrument or position held by in this manner ignores the requirement
asset diversification requirements a RIC is a security under the 1940 Act in section 851(b) that amounts be
requires the IRS implicitly to determine should be withdrawn effective as of the distributed in order to treat these
what is a security within the meaning of date of publication in the Federal inclusions as dividends. This
section 2(a)(36) of the 1940 Act. Section Register of a Treasury decision adopting distribution requirement is a more
38 of the 1940 Act, however, grants these proposed regulations as final specific provision than the other income
exclusive rulemaking authority under regulations. clause. In addition, it cannot be
the 1940 Act to the Securities and suggested that the distribution
Exchange Commission (SEC), including B. Inclusions Under Section requirement was superseded by the
‘‘defining accounting, technical, and 951(a)(1)(A)(i) or 1293(a) other income clause because the other
trade terms’’ used in the 1940 Act. Any In certain circumstances, a U.S. income clause and the distribution
future guidance regarding whether person may be required under section requirement for inclusions under
particular financial instruments, 951(a)(1)(A)(i) or 1293(a) to include in section 1293(a) were both added by the
including investments that provide RICs taxable income certain earnings of a 1986 Act. Therefore, these proposed
with commodity exposure, are securities foreign corporation in which the U.S. regulations specify that an inclusion
for purposes of the 1940 Act is therefore person holds an interest, without regard under section 951(a)(1)(A)(i) or 1293(a)
within the jurisdiction of the SEC. to whether the foreign corporation is treated as a dividend for purposes of
Section 2.01 of Rev. Proc. 2016–3 makes a corresponding distribution of section 851(b)(2) only to the extent that
(2016–1 IRB 126) provides that the IRS cash or property to the U.S. person. the distribution requirement in section
may decline to issue a letter ruling or a Section 851(b) was amended by the Tax 851(b) is met. These proposed
determination letter when appropriate Reduction Act of 1975, Public Law 94– regulations further provide that, for
in the interest of sound tax 12, section 602, 89 Stat. 26, 58 (the purposes of section 851(b)(2), an
administration (including due to ‘‘1975 Act’’) (for inclusions under inclusion under section 951(a)(1) or
resource constraints) or on other section 951(a)(1)(A)(i)), and by the Tax 1293(a) does not qualify as other income
grounds whenever warranted by the Reform Act of 1986, Public Law 99–514, derived with respect to a RIC’s business
facts or circumstances of a particular section 1235, 100 Stat. 2085, 2575 (the of investing in stock, securities, or
case. If the IRS determines that it is not ‘‘1986 Act’’) (for inclusions under currencies.
in the interest of sound tax section 1293(a)), to specify how a RIC
administration to issue a letter ruling or Proposed Effective/Applicability Date
treats amounts included in income
determination letter due to resource under section 951(a)(1)(A)(i) or 1293(a) The rule in § 1.851–2(b)(2)(iii) of the
constraints, the IRS will adopt a for purposes of the income test of proposed regulations applies to taxable
consistent approach with respect to section 851(b)(2). The language added in years that begin on or after the date that
taxpayers that request a ruling on the those amendments provides: is 90 days after the date of publication
same issue. The IRS will also consider in the Federal Register of a Treasury
For purposes of [section 851(b)(2)], there
adding the issue to the no rule list at the shall be treated as dividends amounts decision adopting these proposed
first opportunity. included in gross income under section regulations as final regulations.
The Treasury Department and the IRS 951(a)(1)(A)(i) or 1293(a) for the taxable year
have reviewed the issues, considered Special Analyses
to the extent that, under section 959(a)(1) or
the concerns expressed, considered 1293(c) (as the case may be), there is a Certain IRS regulations, including this
sradovich on DSK3GMQ082PROD with PROPOSALS

resource constraints, and determined distribution out of the earnings and profits of one, are exempt from the requirements
that the IRS should no longer issue the taxable year which are attributable to the of Executive Order 12866, as
letter rulings on questions relating to the amounts so included. supplemented and reaffirmed by
treatment of a corporation as a RIC that The significance of treating an inclusion Executive Order 13563. Therefore, a
require a determination of whether a as a dividend under section 851 is that regulatory impact assessment is not
financial instrument or position is a a dividend is qualifying income under required. It also has been determined
security under the 1940 Act. section 851(b)(2). The amendments to that section 553(b) of the Administrative
Contemporaneously with the section 851(b) made by the 1975 Act Procedure Act (5 U.S.C. chapter 5) does

VerDate Sep<11>2014 17:27 Sep 27, 2016 Jkt 238001 PO 00000 Frm 00033 Fmt 4702 Sfmt 4702 E:\FR\FM\28SEP1.SGM 28SEP1
66578 Federal Register / Vol. 81, No. 188 / Wednesday, September 28, 2016 / Proposed Rules

not apply to these regulations, and PART 1—INCOME TAXES and profits of foreign corporations, see
because the regulations do not impose a § 1.959–3.
collection of information on small ■ Paragraph 1. The authority citation for * * * * *
entities, the Regulatory Flexibility Act part 1 continues to read in part as (iii) For purposes of section
(5 U.S.C. chapter 6) does not apply. follows: 851(b)(2)(A) and paragraph (b)(1)(i)(F) of
Pursuant to section 7805(f) of the Authority: 26 U.S.C. 7805 * * * this section, amounts included in gross
Internal Revenue Code, this notice of income under section 951(a)(1) or
■ Par. 2. Section 1.851–2 is amended by:
proposed rulemaking will be submitted 1293(a) are not treated as other income
■ 1. Revising paragraphs (b)(1) and derived with respect to a corporation’s
to the Chief Counsel for Advocacy of the
(b)(2)(i). business of investing in stock,
Small Business Administration for
■ 2. Adding paragraph (b)(2)(iii).
comment on its impact on small securities, or currencies. The rule in this
The addition and revisions read as paragraph (b)(2)(iii) applies to taxable
business.
follows: years that begin on or after the date that
Comments and Requests for a Public is 90 days after the date of publication
§ 1.851–2 Limitations.
Hearing in the Federal Register of a Treasury
* * * * *
decision adopting these proposed
Before these proposed regulations are (b) Gross income requirement—(1) regulations as final regulations.
adopted as final regulations, General rule. A corporation will not be
consideration will be given to any a regulated investment company for a John Dalrymple,
comments that are submitted timely to taxable year unless 90 percent of its Deputy Commissioner for Services and
the IRS as prescribed in this preamble gross income for that year is income Enforcement.
under the ‘‘Addresses’’ heading. The described in paragraph (b)(1)(i) of this [FR Doc. 2016–23408 Filed 9–27–16; 8:45 am]
Treasury Department and the IRS section or in paragraph (b)(1)(ii) of this BILLING CODE 4830–01–P
specifically request comments on the section. Any loss from the sale or other
clarity of the proposed regulations and disposition of stock or securities is not
how they can be made easier to taken into account in the gross income
computation. ENVIRONMENTAL PROTECTION
understand. All comments will be made AGENCY
available for public inspection at (i) Gross income amounts. Income is
described in this paragraph (b)(1)(i) if it 40 CFR Parts 52 and 81
www.regulations.gov or upon request. A
is gross income derived from:
public hearing will be scheduled if
(A) Dividends; [EPA–R05–OAR–2016–0372; FRL–9953–15–
requested in writing by any person that
timely submits written comments. If a (B) Interest; Region 5]
public hearing is scheduled, notice of (C) Payments with respect to
securities loans (as defined in section Air Plan Approval; Ohio;
the date, time, and place for the public Redesignation of the Columbus, Ohio
512(a)(5));
hearing will be published in the Federal Area to Attainment of the 2008 Ozone
(D) Gains from the sale or other
Register. Standard
disposition of stocks or securities (as
Drafting Information defined in section 2(a)(36) of the AGENCY: Environmental Protection
Investment Company Act of 1940, as Agency (EPA).
The principal author of these amended);
proposed regulations is Matthew ACTION: Proposed rule.
(E) Gains from the sale or other
Howard, Office of Associate Chief disposition of foreign currencies; or SUMMARY: The Environmental Protection
Council (Financial Institutions and (F) Other income (including but not Agency (EPA) is proposing to find that
Products). However, other personnel limited to gains from options, futures, or the Columbus, Ohio area is attaining the
from the Treasury Department and the forward contracts) derived with respect 2008 8-hour ozone National Ambient
IRS participated in their development. to a regulated investment company’s Air Quality Standard (NAAQS or
Statement of Availability of IRS business of investing in such stock, standard) and to approve a request from
securities, or currencies. the Ohio Environmental Protection
Documents
(ii) Income from a publicly traded Agency (Ohio EPA) to redesignate the
The IRS revenue rulings and revenue partnership. Income is described in this area to attainment for the 2008 ozone
procedure cited in this preamble are paragraph (b)(1)(ii) if it is net income NAAQS because the request meets the
published in the Internal Revenue derived from an interest in a qualified statutory requirements for redesignation
Bulletin (or Cumulative Bulletin) and publicly traded partnership (as defined under the Clean Air Act (CAA or Act).
are available from the Superintendent of in section 851(h)). The Columbus area includes Delaware,
Documents, U.S. Government (2) Special rules—(i) For purposes of Fairfield, Knox, Licking, and Mason
Publishing Office, Washington, DC section 851(b)(2)(A) and paragraph Counties. Ohio EPA submitted this
20402, or by visiting the IRS Web site (b)(1)(i)(A) of this section, amounts request on June 16, 2016. EPA is also
at www.irs.gov. included in gross income for the taxable proposing to approve, as a revision to
year under section 951(a)(1)(A)(i) or the Ohio State Implementation Plan
List of Subjects in 26 CFR Part 1 1293(a) are treated as dividends only to (SIP), the state’s plan for maintaining
sradovich on DSK3GMQ082PROD with PROPOSALS

the extent that, under section 959(a)(1) the 2008 8-hour ozone standard through
Income taxes, Reporting and or 1293(c) (as the case may be), there is 2030 in the Columbus area. Finally, EPA
recordkeeping requirements. a distribution out of the earnings and finds adequate and is proposing to
Proposed Amendments to the profits of the taxable year that are approve the state’s 2020 and 2030
Regulations attributable to the amounts included in volatile organic compound (VOC) and
gross income for the taxable year under oxides of nitrogen (NOX) Motor Vehicle
Accordingly, 26 CFR part 1 is section 951(a)(1)(A)(i) or 1293(a). For Emission Budgets (MVEBs) for the
proposed to be amended as follows: allocation of distributions to earnings Columbus area.

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Document Created: 2016-09-28 01:08:13
Document Modified: 2016-09-28 01:08:13
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 December 27, 2016.
Contact		Concerning the proposed regulations, Matthew Howard of the Office of Associate Chief Counsel (Financial Institutions and Products) at (202) 317-7053; concerning submissions of comments and requests for a public hearing, Regina Johnson (202) 317- 6901 (not toll-free numbers).
FR Citation		81 FR 66576
RIN Number		1545-BN55
CFR Associated		Income Taxes and Reporting and Recordkeeping Requirements
81 FR 66576 - Guidance under Section 851 Relating to Investments in Stock and Securities

DEPARTMENT OF THE TREASURYInternal Revenue Service

Federal Register Volume 81, Issue 188 (September 28, 2016)

DEPARTMENT OF THE TREASURY
Internal Revenue Service
