82 FR 5387 - 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 82, Issue 11 (January 18, 2017)

Page Range		5387-5388
FR Document		2017-00479

This document contains final regulations effecting the repeal of the General Utilities doctrine by the Tax Reform Act of 1986. The final regulations address the length of time during which a RIC or a REIT may be subject to corporate level tax on certain dispositions of property. The final regulations affect RICs and REITs.

Federal Register, Volume 82 Issue 11 (Wednesday, January 18, 2017)

[Federal Register Volume 82, Number 11 (Wednesday, January 18, 2017)]
[Rules and Regulations]
[Pages 5387-5388]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-00479]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9810]
RIN 1535-BN06


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

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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

SUMMARY: This document contains final regulations effecting the repeal 
of the General Utilities doctrine by the Tax Reform Act of 1986. The 
final regulations address the length of time during which a RIC or a 
REIT may be subject to corporate level tax on certain dispositions of 
property. The final regulations affect RICs and REITs.

DATES: Effective Date: These regulations are effective January 18, 
2017.
    Applicability Dates: For dates of applicability, see Sec.  
1.337(d)-7(g)(2)(iii).

FOR FURTHER INFORMATION CONTACT: Austin M. Diamond-Jones, (202) 317-
5363 (not a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains amendments to 26 CFR part 1. On June 8, 
2016, the Department of the Treasury (Treasury Department) and the IRS 
published temporary regulations (TD 9770) under section 337(d) 
(temporary regulations) in the Federal Register (81 FR 36793) 
concerning certain transfers of property to regulated investment 
companies (RICs) and real estate investment trusts (REITs). A notice of 
proposed rulemaking cross-referencing the temporary regulations (REG-
126452-15) (proposed regulations) was published in the Federal Register 
(81 FR 36816) on the same day. A correction to the temporary 
regulations was published in the Federal Register (81 FR 41800) on June 
28, 2016. The Treasury Department and the IRS received one written 
comment in response to the proposed regulations. The comment requested 
a public hearing, and a hearing was held on November 9, 2016. After 
consideration of the written comment and the comments made at the 
public hearing, the proposed regulations are adopted in part and as 
amended by this Treasury decision, and the corresponding temporary 
regulations are removed in part. The revisions adopted by this Treasury 
decision are discussed below.

Summary of Comments and Explanation of Revisions

    The comment requested that the temporary regulations and the 
proposed regulations with respect to the recognition period be 
immediately withdrawn and the recognition period with respect to REITs 
be defined with reference to the recognition period of section 
1374(d)(7), which is currently a five-year period as a result of 
section 127(a) of the Protecting Americans Against Tax Hikes Act of 
2015 (PATH Act), enacted as Division Q of the Consolidated 
Appropriations Act, 2016, Public Law 114-113, 129 Stat. 2422. The 
comment asserted that the change to the length of the recognition 
period in the temporary regulations and the proposed regulations was 
inconsistent with Congress's intent in the PATH Act and with prior 
administrative guidance. On October 18, 2016, the Chairmen and Ranking 
Members of the Ways and Means Committee of the U.S. House of 
Representatives and the Finance Committee of the U.S. Senate addressed 
a letter to the Secretary of the Treasury stating that the recognition 
period in the temporary regulations and the proposed regulations was 
inconsistent with congressional intent and the longstanding practice of 
treating REITs and RICs as having the same built-in gain recognition 
period as S corporations, currently five years. The Chairmen and 
Ranking Members also asked that the temporary regulations and the 
proposed regulations be modified to provide that REITs, RICs and S 
corporations are all subject to the same five-year built-in gain 
recognition period in order to be consistent with congressional intent 
and longstanding practice.

[[Page 5388]]

    The Treasury Department and the IRS decline to withdraw the 
temporary regulations and the proposed regulations relating to the 
recognition period but agree with the comment relating to the length of 
the recognition period. Accordingly, these final regulations provide 
that the term recognition period means the recognition period described 
in section 1374(d)(7), beginning, in the case of a conversion 
transaction that is a qualification of a C corporation as a RIC or a 
REIT, on the first day of the RIC's or the REIT's first taxable year, 
and, in the case of other conversion transactions, on the day the RIC 
or the REIT acquires the property. The final regulations will apply 
prospectively from February 17, 2017, but taxpayers may choose to apply 
the definition of recognition period in the final regulations, instead 
of the 10-year recognition period in the temporary regulations, for 
conversion transactions occurring on or after August 8, 2016, and on or 
before February 17, 2017.
    The Treasury Department and the IRS continue to study the other 
issues addressed in the temporary regulations and the proposed 
regulations, including other issues raised by the comment, and welcome 
further comment on those issues.

Special Analyses

    Certain IRS regulations, including this one, are exempt from the 
requirements of Executive Order 12866, as supplemented by Executive 
Order 13653. Therefore, a regulatory assessment is not required. 
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is 
hereby certified that this regulation will not have a significant 
economic impact on a substantial number of small entities. This 
certification is based on the fact that this regulation will primarily 
affect large corporations with a substantial number of shareholders. 
Accordingly, a regulatory flexibility analysis is not required. 
Pursuant to section 7805(f) of the Internal Revenue Code, the notice of 
proposed rulemaking preceding this regulation was submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business, and no comments were received.

Drafting Information

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

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is 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 1.337(d)-7 is amended by revising paragraphs 
(b)(2)(iii) and (g)(2)(iii) to read as follows:


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

* * * * *
    (b) * * *
    (2) * * *
    (iii) Recognition period. For purposes of applying the rules of 
section 1374 and the regulations thereunder, as modified by paragraph 
(b) of this section, the term recognition period means the recognition 
period described in section 1374(d)(7), beginning--
    (A) In the case of a conversion transaction that is a qualification 
of a C corporation as a RIC or a REIT, on the first day of the RIC's or 
the REIT's first taxable year; and
    (B) In the case of other conversion transactions, on the day the 
RIC or the REIT acquires the property.
* * * * *
    (g) * * *
    (2) * * *
    (iii) Recognition period. Paragraphs (b)(1)(ii) and (d)(2)(iii) of 
this section apply to conversion transactions that occur on or after 
August 8, 2016. Paragraph (b)(2)(iii) of this section applies to 
conversion transactions that occur after February 17, 2017. For 
conversion transactions that occurred on or after August 8, 2016 and on 
or before February 17, 2017, see Sec.  1.337(d)-7T(b)(2)(iii) in effect 
on August 8, 2016. However, taxpayers may apply paragraph (b)(2)(iii) 
of this section to conversion transactions that occurred on or after 
August 8, 2016 and on or before February 17, 2017. For conversion 
transactions that occurred on or after January 2, 2002 and before 
August 8, 2016, see Sec.  1.337(d)-7 as contained in 26 CFR part 1 in 
effect on April 1, 2016.

0
Par. 3. Section 1.337(d)-7T is amended by revising paragraphs (b)(1) 
through (3) and (g)(2)(iii) to read as follows:


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

* * * * *
    (b)(1) through (3) [Reserved]. For further guidance, see Sec.  
1.337(d)-7(b)(1) through (3).
* * * * *
    (g) * * *
    (2) * * *
    (iii) [Reserved]. For further guidance, see Sec.  1.337(d)-
7(g)(2)(iii).
* * * * *

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
    Approved: December 30, 2016.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2017-00479 Filed 1-17-17; 8:45 am]
 BILLING CODE 4830-01-P

Federal Register / Vol. 82, No. 11 / Wednesday, January 18, 2017 / Rules and Regulations 5387

2016 2017

Max penalty Max penalty
Agency Law Name/description CFR citation Min penalty Min penalty
(rounded to (rounded to
(rounded to (rounded to
nearest nearest
nearest dollar) nearest dollar)
dollar) dollar)

OWCP ...... Black Lung Benefits Act ... Failure to secure payment 20 CFR 726.300 ............... ........................ 2,500 ........... ........................ 2,541.
of benefits.
OWCP ...... Black Lung Benefits Act ... Failure to secure payment 20 CFR 726.302(c)(2)(i) ... 134 ..................... 136
of benefits for mines
with fewer than 25 em-
ployees.
OWCP ...... Black Lung Benefits Act ... Failure to secure payment 20 CFR 726.302(c)(2)(i) ... 268 ..................... 272
of benefits for mines
with 25–50 employees.
OWCP ...... Black Lung Benefits Act ... Failure to secure payment 20 CFR 726.302(c)(2)(i) ... 402 ..................... 409
of benefits for mines
with 51–100 employees.
OWCP ...... Black Lung Benefits Act ... Failure to secure payment 20 CFR 726.302(c)(2)(i) ... 535 ..................... 544
of benefits for mines
with more than 100 em-
ployees.
OWCP ...... Black Lung Benefits Act ... Failure to secure payment 20 CFR 726.302(c)(4) ...... 134 ..................... 136
of benefits after 10th
day of notice.
OWCP ...... Black Lung Benefits Act ... Failure to secure payment 20 CFR 726.302(c)(5) ...... 402 ..................... 409
of benefits for repeat of-
fenders.
OWCP ...... Black Lung Benefits Act ... Failure to secure payment 20 CFR 726.302(c)(5) ...... ........................ 2,750 ........... ........................ 2,795.
of benefits.

Signed at Washington, DC this 9th day of SUPPLEMENTARY INFORMATION: recognition period be immediately
January, 2017. withdrawn and the recognition period
Thomas E. Perez,
Background
with respect to REITs be defined with
Secretary, U.S. Department of Labor. This document contains amendments reference to the recognition period of
[FR Doc. 2017–00614 Filed 1–13–17; 4:15 pm] to 26 CFR part 1. On June 8, 2016, the section 1374(d)(7), which is currently a
BILLING CODE 4510–HL–P
Department of the Treasury (Treasury five-year period as a result of section
Department) and the IRS published
127(a) of the Protecting Americans
temporary regulations (TD 9770) under
Against Tax Hikes Act of 2015 (PATH
section 337(d) (temporary regulations)
DEPARTMENT OF THE TREASURY in the Federal Register (81 FR 36793) Act), enacted as Division Q of the
concerning certain transfers of property Consolidated Appropriations Act, 2016,
Internal Revenue Service Public Law 114–113, 129 Stat. 2422.
to regulated investment companies
(RICs) and real estate investment trusts The comment asserted that the change
26 CFR Part 1 to the length of the recognition period
(REITs). A notice of proposed
[TD 9810] rulemaking cross-referencing the in the temporary regulations and the
RIN 1535–BN06 temporary regulations (REG–126452–15) proposed regulations was inconsistent
(proposed regulations) was published in with Congress’s intent in the PATH Act
Certain Transfers of Property to the Federal Register (81 FR 36816) on and with prior administrative guidance.
Regulated Investment Companies the same day. A correction to the On October 18, 2016, the Chairmen and
[RICs] and Real Estate Investment temporary regulations was published in Ranking Members of the Ways and
Trusts [REITs] the Federal Register (81 FR 41800) on Means Committee of the U.S. House of
June 28, 2016. The Treasury Department Representatives and the Finance
AGENCY: Internal Revenue Service (IRS), and the IRS received one written Committee of the U.S. Senate addressed
Treasury. comment in response to the proposed a letter to the Secretary of the Treasury
ACTION: Final regulations. regulations. The comment requested a stating that the recognition period in the
public hearing, and a hearing was held temporary regulations and the proposed
SUMMARY: This document contains final
on November 9, 2016. After regulations was inconsistent with
regulations effecting the repeal of the
consideration of the written comment congressional intent and the
General Utilities doctrine by the Tax
and the comments made at the public longstanding practice of treating REITs
Reform Act of 1986. The final
hearing, the proposed regulations are
regulations address the length of time and RICs as having the same built-in
adopted in part and as amended by this
during which a RIC or a REIT may be gain recognition period as S
Treasury decision, and the
subject to corporate level tax on certain corporations, currently five years. The
corresponding temporary regulations are
dispositions of property. The final Chairmen and Ranking Members also
removed in part. The revisions adopted
regulations affect RICs and REITs. asked that the temporary regulations
by this Treasury decision are discussed
mstockstill on DSK3G9T082PROD with RULES

DATES: Effective Date: These regulations below. and the proposed regulations be
are effective January 18, 2017. modified to provide that REITs, RICs
Applicability Dates: For dates of Summary of Comments and and S corporations are all subject to the
applicability, see § 1.337(d)–7(g)(2)(iii). Explanation of Revisions same five-year built-in gain recognition
FOR FURTHER INFORMATION CONTACT: The comment requested that the period in order to be consistent with
Austin M. Diamond-Jones, (202) 317– temporary regulations and the proposed congressional intent and longstanding
5363 (not a toll-free number). regulations with respect to the practice.

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5388 Federal Register / Vol. 82, No. 11 / Wednesday, January 18, 2017 / Rules and Regulations

The Treasury Department and the IRS List of Subjects in 26 CFR Part 1 § 1.337(d)–7T Tax on property owned by a
decline to withdraw the temporary C corporation that becomes property of a
Income taxes, Reporting and RIC or REIT.
regulations and the proposed recordkeeping requirements.
regulations relating to the recognition * * * * *
period but agree with the comment Adoption of Amendments to the (b)(1) through (3) [Reserved]. For
relating to the length of the recognition Regulations further guidance, see § 1.337(d)–7(b)(1)
period. Accordingly, these final Accordingly, 26 CFR part 1 is through (3).
regulations provide that the term amended as follows: * * * * *
recognition period means the (g) * * *
recognition period described in section PART 1—INCOME TAXES (2) * * *
1374(d)(7), beginning, in the case of a (iii) [Reserved]. For further guidance,
conversion transaction that is a ■ Paragraph 1. The authority citation
see § 1.337(d)–7(g)(2)(iii).
qualification of a C corporation as a RIC for part 1 continues to read in part as
follows: * * * * *
or a REIT, on the first day of the RIC’s
or the REIT’s first taxable year, and, in Authority: 26 U.S.C. 7805 * * * John Dalrymple,
the case of other conversion * * * * * Deputy Commissioner for Services and
transactions, on the day the RIC or the ■ Par. 2. Section 1.337(d)–7 is amended
Enforcement.
REIT acquires the property. The final by revising paragraphs (b)(2)(iii) and Approved: December 30, 2016.
regulations will apply prospectively (g)(2)(iii) to read as follows: Mark J. Mazur,
from February 17, 2017, but taxpayers Assistant Secretary of the Treasury (Tax
may choose to apply the definition of § 1.337(d)–7 Tax on property owned by a C Policy).
recognition period in the final corporation that becomes property of a RIC
[FR Doc. 2017–00479 Filed 1–17–17; 8:45 am]
or REIT.
regulations, instead of the 10-year BILLING CODE 4830–01–P
recognition period in the temporary * * * * *
regulations, for conversion transactions (b) * * *
(2) * * *
occurring on or after August 8, 2016, (iii) Recognition period. For purposes DEPARTMENT OF THE TREASURY
and on or before February 17, 2017. of applying the rules of section 1374
The Treasury Department and the IRS Internal Revenue Service
and the regulations thereunder, as
continue to study the other issues modified by paragraph (b) of this
addressed in the temporary regulations 26 CFR Part 1
section, the term recognition period
and the proposed regulations, including means the recognition period described [TD 9812]
other issues raised by the comment, and in section 1374(d)(7), beginning—
welcome further comment on those RIN 1545–BL00; 1545–BM45
(A) In the case of a conversion
issues. transaction that is a qualification of a C Guidance for Determining Stock
Special Analyses corporation as a RIC or a REIT, on the Ownership; Rules Regarding
first day of the RIC’s or the REIT’s first Inversions and Related Transactions
Certain IRS regulations, including this taxable year; and
one, are exempt from the requirements (B) In the case of other conversion AGENCY: Internal Revenue Service (IRS),
of Executive Order 12866, as transactions, on the day the RIC or the Treasury.
supplemented by Executive Order REIT acquires the property. ACTION: Final regulations, temporary
13653. Therefore, a regulatory * * * * * regulations, and removal of temporary
assessment is not required. Pursuant to (g) * * * regulations.
the Regulatory Flexibility Act (5 U.S.C. (2) * * *
chapter 6), it is hereby certified that this (iii) Recognition period. Paragraphs SUMMARY: This document contains final
regulation will not have a significant (b)(1)(ii) and (d)(2)(iii) of this section regulations that identify certain stock of
economic impact on a substantial apply to conversion transactions that a foreign corporation that is disregarded
number of small entities. This occur on or after August 8, 2016. in calculating ownership of the foreign
certification is based on the fact that this Paragraph (b)(2)(iii) of this section corporation for purposes of determining
regulation will primarily affect large applies to conversion transactions that whether it is a surrogate foreign
corporations with a substantial number occur after February 17, 2017. For corporation. These regulations also
of shareholders. Accordingly, a conversion transactions that occurred provide guidance on the effect of
regulatory flexibility analysis is not on or after August 8, 2016 and on or transfers of stock of a foreign
required. Pursuant to section 7805(f) of before February 17, 2017, see corporation after the foreign corporation
the Internal Revenue Code, the notice of § 1.337(d)–7T(b)(2)(iii) in effect on has acquired substantially all of the
proposed rulemaking preceding this August 8, 2016. However, taxpayers properties of a domestic corporation or
regulation was submitted to the Chief may apply paragraph (b)(2)(iii) of this of a trade or business of a domestic
Counsel for Advocacy of the Small section to conversion transactions that partnership. These regulations affect
Business Administration for comment occurred on or after August 8, 2016 and certain domestic corporations and
on its impact on small business, and no on or before February 17, 2017. For partnerships (and certain parties related
comments were received. conversion transactions that occurred thereto) and foreign corporations that
on or after January 2, 2002 and before acquire substantially all of the
Drafting Information
mstockstill on DSK3G9T082PROD with RULES

August 8, 2016, see § 1.337(d)–7 as properties of such domestic
The principal author of these contained in 26 CFR part 1 in effect on corporations or of the trades or
regulations is Austin M. Diamond-Jones, April 1, 2016. businesses of such domestic
Office of Associate Chief Counsel ■ Par. 3. Section 1.337(d)–7T is partnerships. The text of the temporary
(Corporate). However, other personnel amended by revising paragraphs (b)(1) regulations also serves as the text of the
from the Treasury Department and the through (3) and (g)(2)(iii) to read as proposed regulations set forth in the
IRS participated in their development. follows: notice of proposed rulemaking on Rules

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Document Created: 2018-02-01 15:19:05
Document Modified: 2018-02-01 15:19:05

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		Rules and Regulations
Action		Final regulations.
Dates		Effective Date: These regulations are effective January 18, 2017.
Contact		Austin M. Diamond-Jones, (202) 317- 5363 (not a toll-free number).
FR Citation		82 FR 5387
RIN Number		1535-BN06
CFR Associated		Income Taxes and Reporting and Recordkeeping Requirements

82 FR 5387 - Certain Transfers of Property to Regulated Investment Companies [RICs] and Real Estate Investment Trusts [REITs]

DEPARTMENT OF THE TREASURYInternal Revenue Service

Federal Register Volume 82, Issue 11 (January 18, 2017)

DEPARTMENT OF THE TREASURY
Internal Revenue Service