82_FR_8179 82 FR 8165 - Treatment of Certain Interests in Corporations as Stock or Indebtedness; Correction

82 FR 8165 - Treatment of Certain Interests in Corporations as Stock or Indebtedness; Correction

DEPARTMENT OF THE TREASURY
Internal Revenue Service

Federal Register Volume 82, Issue 14 (January 24, 2017)

Page Range8165-8169
FR Document2017-00498

This document contains corrections to the final and temporary regulations (T.D. 9790) that were published in the Federal Register on Friday, October 21, 2016 (81 FR 72858). The regulations relate to the determination of whether an interest in a corporation is treated as stock or indebtedness for all purposes of the Internal Revenue Code.

Federal Register, Volume 82 Issue 14 (Tuesday, January 24, 2017) 
[Federal Register Volume 82, Number 14 (Tuesday, January 24, 2017)]
[Rules and Regulations]
[Pages 8165-8169]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-00498]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9790]
RIN 1545-BN40


Treatment of Certain Interests in Corporations as Stock or 
Indebtedness; Correction

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendments.

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SUMMARY: This document contains corrections to the final and temporary 
regulations (T.D. 9790) that were published in the Federal Register on 
Friday, October 21, 2016 (81 FR 72858). The regulations relate to the 
determination of whether an interest in a corporation is treated as 
stock or indebtedness for all purposes of the Internal Revenue Code.

DATES: These corrections are effective on January 23, 2017, and 
applicable October 21, 2016.

FOR FURTHER INFORMATION CONTACT: Austin M. Diamond-Jones, (202) 317-
5363, or Joshua G. Rabon, (202) 317-6938 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background

    The final and temporary regulations that are the subject of this 
correction are under sections 385 and 752 of the Internal Revenue Code.

[[Page 8166]]

Need for Correction

    As published, the final and temporary regulations contain errors 
which may prove to be misleading and need to be clarified.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Correction of Publication

    Accordingly, 26 CFR part 1 is corrected by making the following 
correcting amendments:

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 1.385-1 is amended by revising the fifth sentence of 
paragraph (c)(4)(vii) Example 2 (i) to read as follows:


Sec.  1.385-1  General provisions.

* * * * *
    (c) * * *
    (4) * * *
    (vii) * * *

    Example 2.  * * *
    (i) * * * In addition to other assets representing 85% of the 
value of its total assets, S2 owns all of the stock of S3, which has 
elected to be treated as a taxable REIT subsidiary of S2 under 
section 856(l)(1). * * *
* * * * *

0
Par. 3. Section 1.385-2 is amended by:
0
1. Revising paragraph (a)(3)(ii)(C)(3).
0
2. Revising the third sentence of paragraph (a)(5)(i).
0
3. Revising the first sentence of paragraph (a)(5)(ii).
0
4. Revising the third sentence of paragraph (b)(1).
0
5. Revising the third sentence of paragraph (c)(2)(ii).
0
6. Revising the second sentence of paragraph (c)(2)(iii)(A).
0
7. Revising the third sentence of paragraph (c)(2)(iii)(E).
0
8. Revising the paragraph (c)(3)(i)(A) subject heading.
0
9. Revising the first sentence of paragraph (c)(3)(i)(A)(3)(i).
0
10. Revising the third sentence of paragraph (c)(4)(ii)(A).
0
11. Revising the second sentence of paragraph (c)(4)(ii)(B)(1).
0
12. Adding a subject heading to paragraph (c)(4)(ii)(B)(2)(i).
0
13. Revising the paragraph (c)(4)(ii)(E) subject heading.
0
14. Revising paragraph (c)(4)(ii)(E)(3).
0
15. Revising paragraph (d)(2)(i)(A).
0
16. Revising the second sentence of paragraph (e)(3)(ii).
0
17. Revising the paragraph (h)(4) Example introductory text.
0
18. Revising the second sentence of paragraph (h)(4)(ii)(A).
0
19. Revising the first sentence of paragraph (h)(4)(ii)(C).
    The addition and revisions read as follows:


Sec.  1.385-2  Treatment of certain interests between members of an 
expanded group.

    (a) * * *
    (3) * * *
    (ii) * * *
    (C) * * *
    (3) Overlapping assets and revenue. If there are multiple 
applicable financial statements that reflect the assets, portion of the 
assets, or revenue of the same expanded group member, any duplication 
(by stock, consolidation, or otherwise) of that expanded group member's 
assets or revenue may be disregarded for purposes of paragraph 
(a)(3)(ii) of this section such that the total assets or annual total 
revenue of that expanded group member is only reflected once.
* * * * *
    (5) * * *
    (i) * * * An issuer is also considered to have characterized an EGI 
as indebtedness if the issuer claims any federal income tax benefit 
with respect to an EGI resulting from characterizing the EGI as 
indebtedness for federal tax purposes, such as by claiming an interest 
deduction under section 163 with respect to interest paid or accrued on 
the EGI on a federal income tax return (or, if the issuer is a member 
of a consolidated group, the issuer or the common parent of the 
consolidated group claims a federal income tax benefit by claiming such 
an interest deduction), or if the issuer reports the EGI as 
indebtedness or amounts paid or accrued on the EGI as interest on an 
applicable financial statement. * * *
    (ii) * * * The consistency rule in paragraph (a)(5)(i) of this 
section and section 385(c)(1) does not apply with respect to an EGI to 
the extent that the EGI is treated as stock under this section or Sec.  
1.385-3, or it has been determined that the EGI is treated as stock 
under applicable federal tax principles. * * *
    (b) * * *
    (1) * * * If the documentation and information described in 
paragraph (c) of this section are not prepared and maintained with 
respect to an EGI in accordance with this section, and no exception 
listed in paragraph (b)(2) of this section applies, the EGI is treated 
as stock for all federal tax purposes. * * *
* * * * *
    (c) * * *
    (2) * * *
    (ii) * * * The rights of a creditor must include rights that 
superior to the rights of shareholders (other than holders of interests 
treated as stock solely by reason of Sec.  1.385-3 and holders of 
interests with creditor's rights under commercial law treated as stock 
under this section) to receive assets of the issuer in case of 
dissolution. * * *
    (iii) * * *
    (A) * * * Documentation with respect to an EGI that is nonrecourse 
under its terms must include information on any cash and property that 
secures the EGI, including--
* * * * *
    (E) * * * Documentation required under paragraph (c)(2) of this 
section may be prepared by employees of expanded group members, by 
agents of expanded group members, or by third parties.
    (3) * * *
    (i) * * *
    (A) Revolving credit, omnibus, umbrella, master, cash pool, and 
similar agreements--
    (3) * * *
    (i) * * * If an EGI is issued under an agreement described in 
paragraph (c)(3)(i)(A) of this section, written documentation must be 
prepared with respect to the analysis date and written documentation 
with a new analysis date must be prepared at least annually to satisfy 
the requirements in paragraph (c)(2)(iii) of this section for EGIs 
issued under such an agreement on or after the most recent analysis 
date. * * *
* * * * *
    (4) * * *
    (ii) * * *
    (A) * * * In the case of an applicable interest that becomes an EGI 
subsequent to issuance, including an intercompany obligation, as 
defined in Sec.  1.1502-13(g)(2)(ii), that ceases to be an intercompany 
obligation, the relevant date is the date on which the applicable 
interest becomes an EGI.
    (B) * * *
    (1) * * * In the case of an applicable interest that becomes an EGI 
subsequent to issuance, the relevant date is the date on which the 
applicable interest becomes an EGI and any relevant date after the date 
that the applicable interest becomes an EGI.
    (2) * * *
    (i) In general. * * *
* * * * *
    (E) Revolving credit, omnibus, umbrella, master, cash pool, and 
similar agreements--
* * * * *
    (3) Relevant dates for EGIs documented under an overall

[[Page 8167]]

arrangement. A relevant date of an EGI under paragraphs (c)(4)(ii)(A) 
through (C) of this section is also a relevant date for each EGI 
documented under an overall arrangement described in paragraph (c)(3) 
of this section.
* * * * *
    (d) * * *
    (2) * * *
    (i) * * *
    (A) Any interest that is issued or deemed issued in the legal form 
of a debt instrument (including a draw or separate amount borrowed 
under an overall arrangement described in paragraph (c)(3) of this 
section regardless of whether a separate legal document is issued in 
connection with the draw or separate amount borrowed), which therefore 
does not include, for example, a sale-repurchase agreement treated as 
indebtedness under federal tax principles; or
* * * * *
    (e) * * *
    (3) * * *
    (ii) * * * For purposes of determining whether an EGI originally 
treated as indebtedness ceases to be treated as indebtedness by reason 
of this section, the rules of this section apply before the rules of 
Sec.  1.1001-3. * * *
* * * * *
    (h) * * *
    (4) * * *
    Example.  Application of paragraphs (c)(2)(iii) and (c)(4) of 
this section to an EGI. * * *
    (ii) * * *
    (A) * * * Because FP is traded on an established financial market 
within the meaning of Sec.  1.1092(d)-1(b) and USS1 is a covered 
member, EGI A, EGI B, and EGI C are subject to the rules of this 
section.
* * * * *
    (C) The credit analysis was prepared with an analysis date of Date 
B of Year 1. * * *
* * * * *

0
Par. 4. Section 1.385-3 is amended by:
0
1. Revising paragraph (b)(3)(iii)(E)(2).
0
2. Revising the paragraph (b)(5) subject heading.
0
3. Revising the first sentence of paragraph (c)(3)(i)(C)(1).
0
4. Revising the paragraph (c)(3)(i)(C)(3) subject heading.
0
5. Revising paragraph (c)(3)(i)(C)(3)(i).
0
6. Adding subject headings to paragraphs (g)(3)(ii) introductory text, 
(g)(3)(iii) introductory text, and (g)(3)(iv) introductory text.
0
7. Revising paragraph (g)(3)(iv)(B)(1).
0
8. Adding a subject heading to paragraph (g)(3)(v).
0
10. Revising paragraphs (g)(24)(ii)(B) and (C)
    The additions and revisions read as follows:


Sec.  1.385-3  Transactions in which debt proceeds are distributed or 
that have a similar effect.

* * * * *
    (b) * * *
    (3) * * *
    (iii) * * *
    (E) * * *
    (2) Effect of certain modifications. Notwithstanding paragraph 
(b)(3)(iii)(E)(1) of this section, if a covered debt instrument is 
treated as exchanged for a modified covered debt instrument pursuant to 
Sec.  1.1001-3(b) and the modification, or one of the modifications, 
that results in the deemed exchange includes the substitution of an 
obligor on the covered debt instrument, the addition or deletion of a 
co-obligor on the covered debt instrument, or the material deferral of 
scheduled payments due under the covered debt instrument, then the 
modified covered debt instrument is treated as issued on the date of 
the deemed exchange for purposes of paragraph (b)(3)(iii)(A) of this 
section.
* * * * *
    (5) Coordination between general rule and funding rule. * * *
* * * * *
    (c) * * *
    (3) * * *
    (i) * * *
    (C) * * *
    (1) * * * The term expanded group earnings means, with respect to a 
covered member and an expanded group period of the covered member, the 
earnings and profits accumulated by the covered member during the 
expanded group period, computed as of the close of the taxable year of 
the covered member, without diminution by reason of any distributions 
or acquisitions by the covered member described in paragraphs (b)(2) 
and (b)(3)(i) of this section. * * *
* * * * *
    (3) Look-through rule for dividends--(i) In general. For purposes 
of paragraph (c)(3)(i)(C)(1) of this section, a dividend from a member 
of the same expanded group (distributing member) is not taken into 
account for purposes of calculating a covered member's expanded group 
earnings, except to the extent the dividend is attributable to earnings 
and profits accumulated by the distributing member in a taxable year 
ending after April 4, 2016, during its expanded group period (qualified 
earnings and profits). For purposes of the preceding sentence, a 
dividend received from a member (intermediate distributing member) is 
not taken into account for purposes of calculating the qualified 
earnings and profits of a distributing member (or another intermediate 
distributing member), except to the extent the dividend is attributable 
to qualified earnings and profits of the intermediate distributing 
member. A dividend from a distributing member or an intermediate 
distributing member is considered to be attributable to qualified 
earnings and profits to the extent thereof. If the distributing member 
or the intermediate distributing member is not a covered member, the 
expanded group period of the member is determined under the principles 
of paragraph (c)(3)(i)(E) of this section. If a controlled partnership 
receives a dividend from a distributing member and a portion of the 
dividend is allocated (including through one or more partnerships) to a 
covered member, then, for purposes of this paragraph (c)(3)(i)(C)(3), 
the covered member is treated as receiving the dividend from the 
distributing member.
* * * * *
    (g) * * *
    (3) * * *
    (ii) Qualified dealer debt instrument. * * *
    (iii) Excluded statutory or regulatory debt instrument. * * *
    (iv) Excepted regulated financial company. * * *
    (B) * * *
    (1) General rule. For purposes of paragraph (g)(3)(iv) of this 
section, except as otherwise provided in paragraph (g)(3)(iv)(B)(2) of 
this section, the term regulated financial group means any expanded 
group of which a covered member that is a regulated financial company 
within the meaning of paragraphs (g)(3)(iv)(A)(1) through (10) of this 
section would be the expanded group parent if no person owned, directly 
or indirectly (as defined in Sec.  1.385-1(c)(4)(iii)), the regulated 
financial company. A domestic eligible entity (within the meaning of 
Sec.  301.7701-5(a) of this chapter) treated as a partnership or 
disregarded as an entity separate from its owner is, for purposes of 
this paragraph (g)(3)(iv)(B), also treated as a covered member.
* * * * *
    (v) Regulated insurance company. * * *
    (24) * * *
    (ii) * * *
    (B) A distribution or acquisition by either the seller or a 
successor seller to or from either the acquirer, the seller, or a 
successor seller is not treated as described in paragraph (b)(3) of 
this section for purposes of applying

[[Page 8168]]

paragraph (b)(3) of this section to a covered debt instrument of the 
acquirer. For purposes of the preceding sentence, the term successor 
seller means a member of the expanded group that receives property 
(other than expanded group stock) in a distribution or acquisition from 
the seller or another successor seller and is controlled by the 
acquirer as determined under the principles of paragraph (c)(2)(i) of 
this section. A successor seller is treated as a successor to the 
acquirer to the extent of the value of the property received in a 
distribution or acquisition described in the preceding sentence and, 
for purposes of applying this paragraph (g)(24)(ii)(B).
    (C) To the extent that a covered debt instrument of the acquirer is 
treated as funding a distribution or acquisition by the seller or 
successor seller described in paragraphs (b)(3)(i)(A) through (C) of 
this section, or would be treated but for the exceptions described in 
paragraphs (c)(3)(i) and (ii) of this section, the value of the 
expanded group stock described in paragraph (g)(24)(ii)(A) of this 
section is reduced by an amount equal to the distribution or 
acquisition for purposes of any further application of paragraph 
(g)(24)(ii)(A) of this section with respect to the acquirer and seller.
* * * * *

0
Par. 5. Section 1.385-3T is amended by:
0
1. Revising the third sentence of paragraph (b)(3)(vii)(A)(1)(iii).
0
2. Revising the fifth sentence and adding a new sixth sentence to 
paragraph (h) Example 13(i).
0
3. Revising the third sentence of paragraph (h) Example 13(ii)(D).
0
4. Revising the third sentence of paragraph (h) Example 14(ii)(D).
0
5. Revising paragraph (h) Example 15(i).
0
6. Revising the fifth sentence of paragraph (h) Example 18(ii)(A).
0
7. Revising paragraph (l).
    The revisions read as follows:


Sec.  1.385-3T  Certain distributions of debt instruments and similar 
transactions (temporary).

* * * * *
    (b) * * *
    (3) * * *
    (vii) * * *
    (A) * * *
    (1) * * *
    (iii) * * * Additionally, the amount owed by any issuer shall be 
reduced by the amount of the issuer's deposits with a qualified cash 
pool header, but only to the extent of amounts borrowed from the same 
qualified cash pool header that satisfy the requirements of paragraph 
(b)(3)(vii)(A)(2) (if the covered debt instrument was issued in a prior 
taxable year) or (b)(3)(vii)(A)(1)(ii) of this section.
* * * * *
    (h) * * *
    Example 13.  * * *
    (i) * * * On Date A in Year 1, FP lends $200x to PRS in exchange 
for PRS Note with stated principal amount of $200x, which is payable 
at maturity. PRS Note also provides for annual payments of interest 
that are qualified stated interest. * * *
    (ii) * * *
    (D) * * * Similarly, FP is deemed to transfer a portion of PRS 
Note with a principal amount equal to $90x (the adjusted issue price 
of the specified portion with respect to USS2) to USS2 in exchange 
for deemed partner stock in USS2 with a fair market value of $90x. * 
* *
    Example 14.  * * *
    (ii) * * *
    (D) * * * Similarly, FP is deemed to transfer a portion of PRS 
Note with a principal amount equal to $90x (the adjusted issue price 
of the specified portion with respect to USS2) to USS2 in exchange 
for stock of USS2 with a fair market value of $90x. * * *
    Example 15.  * * *
    (i) Facts. The facts are the same as in Example 13 of this 
paragraph (h)(3), except that USS2 does not distribute $90x to FP 
until Date C in Year 2, which is less than 36 months after Date A in 
Year 1. On Date C in Year 2, DS's, USS2's, and USP's issuance 
percentages under paragraph (g)(16) of this section are unchanged at 
45%, 45%, and 10%, respectively.
* * * * *
    Example 18.  * * *
    (ii) * * *
    (A) * * * DS's distribution to USS1 is a disregarded 
distribution because it is a distribution between members of a 
consolidated group that is disregarded under the one-corporation 
rule described in Sec.  1.385-4T(b)(1). * * *
* * * * *
    (l) Expiration date. This section expires on October 13, 2019.

0
Par. 6. Section 1.385-4T is amended by:
0
1. Revising the first sentence of paragraph (b)(2).
0
2. Revising the first sentence of paragraph (b)(3)(i).
0
3. Revising paragraphs (b)(3)(ii) and (iii).
0
4. Revising paragraph (b)(4)(ii)(A)(1).
0
5. Revising paragraph (b)(5)(i).
0
6. Revising the first sentence of paragraph (b)(6).
0
7. Revising the first sentence of paragraph (c)(1)(i).
0
8. Revising the first sentence of paragraph (d)(3).
0
9. Revising the first sentence of paragraph (d)(4) introductory text.
0
10. Revising paragraphs (d)(4)(i) and (ii).
0
11. Revising paragraph (e)(3).
0
12. Revising paragraph (e)(5).
0
13. Revising the second sentence of paragraph (f)(3) Example 1(ii).
0
14. Revising the seventh sentence of paragraph (f)(3) Example 4(ii).
0
15. Revising the sixth sentence of paragraph (f)(3) Example 5(ii).
0
16. Revising paragraph (h).
    The revisions read as follows:


Sec.  1.385-4T  Treatment of consolidated groups.

* * * * *
    (b) * * *
    (2) * * * The one-corporation rule described in paragraph (b)(1) of 
this section does not apply in determining the members of an expanded 
group. * * *
    (3) * * *
    (i) * * * If a covered debt instrument treated as issued by a 
consolidated group under the one-corporation rule described in 
paragraph (b)(1) of this section is treated as stock under Sec. Sec.  
1.385-3 or 1.385-3T, the covered debt instrument is treated as stock in 
the member of the consolidated group that would be the issuer of such 
debt instrument without regard to this section. * * *
    (ii) Application of the covered debt instrument exclusions. For 
purposes of determining whether a debt instrument issued by a member of 
a consolidated group is a covered debt instrument, each test described 
in Sec.  1.385-3(g)(3) is applied on a separate member basis without 
regard to the one-corporation rule described in paragraph (b)(1) of 
this section.
    (iii) Qualified short-term debt instrument. The determination of 
whether a member of a consolidated group has issued a qualified short-
term debt instrument for purposes of Sec.  1.385-3(b)(3)(vii) is made 
on a separate member basis without regard to the one-corporation rule 
described in paragraph (b)(1) of this section.
    (4) * * *
    (ii) * * *
    (A) * * *
    (1) A qualified contribution to any member of a consolidated group 
that remains a member of the consolidated group immediately after the 
qualified contribution from a person other than a member of the same 
consolidated group is treated as made to the one corporation described 
in paragraph (b)(1) of this section;
* * * * *
    (5) * * *
    (i) First, determine the characterization of the transaction under 
federal tax law without regard to the one-corporation rule described in 
paragraph (b)(1) of this section.
* * * * *

[[Page 8169]]

    (6) * * * For purposes of this section and Sec. Sec.  1.385-3 and 
1.385-3T, and notwithstanding the one-corporation rule described in 
paragraph (b)(1) of this section, a partnership that is wholly owned by 
members of a consolidated group is treated as a partnership. * * *
* * * * *
    (c) * * *
    (1) * * *
    (i) * * * For purposes of this section and Sec. Sec.  1.385-3 and 
1.385-3T, when a debt instrument ceases to be a consolidated group debt 
instrument as a result of a transaction in which the member of the 
consolidated group that issued the instrument (the issuer) or the 
member of the consolidated group holding the instrument (the holder) 
ceases to be a member of the same consolidated group but both the 
issuer and the holder continue to be members of the same expanded 
group, the issuer is treated as issuing a new debt instrument to the 
holder in exchange for property immediately after the debt instrument 
ceases to be a consolidated group debt instrument. * * *
* * * * *
    (d) * * *
    (3) * * * If a departing member has issued a covered debt 
instrument (determined without regard to the one-corporation rule 
described in paragraph (b)(1) of this section) that is not a 
consolidated group debt instrument and that is not treated as stock 
immediately before the departing member ceases to be a consolidated 
group member, then the departing member (and not the consolidated 
group) is treated as issuing the covered debt instrument on the date 
and in the manner the covered debt instrument was issued. * * *
    (4) * * * This paragraph (d)(4) applies when a departing member 
ceases to be a consolidated group member in a transaction other than a 
distribution to which section 355 (or so much of section 356 as relates 
to section 355) applies, and the consolidated group has made a regarded 
distribution or acquisition. * * *
    (i) If the departing member made the regarded distribution or 
acquisition (determined without regard to the one-corporation rule 
described in paragraph (b)(1) of this section), the departing member 
(and not the consolidated group) is treated as having made the regarded 
distribution or acquisition.
    (ii) If the departing member did not make the regarded distribution 
or acquisition (determined without regard to the one-corporation rule 
described in paragraph (b)(1) of this section), then the consolidated 
group (and not the departing member) continues to be treated as having 
made the regarded distribution or acquisition.
    (e) * * *
    (3) Disregarded distribution or acquisition. The term disregarded 
distribution or acquisition means a distribution or acquisition 
described in Sec.  1.385-3(b)(2) or (b)(3)(i) between members of a 
consolidated group that is disregarded under the one-corporation rule 
described in paragraph (b)(1) of this section.
* * * * *
    (5) Regarded distribution or acquisition. The term regarded 
distribution or acquisition means a distribution or acquisition 
described in Sec.  1.385-3(b)(2) or (b)(3)(i) that is not disregarded 
under the one-corporation rule described in paragraph (b)(1) of this 
section.
    (f) * * *
    (3) * * *
    Example 1.  * * *
    (ii) * * * Pursuant to paragraph (b)(5)(i) of this section, the 
transaction is first analyzed without regard to the one-corporation 
rule described in paragraph (b)(1) of this section, and therefore 
UST is treated as issuing a covered debt instrument in exchange for 
expanded group stock. * * *
* * * * *
    Example 4.  * * *
    (ii) * * * Under paragraph (c)(1)(i) of this section, for 
purposes of Sec.  1.385-3, DS1 is treated as issuing a new debt 
instrument to USS1 in exchange for property immediately after DS1 
Note ceases to be a consolidated group debt instrument. * * *
    Example 5.  * * *
    (ii) * * * Under paragraph (c)(1)(i) of this section, for 
purposes of Sec.  1.385-3, DS1 is treated as issuing a new debt 
instrument to USS1 in exchange for property immediately after DS1 
Note ceases to be a consolidated group debt instrument. * * *
* * * * *
    (h) Expiration date. This section expires on October 13, 2019.

0
Par. 7. Section 1.752-2T is amended by revising paragraph (m)(2) to 
read as follows:


Sec.  1.752-2T  Partner's share of recourse liabilities (temporary).

* * * * *
    (m) * * *
    (2) Paragraphs (c)(3) and (l)(4) of this section expire on October 
13, 2019.

Martin V. Franks,
Chief, Publications and Regulations Branch, Legal Processing Division, 
Associate Chief Counsel, Procedure and Administration.
[FR Doc. 2017-00498 Filed 1-23-17; 8:45 am]
 BILLING CODE 4830-01-P

Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Rules and Regulations 8165 (ix) Withholding agent responsibility. intermediary, as defined in § 1.1441–1(c)(14). trade. CB and the clearing member A withholding agent is only responsible FC is a foreign corporation that has an representing the call option seller settle the for dividend equivalent amounts account with CB. FC instructs CB to purchase trade with FCO. Upon receiving the matched a call option that is a specified ELI (as trade, the option contracts are novated and determined (as provided in § 1.871– described in § 1.871–15(e)). CB effects the 15(j)(2)) during the period the FCO becomes the counterparty to CB and the trade for FC on the exchange. The exchange counterparty to the clearing member withholding agent is a withholding matches FC’s order with an order for a representing the call option seller. To the agent for the section 871(m) transaction. written call option with the same terms. The extent that there is a dividend equivalent * * * * * exchange then sends the matched trade to with respect to the call option, both FCO and (f) * * * (1) Except as otherwise CO, which clears the trade. CB and the clearing member representing the person CB are withholding agents as described in provided in this paragraph, paragraph paragraph (a)(1) of this section. who sold the call option settle the trade with (e)(7) of this section applies to payments CO. Upon receiving the matched trade, the Example 9. The facts are the same as made on or after September 18, 2015. option contracts are novated and CO becomes Example 8, except that CB is a qualified Paragraphs (e)(7)(ii)(D) and (e)(7)(iv) the counterparty to CB and the counterparty intermediary, as defined in § 1.1441–1(c)(15), through (viii) of this section apply to to the clearing member representing the that has assumed the primary obligation to payments made on or after January 19, person who sold the call option. To the withhold, deposit, and report amounts under 2017. extent that there is a dividend equivalent chapters 3 and 4 of Internal Revenue Code. with respect to the call option, both CO and CB provides a written statement to FCO ■ Par. 8. Section 1.1441–7 is amended CB are withholding agents as described in representing that it has assumed primary by: paragraph (a)(1) of this section. As a withholding responsibility for any dividend ■ 1. Revising Example 7 in paragraph withholding agent, CO and CB must each equivalent payment with respect to the call (a)(3). determine whether it is obligated to withhold option. FCO, therefore, is not required ■ 2. Adding Example 8 and 9 to under chapter 3 of the Internal Revenue Code withhold on a dividend equivalent payment paragraph (a)(3). and the regulations thereunder. to CB. ■ 3. Adding a sentence to the end of Example 8. FCO is a foreign clearing paragraph (a)(4). organization. FCO serves as a central (4) * * * Example 8 and Example 9 The additions read as follows: counterparty clearing and settlement service provider for derivatives exchanges in of paragraph (a)(3) of this section apply § 1.1441–7 General provisions relating to Country A, a foreign country. CB is a broker to payments made on or after January withholding agents. organized in Country A, and a clearing 19, 2017. (a) * * * member of FCO. CB is a nonqualified * * * * * (3) * * * intermediary, as defined in § 1.1441–1(c)(14). FC is a foreign corporation that has an § 1.1461–1 [Amended] Example 7. CO is a domestic clearing account with CB. FC instructs CB to purchase organization. CO serves as a central a call option that is a section 871(m) counterparty clearing and settlement service transaction. CB effects the trade for FC on the ■ Par. 9. For each section listed in the provider for derivatives exchanges in the exchange. The exchange matches FC’s order table, remove the language in the United States. CB is a broker organized in with an order for a written call option with ‘‘Remove’’ column and add in its place Country X, a foreign country, and a clearing the same terms. The exchange then sends the the language in the ‘‘Add’’ column as set member of CO. CB is a nonqualified matched trade to FCO, which clears the forth below: Section Remove Add § 1.1461–1(c)(2)(i) introductory text, fourth sen- a withholding agent withheld an amount ......... a withholding agent withheld (including under tence. § 1.1441–2(e)(7)) an amount. § 1.1461–1(c)(2)(i)(M) ......................................... references the payment of a dividend ............. references a dividend. § 1.1461–1(c)(2)(ii)(J) ......................................... or (xxiii); ........................................................... or (xxiii). This exception does not apply to withholding agents that are qualified deriva- tives dealers; John Dalrymple, DEPARTMENT OF THE TREASURY The regulations relate to the Deputy Commissioner for Services and determination of whether an interest in Enforcement. Internal Revenue Service a corporation is treated as stock or Approved: January 11, 2017. indebtedness for all purposes of the 26 CFR Part 1 Internal Revenue Code. Mark J. Mazur, Assistant Secretary of the Treasury (Tax [TD 9790] DATES: These corrections are effective Policy). on January 23, 2017, and applicable [FR Doc. 2017–01163 Filed 1–19–17; 4:15 pm] RIN 1545–BN40 October 21, 2016. BILLING CODE 4830–01–P Treatment of Certain Interests in FOR FURTHER INFORMATION CONTACT: Corporations as Stock or Austin M. Diamond-Jones, (202) 317– Indebtedness; Correction 5363, or Joshua G. Rabon, (202) 317– AGENCY: Internal Revenue Service (IRS), 6938 (not toll-free numbers). Treasury. SUPPLEMENTARY INFORMATION: sradovich on DSK3GMQ082PROD with RULES ACTION: Correcting amendments. Background SUMMARY: This document contains corrections to the final and temporary The final and temporary regulations regulations (T.D. 9790) that were that are the subject of this correction are published in the Federal Register on under sections 385 and 752 of the Friday, October 21, 2016 (81 FR 72858). Internal Revenue Code. VerDate Sep<11>2014 17:47 Jan 23, 2017 Jkt 241001 PO 00000 Frm 00035 Fmt 4700 Sfmt 4700 E:\FR\FM\24JAR1.SGM 24JAR1

8166 Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Rules and Regulations Need for Correction ■ 16. Revising the second sentence of (c) * * * paragraph (e)(3)(ii). (2) * * * As published, the final and temporary (ii) * * * The rights of a creditor must ■ 17. Revising the paragraph (h)(4) regulations contain errors which may include rights that superior to the rights Example introductory text. prove to be misleading and need to be of shareholders (other than holders of ■ 18. Revising the second sentence of clarified. interests treated as stock solely by paragraph (h)(4)(ii)(A). List of Subjects in 26 CFR Part 1 ■ 19. Revising the first sentence of reason of § 1.385–3 and holders of paragraph (h)(4)(ii)(C). interests with creditor’s rights under Income taxes, Reporting and The addition and revisions read as recordkeeping requirements. commercial law treated as stock under follows: this section) to receive assets of the Correction of Publication issuer in case of dissolution. * * * § 1.385–2 Treatment of certain interests Accordingly, 26 CFR part 1 is (iii) * * * between members of an expanded group. (A) * * * Documentation with corrected by making the following (a) * * * respect to an EGI that is nonrecourse correcting amendments: (3) * * * under its terms must include (ii) * * * information on any cash and property PART 1—INCOME TAXES (C) * * * (3) Overlapping assets and revenue. If that secures the EGI, including— ■ Paragraph 1. The authority citation there are multiple applicable financial * * * * * for part 1 continues to read in part as statements that reflect the assets, (E) * * * Documentation required follows: portion of the assets, or revenue of the under paragraph (c)(2) of this section Authority: 26 U.S.C. 7805 * * * same expanded group member, any may be prepared by employees of duplication (by stock, consolidation, or expanded group members, by agents of ■ Par. 2. Section 1.385–1 is amended by expanded group members, or by third revising the fifth sentence of paragraph otherwise) of that expanded group member’s assets or revenue may be parties. (c)(4)(vii) Example 2 (i) to read as (3) * * * follows: disregarded for purposes of paragraph (i) * * * (a)(3)(ii) of this section such that the (A) Revolving credit, omnibus, § 1.385–1 General provisions. total assets or annual total revenue of umbrella, master, cash pool, and similar * * * * * that expanded group member is only agreements— (c) * * * reflected once. (3) * * * (4) * * * * * * * * (i) * * * If an EGI is issued under an (vii) * * * (5) * * * agreement described in paragraph Example 2. * * * (i) * * * An issuer is also considered (c)(3)(i)(A) of this section, written (i) * * * In addition to other assets to have characterized an EGI as documentation must be prepared with representing 85% of the value of its total indebtedness if the issuer claims any respect to the analysis date and written assets, S2 owns all of the stock of S3, which federal income tax benefit with respect documentation with a new analysis date has elected to be treated as a taxable REIT to an EGI resulting from characterizing must be prepared at least annually to subsidiary of S2 under section 856(l)(1). the EGI as indebtedness for federal tax satisfy the requirements in paragraph * * * purposes, such as by claiming an (c)(2)(iii) of this section for EGIs issued * * * * * interest deduction under section 163 under such an agreement on or after the ■ Par. 3. Section 1.385–2 is amended with respect to interest paid or accrued most recent analysis date. * * * by: on the EGI on a federal income tax * * * * * ■ 1. Revising paragraph (a)(3)(ii)(C)(3). return (or, if the issuer is a member of (4) * * * ■ 2. Revising the third sentence of a consolidated group, the issuer or the (ii) * * * paragraph (a)(5)(i). common parent of the consolidated (A) * * * In the case of an applicable ■ 3. Revising the first sentence of group claims a federal income tax interest that becomes an EGI subsequent paragraph (a)(5)(ii). benefit by claiming such an interest to issuance, including an intercompany ■ 4. Revising the third sentence of deduction), or if the issuer reports the obligation, as defined in § 1.1502– paragraph (b)(1). EGI as indebtedness or amounts paid or 13(g)(2)(ii), that ceases to be an ■ 5. Revising the third sentence of accrued on the EGI as interest on an intercompany obligation, the relevant paragraph (c)(2)(ii). applicable financial statement. * * * date is the date on which the applicable ■ 6. Revising the second sentence of (ii) * * * The consistency rule in interest becomes an EGI. paragraph (c)(2)(iii)(A). paragraph (a)(5)(i) of this section and (B) * * * ■ 7. Revising the third sentence of section 385(c)(1) does not apply with (1) * * * In the case of an applicable paragraph (c)(2)(iii)(E). respect to an EGI to the extent that the interest that becomes an EGI subsequent ■ 8. Revising the paragraph (c)(3)(i)(A) EGI is treated as stock under this section to issuance, the relevant date is the date subject heading. or § 1.385–3, or it has been determined on which the applicable interest ■ 9. Revising the first sentence of that the EGI is treated as stock under becomes an EGI and any relevant date paragraph (c)(3)(i)(A)(3)(i). applicable federal tax principles. * * * after the date that the applicable interest ■ 10. Revising the third sentence of (b) * * * becomes an EGI. paragraph (c)(4)(ii)(A). (1) * * * If the documentation and (2) * * * ■ 11. Revising the second sentence of information described in paragraph (c) (i) In general. * * * sradovich on DSK3GMQ082PROD with RULES paragraph (c)(4)(ii)(B)(1). of this section are not prepared and * * * * * ■ 12. Adding a subject heading to maintained with respect to an EGI in (E) Revolving credit, omnibus, paragraph (c)(4)(ii)(B)(2)(i). accordance with this section, and no umbrella, master, cash pool, and similar ■ 13. Revising the paragraph (c)(4)(ii)(E) exception listed in paragraph (b)(2) of agreements— subject heading. this section applies, the EGI is treated as * * * * * ■ 14. Revising paragraph (c)(4)(ii)(E)(3). stock for all federal tax purposes. * * * (3) Relevant dates for EGIs ■ 15. Revising paragraph (d)(2)(i)(A). * * * * * documented under an overall VerDate Sep<11>2014 17:47 Jan 23, 2017 Jkt 241001 PO 00000 Frm 00036 Fmt 4700 Sfmt 4700 E:\FR\FM\24JAR1.SGM 24JAR1

Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Rules and Regulations 8167 arrangement. A relevant date of an EGI The additions and revisions read as member) is not taken into account for under paragraphs (c)(4)(ii)(A) through follows: purposes of calculating the qualified (C) of this section is also a relevant date earnings and profits of a distributing for each EGI documented under an § 1.385–3 Transactions in which debt member (or another intermediate proceeds are distributed or that have a overall arrangement described in similar effect. distributing member), except to the paragraph (c)(3) of this section. extent the dividend is attributable to * * * * * qualified earnings and profits of the * * * * * (b) * * * (d) * * * intermediate distributing member. A (2) * * * (3) * * * dividend from a distributing member or (i) * * * (iii) * * * an intermediate distributing member is (A) Any interest that is issued or (E) * * * considered to be attributable to qualified deemed issued in the legal form of a (2) Effect of certain modifications. earnings and profits to the extent debt instrument (including a draw or Notwithstanding paragraph thereof. If the distributing member or separate amount borrowed under an (b)(3)(iii)(E)(1) of this section, if a the intermediate distributing member is overall arrangement described in covered debt instrument is treated as not a covered member, the expanded paragraph (c)(3) of this section exchanged for a modified covered debt group period of the member is regardless of whether a separate legal instrument pursuant to § 1.1001–3(b) determined under the principles of document is issued in connection with and the modification, or one of the paragraph (c)(3)(i)(E) of this section. If a the draw or separate amount borrowed), modifications, that results in the controlled partnership receives a which therefore does not include, for deemed exchange includes the dividend from a distributing member example, a sale-repurchase agreement substitution of an obligor on the covered and a portion of the dividend is treated as indebtedness under federal debt instrument, the addition or allocated (including through one or tax principles; or deletion of a co-obligor on the covered more partnerships) to a covered debt instrument, or the material deferral member, then, for purposes of this * * * * * (e) * * * of scheduled payments due under the paragraph (c)(3)(i)(C)(3), the covered (3) * * * covered debt instrument, then the member is treated as receiving the (ii) * * * For purposes of modified covered debt instrument is dividend from the distributing member. determining whether an EGI originally treated as issued on the date of the deemed exchange for purposes of * * * * * treated as indebtedness ceases to be (g) * * * treated as indebtedness by reason of this paragraph (b)(3)(iii)(A) of this section. (3) * * * section, the rules of this section apply * * * * * (ii) Qualified dealer debt instrument. before the rules of § 1.1001–3. * * * (5) Coordination between general rule * * * * * * * * and funding rule. * * * (iii) Excluded statutory or regulatory (h) * * * * * * * * debt instrument. * * * (4) * * * (c) * * * (iv) Excepted regulated financial Example. Application of paragraphs (3) * * * company. * * * (c)(2)(iii) and (c)(4) of this section to an EGI. (i) * * * (B) * * * * * * (C) * * * (1) General rule. For purposes of (ii) * * * (A) * * * Because FP is traded on an (1) * * * The term expanded group paragraph (g)(3)(iv) of this section, established financial market within the earnings means, with respect to a except as otherwise provided in meaning of § 1.1092(d)–1(b) and USS1 is covered member and an expanded paragraph (g)(3)(iv)(B)(2) of this section, a covered member, EGI A, EGI B, and group period of the covered member, the term regulated financial group EGI C are subject to the rules of this the earnings and profits accumulated by means any expanded group of which a section. the covered member during the covered member that is a regulated expanded group period, computed as of financial company within the meaning * * * * * the close of the taxable year of the of paragraphs (g)(3)(iv)(A)(1) through (C) The credit analysis was prepared covered member, without diminution by (10) of this section would be the with an analysis date of Date B of Year reason of any distributions or expanded group parent if no person 1. * * * acquisitions by the covered member owned, directly or indirectly (as defined * * * * * described in paragraphs (b)(2) and in § 1.385–1(c)(4)(iii)), the regulated ■ Par. 4. Section 1.385–3 is amended (b)(3)(i) of this section. * * * financial company. A domestic eligible by: * * * * * entity (within the meaning of ■ 1. Revising paragraph (b)(3)(iii)(E)(2). § 301.7701–5(a) of this chapter) treated (3) Look-through rule for dividends— ■ 2. Revising the paragraph (b)(5) as a partnership or disregarded as an (i) In general. For purposes of paragraph subject heading. entity separate from its owner is, for ■ 3. Revising the first sentence of (c)(3)(i)(C)(1) of this section, a dividend from a member of the same expanded purposes of this paragraph (g)(3)(iv)(B), paragraph (c)(3)(i)(C)(1). also treated as a covered member. ■ 4. Revising the paragraph group (distributing member) is not taken (c)(3)(i)(C)(3) subject heading. into account for purposes of calculating * * * * * ■ 5. Revising paragraph (c)(3)(i)(C)(3)(i). a covered member’s expanded group (v) Regulated insurance company. ■ 6. Adding subject headings to earnings, except to the extent the * * * paragraphs (g)(3)(ii) introductory text, dividend is attributable to earnings and (24) * * * sradovich on DSK3GMQ082PROD with RULES (g)(3)(iii) introductory text, and (g)(3)(iv) profits accumulated by the distributing (ii) * * * introductory text. member in a taxable year ending after (B) A distribution or acquisition by ■ 7. Revising paragraph (g)(3)(iv)(B)(1). April 4, 2016, during its expanded either the seller or a successor seller to ■ 8. Adding a subject heading to group period (qualified earnings and or from either the acquirer, the seller, or paragraph (g)(3)(v). profits). For purposes of the preceding a successor seller is not treated as ■ 10. Revising paragraphs (g)(24)(ii)(B) sentence, a dividend received from a described in paragraph (b)(3) of this and (C) member (intermediate distributing section for purposes of applying VerDate Sep<11>2014 17:47 Jan 23, 2017 Jkt 241001 PO 00000 Frm 00037 Fmt 4700 Sfmt 4700 E:\FR\FM\24JAR1.SGM 24JAR1

8168 Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Rules and Regulations paragraph (b)(3) of this section to a instrument was issued in a prior taxable ■ 12. Revising paragraph (e)(5). covered debt instrument of the acquirer. year) or (b)(3)(vii)(A)(1)(ii) of this ■ 13. Revising the second sentence of For purposes of the preceding sentence, section. paragraph (f)(3) Example 1(ii). the term successor seller means a ■ 14. Revising the seventh sentence of * * * * * member of the expanded group that (h) * * * paragraph (f)(3) Example 4(ii). receives property (other than expanded Example 13. * * * ■ 15. Revising the sixth sentence of group stock) in a distribution or (i) * * * On Date A in Year 1, FP lends paragraph (f)(3) Example 5(ii). acquisition from the seller or another $200x to PRS in exchange for PRS Note with ■ 16. Revising paragraph (h). successor seller and is controlled by the stated principal amount of $200x, which is The revisions read as follows: acquirer as determined under the payable at maturity. PRS Note also provides § 1.385–4T Treatment of consolidated for annual payments of interest that are principles of paragraph (c)(2)(i) of this groups. qualified stated interest. * * * section. A successor seller is treated as (ii) * * * * * * * * a successor to the acquirer to the extent (D) * * * Similarly, FP is deemed to (b) * * * of the value of the property received in transfer a portion of PRS Note with a (2) * * * The one-corporation rule a distribution or acquisition described principal amount equal to $90x (the adjusted described in paragraph (b)(1) of this in the preceding sentence and, for issue price of the specified portion with section does not apply in determining purposes of applying this paragraph respect to USS2) to USS2 in exchange for the members of an expanded group. (g)(24)(ii)(B). deemed partner stock in USS2 with a fair * * * (C) To the extent that a covered debt market value of $90x. * * * (3) * * * instrument of the acquirer is treated as Example 14. * * * (i) * * * If a covered debt instrument (ii) * * * treated as issued by a consolidated funding a distribution or acquisition by (D) * * * Similarly, FP is deemed to the seller or successor seller described transfer a portion of PRS Note with a group under the one-corporation rule in paragraphs (b)(3)(i)(A) through (C) of principal amount equal to $90x (the adjusted described in paragraph (b)(1) of this this section, or would be treated but for issue price of the specified portion with section is treated as stock under the exceptions described in paragraphs respect to USS2) to USS2 in exchange for §§ 1.385–3 or 1.385–3T, the covered (c)(3)(i) and (ii) of this section, the value stock of USS2 with a fair market value of debt instrument is treated as stock in the of the expanded group stock described $90x. * * * member of the consolidated group that in paragraph (g)(24)(ii)(A) of this section Example 15. * * * would be the issuer of such debt is reduced by an amount equal to the (i) Facts. The facts are the same as in instrument without regard to this Example 13 of this paragraph (h)(3), except section. * * * distribution or acquisition for purposes that USS2 does not distribute $90x to FP of any further application of paragraph (ii) Application of the covered debt until Date C in Year 2, which is less than 36 instrument exclusions. For purposes of (g)(24)(ii)(A) of this section with respect months after Date A in Year 1. On Date C in to the acquirer and seller. Year 2, DS’s, USS2’s, and USP’s issuance determining whether a debt instrument percentages under paragraph (g)(16) of this issued by a member of a consolidated * * * * * section are unchanged at 45%, 45%, and group is a covered debt instrument, each ■ Par. 5. Section 1.385–3T is amended test described in § 1.385–3(g)(3) is 10%, respectively. by: applied on a separate member basis ■ 1. Revising the third sentence of * * * * * Example 18. * * * without regard to the one-corporation paragraph (b)(3)(vii)(A)(1)(iii). rule described in paragraph (b)(1) of this (ii) * * * ■ 2. Revising the fifth sentence and (A) * * * DS’s distribution to USS1 is a section. adding a new sixth sentence to disregarded distribution because it is a (iii) Qualified short-term debt paragraph (h) Example 13(i). distribution between members of a instrument. The determination of ■ 3. Revising the third sentence of consolidated group that is disregarded under whether a member of a consolidated paragraph (h) Example 13(ii)(D). the one-corporation rule described in group has issued a qualified short-term ■ 4. Revising the third sentence of § 1.385–4T(b)(1). * * * debt instrument for purposes of § 1.385– paragraph (h) Example 14(ii)(D). * * * * * 3(b)(3)(vii) is made on a separate ■ 5. Revising paragraph (h) Example (l) Expiration date. This section member basis without regard to the one- 15(i). expires on October 13, 2019. corporation rule described in paragraph ■ 6. Revising the fifth sentence of ■ Par. 6. Section 1.385–4T is amended (b)(1) of this section. paragraph (h) Example 18(ii)(A). (4) * * * ■ 7. Revising paragraph (l). by: ■ 1. Revising the first sentence of (ii) * * * The revisions read as follows: (A) * * * paragraph (b)(2). § 1.385–3T Certain distributions of debt ■ 2. Revising the first sentence of (1) A qualified contribution to any instruments and similar transactions paragraph (b)(3)(i). member of a consolidated group that (temporary). ■ 3. Revising paragraphs (b)(3)(ii) and remains a member of the consolidated * * * * * (iii). group immediately after the qualified (b) * * * ■ 4. Revising paragraph (b)(4)(ii)(A)(1). contribution from a person other than a (3) * * * ■ 5. Revising paragraph (b)(5)(i). member of the same consolidated group (vii) * * * ■ 6. Revising the first sentence of is treated as made to the one corporation (A) * * * paragraph (b)(6). described in paragraph (b)(1) of this (1) * * * ■ 7. Revising the first sentence of section; (iii) * * * Additionally, the amount paragraph (c)(1)(i). * * * * * sradovich on DSK3GMQ082PROD with RULES owed by any issuer shall be reduced by ■ 8. Revising the first sentence of (5) * * * the amount of the issuer’s deposits with paragraph (d)(3). (i) First, determine the a qualified cash pool header, but only to ■ 9. Revising the first sentence of characterization of the transaction under the extent of amounts borrowed from paragraph (d)(4) introductory text. federal tax law without regard to the the same qualified cash pool header that ■ 10. Revising paragraphs (d)(4)(i) and one-corporation rule described in satisfy the requirements of paragraph (ii). paragraph (b)(1) of this section. (b)(3)(vii)(A)(2) (if the covered debt ■ 11. Revising paragraph (e)(3). * * * * * VerDate Sep<11>2014 17:47 Jan 23, 2017 Jkt 241001 PO 00000 Frm 00038 Fmt 4700 Sfmt 4700 E:\FR\FM\24JAR1.SGM 24JAR1

Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Rules and Regulations 8169 (6) * * * For purposes of this section treated as having made the regarded DEPARTMENT OF THE TREASURY and §§ 1.385–3 and 1.385–3T, and distribution or acquisition. notwithstanding the one-corporation (e) * * * Internal Revenue Service rule described in paragraph (b)(1) of this section, a partnership that is wholly (3) Disregarded distribution or 26 CFR Part 1 owned by members of a consolidated acquisition. The term disregarded distribution or acquisition means a [TD 9790] group is treated as a partnership. * * * distribution or acquisition described in RIN 1545–BN40 * * * * * § 1.385–3(b)(2) or (b)(3)(i) between (c) * * * Treatment of Certain Interests in members of a consolidated group that is (1) * * * Corporations as Stock or disregarded under the one-corporation (i) * * * For purposes of this section rule described in paragraph (b)(1) of this Indebtedness; Correction. and §§ 1.385–3 and 1.385–3T, when a section. debt instrument ceases to be a AGENCY: Internal Revenue Service (IRS), consolidated group debt instrument as a * * * * * Treasury. result of a transaction in which the (5) Regarded distribution or ACTION: Final and temporary member of the consolidated group that acquisition. The term regarded regulations; correction. issued the instrument (the issuer) or the distribution or acquisition means a member of the consolidated group distribution or acquisition described in SUMMARY: This document contains holding the instrument (the holder) § 1.385–3(b)(2) or (b)(3)(i) that is not corrections to the final and temporary ceases to be a member of the same disregarded under the one-corporation regulations (T.D. 9790) that were consolidated group but both the issuer rule described in paragraph (b)(1) of this published in the Federal Register on and the holder continue to be members section. Friday, October 21, 2016 (81 FR 72858). of the same expanded group, the issuer The regulations relate to the (f) * * * is treated as issuing a new debt determination of whether an interest in instrument to the holder in exchange for (3) * * * a corporation is treated as stock or property immediately after the debt Example 1. * * * indebtedness for all purposes of the instrument ceases to be a consolidated (ii) * * * Pursuant to paragraph (b)(5)(i) of Internal Revenue Code. this section, the transaction is first analyzed group debt instrument. * * * DATES: These corrections are effective without regard to the one-corporation rule * * * * * described in paragraph (b)(1) of this section, on January 23, 2017, and applicable (d) * * * and therefore UST is treated as issuing a October 21, 2016. (3) * * * If a departing member has covered debt instrument in exchange for FOR FURTHER INFORMATION CONTACT: issued a covered debt instrument expanded group stock. * * * Austin M. Diamond-Jones, (202) 317– (determined without regard to the one- * * * * * 5363, or Joshua G. Rabon, (202) 317– corporation rule described in paragraph Example 4. * * * 6938 (not toll-free numbers). (b)(1) of this section) that is not a (ii) * * * Under paragraph (c)(1)(i) of this SUPPLEMENTARY INFORMATION: consolidated group debt instrument and section, for purposes of § 1.385–3, DS1 is that is not treated as stock immediately treated as issuing a new debt instrument to Background before the departing member ceases to USS1 in exchange for property immediately The final and temporary regulations be a consolidated group member, then after DS1 Note ceases to be a consolidated that are the subject of this correction are the departing member (and not the group debt instrument. * * * under sections 385 and 752 of the consolidated group) is treated as issuing Example 5. * * * Internal Revenue Code. the covered debt instrument on the date (ii) * * * Under paragraph (c)(1)(i) of this and in the manner the covered debt section, for purposes of § 1.385–3, DS1 is Need for Correction instrument was issued. * * * treated as issuing a new debt instrument to As published, the final regulations (4) * * * This paragraph (d)(4) USS1 in exchange for property immediately contain errors which may prove to be applies when a departing member after DS1 Note ceases to be a consolidated misleading and need to be clarified. ceases to be a consolidated group group debt instrument. * * * member in a transaction other than a * * * * * Correction of Publication distribution to which section 355 (or so (h) Expiration date. This section Accordingly, the final and temporary much of section 356 as relates to section expires on October 13, 2019. regulations (TD 9790) that are the 355) applies, and the consolidated subject of FR Doc. 2016–25105 are group has made a regarded distribution ■ Par. 7. Section 1.752–2T is amended corrected as follows: or acquisition. * * * by revising paragraph (m)(2) to read as 1. On page 72877, in the preamble, (i) If the departing member made the follows: second column, the fourth sentence of regarded distribution or acquisition the second full paragraph, ‘‘The § 1.752–2T Partner’s share of recourse (determined without regard to the one- liabilities (temporary). Treasury Department and the IRS have corporation rule described in paragraph considered this comment and (b)(1) of this section), the departing * * * * * determined that it would be appropriate member (and not the consolidated (m) * * * to disregard subordination if the group) is treated as having made the (2) Paragraphs (c)(3) and (l)(4) of this recharacterization occurred as a result of regarded distribution or acquisition. section expire on October 13, 2019. § 1.385–3 and the final regulations sradovich on DSK3GMQ082PROD with RULES (ii) If the departing member did not reflect that decision’’ is corrected to make the regarded distribution or Martin V. Franks, read ‘‘The Treasury Department and the acquisition (determined without regard Chief, Publications and Regulations Branch, IRS have considered this comment and to the one-corporation rule described in Legal Processing Division, Associate Chief determined that it would be appropriate paragraph (b)(1) of this section), then Counsel, Procedure and Administration. to disregard subordination if the the consolidated group (and not the [FR Doc. 2017–00498 Filed 1–23–17; 8:45 am] recharacterization occurred as a result of departing member) continues to be BILLING CODE 4830–01–P § 1.385–3 or if a recharacterized EGI VerDate Sep<11>2014 17:47 Jan 23, 2017 Jkt 241001 PO 00000 Frm 00039 Fmt 4700 Sfmt 4700 E:\FR\FM\24JAR1.SGM 24JAR1


Document Created: 2018-02-01 15:12:06
Document Modified: 2018-02-01 15:12:06
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionRules and Regulations
ActionCorrecting amendments.
DatesThese corrections are effective on January 23, 2017, and applicable October 21, 2016.
ContactAustin M. Diamond-Jones, (202) 317- 5363, or Joshua G. Rabon, (202) 317-6938 (not toll-free numbers).
FR Citation82 FR 8165 
RIN Number1545-BN40
CFR AssociatedIncome Taxes and Reporting and Recordkeeping Requirements
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