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###### Department of the Treasury

###### Internal Revenue Service

          - 26 CFR Parts 1 and 602
          - [TD 9144]
          - RIN 1545-BA75

# AGENCY:

Internal Revenue Service (IRS), Treasury.

# ACTION:

Correcting amendment.

# SUMMARY:

                        This document corrects final regulations (TD 9144) that were published in the                         **Federal Register**                         on Monday, August 3, 2004 (69 FR 46401) and corrected on Monday, October 18, 2004 (69 FR 61309). The final regulations relate to statutory options.                    

# DATES:

This document is effective on August 3, 2004.

# FOR FURTHER INFORMATION CONTACT:

Erinn Madden, (202) 622-6030 (not a toll-free number).

# SUPPLEMENTARY INFORMATION:

## Background

The final regulations (TD 9144) that are the subject of these corrections are under sections 421, 422, and 424 of the Internal Revenue Code.

## Need for Correction

As published, the final regulations (TD 9144) contain errors that may prove to be misleading and are in need of clarification.

      ( print page 70551)    

# List of Subjects

### 26 CFR Part 1

      - Income taxes
      - Reporting and recordkeeping requirements

### 26 CFR Part 602

      - Reporting and recordkeeping requirements

## Correction of Publication

Accordingly, 26 CFR Parts 1 and 602 is corrected by making the following correcting amendments:

# PART 1—INCOME TAXES

**Paragraph 1.**                         The authority citation for part 1 and continues to read in part as follows:                    

Authority:26 U.S.C. 7805 * * *

§ 1.421-1 

1. Section 1.421-1(j)(2), the second sentence is amended by removing the language “the REG-122917-02 or this section.” and adding the language “REG-122917-02 or this section.” in its place. 

§ 1.421-2 

2. Section 1.421-2(f)(2), the second sentence is amended by removing the language “corporation at least 6 months after August 3, 2004, taxpayers may rely on either the REG-122917-02 or section.” and adding the language “corporation occurring at least 6 months after August 3, 2004, taxpayers may rely on either REG-122917-02 or this section.” in its place. 

§ 1.422-1 

3. Section 1.422-1(b)(3), *Example 2*, the fourth sentence is amended by removing the language “consequences of the disposition and the holding period for capital gain purposes begin on the vesting date, six months after exercise.” and adding the language “consequences of the disposition, and the holding period for capital gain purposes begins on the vesting date, six months after exercise.” in its place.                    

§ 1.422-4 

4. Section 1.422-4(d), *Example 5*                         (iii), the last sentence is amended by removing the language “it is treated as a nonstatutory options in its entirety.” and adding the language “it is treated as a nonstatutory option in its entirety.” in its place.                    

§ 1.422-5 

5. Section 1.422-5(e), *Example 2*, the fourth sentence is amended by removing the language “Under the rules of paragraph (b)(2) and (b)(3) of this section,” and adding the language “Under the rules of paragraphs (b)(2) and (b)(3) of this section,” in its place.                    

6. Section 1.422-5(f)(2), the second sentence is amended by removing the language “taxpayers may rely on either the REG-122917-02 or this section.” and adding the language “taxpayers may rely on either REG-122917-02 or this section.” in its place. 

7.Section 1.424-1 is amended by:

1. Revising the sixth and seventh sentences in paragraph (a)(10), *Example 8*.                    

2. Adding a comma after the word “Thus” in the second sentence of paragraph(e)(4)(viii). 

The revision reads as follows:

§ 1.424-1 

(a) * * *

(10) * * *

# Example 8.

 * * * Based on these facts, a new option to purchase 200 shares of Y at an option price of $25 per share could be granted to E in complete substitution of E's old option. In the alternative, it would also be permissible in connection with the spin off, to grant E a new option to purchase 100 shares of Y, at an option price of $25 per share, and for E to retain an option to purchase 100 shares of X under the old option, with the option price adjusted to $25.

* * * * *

8. Section 1.424-1(g)(2), the second sentence is amended by removing the language “on either the REG-122917-02 or this section.” and adding the language “on either REG-122917-02 or this section.” in its place. 

# PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

**Par. 2.**                         The authority citation for part 602 continues to read as follows:                    

Authority:26 U.S.C. 7805.

§ 602.101 

9. Section 602.101(b) is amended by adding the entry “1.422-1-1545-0820” to the table in numerical order. 

Cynthia E. Grigsby,

Acting Chief, Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel, (Procedures and Administration).

[FR Doc. 04-26745 Filed 12-6-04; 8:45 am]

BILLING CODE 4830-01-P