82 FR 8169 - 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)
Internal Revenue Service
Federal Register Volume 82, Issue 14 (January 24, 2017)
| Page Range | 8169-8170 | |
| FR Document | 2017-00497 |
[Federal Register Volume 82, Number 14 (Tuesday, January 24, 2017)] [Rules and Regulations] [Pages 8169-8170] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-00497] ----------------------------------------------------------------------- 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: Final and temporary regulations; correction. ----------------------------------------------------------------------- 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. Need for Correction As published, the final regulations contain errors which may prove to be misleading and need to be clarified. Correction of Publication Accordingly, the final and temporary regulations (TD 9790) that are the subject of FR Doc. 2016-25105 are corrected as follows: 1. On page 72877, in the preamble, second column, the fourth sentence of the second full paragraph, ``The Treasury Department and the IRS have considered this comment and determined that it would be appropriate to disregard subordination if the recharacterization occurred as a result of Sec. 1.385-3 and the final regulations reflect that decision'' is corrected to read ``The Treasury Department and the IRS have considered this comment and determined that it would be appropriate to disregard subordination if the recharacterization occurred as a result of Sec. 1.385-3 or if a recharacterized EGI [[Page 8170]] provides creditor's rights under commercial law and the final regulations reflect that decision''. 2. On page 72906, second column, the last paragraph, ``The Treasury Department and the IRS have determined that the proposed regulations already properly provided for this result. As a result of an issuance described in the subsidiary stock issuance exception, the issuer (S2) becomes a successor to the transferor (S1) to the extent of the value of the expanded group stock acquired from the issuer, but only with respect to a debt instrument of the issuer issued during the per se period determined with respect to the issuance. If the issuer (S2) engages in another transaction described in the subsidiary stock issuance exception as a transferor, the acquisition of the stock of the expanded group member (the second issuer) would also not constitute an acquisition of expanded group stock by reason of the exception. Therefore, under a second application of the subsidiary stock issuance exception, the acquisition of the stock of S3 by the issuer (S2), a successor to the transferor (S1), is not treated as described in the second prong of the funding rule and thus cannot be treated as funded by a covered debt instrument issued by the transferor (S1). After the second issuance, the second issuer (S3) is a successor to both the first transferor (S1) and the first issuer (S2), which remains a successor to the first transferor (S1). The final and temporary regulations change the terminology, but do not change the result of the proposed regulations in this regard.'' is corrected to read, ``The Treasury Department and the IRS have determined that the proposed regulations already properly provided for this result in the situation where S2 controls S3 within the meaning of Sec. 1.385-3(c)(2)(i)(B). However, the final regulations further clarify the application of the subsidiary stock acquisition exception in other tiered transfer situations, for instance where S2 subsequently engages in a transaction with an expanded group member controlled by S1, but not controlled by S2. See Sec. 1.385-3(g)(24)(ii)(B).''. 3. On page 72916, second column, the second sentence of the first full paragraph from the bottom, ``The comments cited leases treated as loans under section 467; receivables and payables resulting from correlative adjustments under section 482; production payments under section 636; coupon stripping transactions under section 1286; and debt (or instruments treated as debt) described in section 856(m)(2), 860G(a)(1), or 1361(c)(5)'' is corrected to read ``The comments cited leases treated as loans under section 467; receivables and payables resulting from conforming adjustments under section 482; production payments under section 636; coupon stripping transactions under section 1286; and debt (or instruments treated as debt) described in section 856(m)(2), 860G(a)(1), or 1361(c)(5)''. 4. On page 72916, third column, the first complete sentence of the incomplete paragraph at the top, ``The final and temporary regulations also provide an exception for debt instruments deemed to arise as a result of transfer pricing adjustments under section 482'' is corrected to read ``The final and temporary regulations also provide an exception for debt instruments that arise due to conforming adjustments under Sec. 1.482-1(g)(3)''. Martin V. Franks, Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel, Procedure and Administration. [FR Doc. 2017-00497 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 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
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![8170 Federal Register / Vol. 82, No. 14 / Tuesday, January 24, 2017 / Rules and Regulations
provides creditor’s rights under corrected to read ‘‘The comments cited available for download at http://
commercial law and the final leases treated as loans under section transition.fcc.gov/Daily_Releases/
regulations reflect that decision’’. 467; receivables and payables resulting Daily_Business/2016/db1230/DA–16–
2. On page 72906, second column, the from conforming adjustments under 1453A1.pdf. The complete text of this
last paragraph, ‘‘The Treasury section 482; production payments under document is also available for
Department and the IRS have section 636; coupon stripping inspection and copying during normal
determined that the proposed transactions under section 1286; and business hours in the FCC Reference
regulations already properly provided debt (or instruments treated as debt) Information Center, Portals II, 445 12th
for this result. As a result of an issuance described in section 856(m)(2), Street SW., Room CY–A257,
described in the subsidiary stock 860G(a)(1), or 1361(c)(5)’’. Washington, DC 20554.
issuance exception, the issuer (S2) 4. On page 72916, third column, the
becomes a successor to the transferor first complete sentence of the On November 2, 2015, President
(S1) to the extent of the value of the incomplete paragraph at the top, ‘‘The Obama signed into law the Bipartisan
expanded group stock acquired from the final and temporary regulations also Budget Act of 2015, which included, as
issuer, but only with respect to a debt provide an exception for debt Section 701 thereto, the 2015 Inflation
instrument of the issuer issued during instruments deemed to arise as a result Adjustment Act, which amended the
the per se period determined with of transfer pricing adjustments under Federal Civil Penalties Inflation
respect to the issuance. If the issuer (S2) section 482’’ is corrected to read ‘‘The Adjustment Act of 1990 (Pub. L. 101–
engages in another transaction described final and temporary regulations also 410), to improve the effectiveness of
in the subsidiary stock issuance provide an exception for debt civil monetary penalties and maintain
exception as a transferor, the acquisition instruments that arise due to their deterrent effect. Under the act,
of the stock of the expanded group conforming adjustments under § 1.482– agencies are required to make annual
member (the second issuer) would also 1(g)(3)’’. inflationary adjustments by January 15
not constitute an acquisition of
Martin V. Franks, each year, beginning in 2017. The
expanded group stock by reason of the
Chief, Publications and Regulations Branch, adjustments are calculated pursuant to
exception. Therefore, under a second
application of the subsidiary stock Legal Processing Division, Associate Chief Office of Management and Budget
issuance exception, the acquisition of Counsel, Procedure and Administration. (OMB) guidance. OMB issued guidance
the stock of S3 by the issuer (S2), a [FR Doc. 2017–00497 Filed 1–23–17; 8:45 am] on December 16, 2016, and this Order
successor to the transferor (S1), is not BILLING CODE 4830–01–P follows that guidance. We therefore
treated as described in the second prong update the civil monetary penalties set
of the funding rule and thus cannot be forth in the Commission’s rules, to
treated as funded by a covered debt FEDERAL COMMUNICATIONS reflect an annual inflation adjustment
instrument issued by the transferor (S1). COMMISSION that derives from OMB’s cost-of-living
After the second issuance, the second multiplier of 1.01636. The cost-of-living
issuer (S3) is a successor to both the first 47 CFR Part 1 adjustment is ‘‘the percentage (if any)’’
transferor (S1) and the first issuer (S2), [DA 16–1453] by which the ‘‘(A) Consumer Price
which remains a successor to the first Index for the month of October
transferor (S1). The final and temporary Annual Adjustment of Civil Monetary preceding the date of the adjustment,
regulations change the terminology, but Penalties To Reflect Inflation exceeds (B) the Consumer Price Index
do not change the result of the proposed for the month of October 1 year before
regulations in this regard.’’ is corrected AGENCY: Federal Communications
Commission. the month of October referred to in
to read, ‘‘The Treasury Department and subparagraph (A).’’
the IRS have determined that the ACTION: Final rule.
proposed regulations already properly This document does not contain new
SUMMARY: The Federal Civil Penalties or modified information collection
provided for this result in the situation Inflation Adjustment Act Improvements
where S2 controls S3 within the requirements subject to the Paperwork
Act of 2015 (the 2015 Inflation
meaning of § 1.385–3(c)(2)(i)(B). Reduction Act of 1995 (PRA), Public
Adjustment Act) requires the Federal
However, the final regulations further Law 104–13. It does not contain any
Communications Commission to amend
clarify the application of the subsidiary its forfeiture penalty rules to reflect new or modified information collection
stock acquisition exception in other annual adjustments for inflation in burden for small business concerns with
tiered transfer situations, for instance order to improve their effectiveness and fewer than 25 employees, pursuant to
where S2 subsequently engages in a maintain their deterrent effect. The 2015 the Small Business Paperwork Relief
transaction with an expanded group Inflation Adjustment Act provides that Act of 2002, Public Law 107–198, see 44
member controlled by S1, but not the new penalty levels shall apply to U.S.C. 3506(c)(4).
controlled by S2. See § 1.385–
penalties assessed after the effective The Enforcement Bureau will
3(g)(24)(ii)(B).’’.
date of the increase, including when the coordinate with the Commission’s
3. On page 72916, second column, the
second sentence of the first full penalties whose associated violation Consumer & Governmental Affairs
paragraph from the bottom, ‘‘The predate the increase. Bureau, Reference Information Center to
comments cited leases treated as loans DATES: Effective January 24, 2017. report this Order to Congress and the
under section 467; receivables and FOR FURTHER INFORMATION CONTACT: Government Accountability Office
sradovich on DSK3GMQ082PROD with RULES
payables resulting from correlative Celia Lewis, Enforcement Bureau, 202– pursuant to the Congressional Review
adjustments under section 482; 418–7456, or Gregory Haledjian, Act, see 5 U.S.C. 801(a)(1)(A).
production payments under section 636; Enforcement Bureau, 202–418–7440.
coupon stripping transactions under SUPPLEMENTARY INFORMATION: This is a
List of Subjects in 47 CFR Part 1
section 1286; and debt (or instruments summary of the Commission’s Order, Administrative practice and
treated as debt) described in section DA 16–1453, adopted and released on procedure, Penalties.
856(m)(2), 860G(a)(1), or 1361(c)(5)’’ is December 30, 2016. The document is
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Document Created: 2018-02-01 15:12:25
Document Modified: 2018-02-01 15:12:25
| 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 and temporary regulations; correction. | |
| Dates | These corrections are effective on January 23, 2017, and applicable October 21, 2016. | |
| Contact | Austin M. Diamond-Jones, (202) 317- 5363, or Joshua G. Rabon, (202) 317-6938 (not toll-free numbers). | |
| FR Citation | 82 FR 8169 | |
| RIN Number | 1545-BN40 |
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