[Federal Register Volume 69, Number 242 (Friday, December 17, 2004)]
[Proposed Rules]
[Pages 75492-75493]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-27295]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-129709-03]
RIN 1545-BC34


Prohibited Allocations of Securities in an S Corporation

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations and notice of public hearing.

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SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations that provide 
guidance on the definition and effects of a prohibited allocation under 
section 409(p), identification of disqualified persons and 
determination of a nonallocation year, calculation of synthetic equity 
under section 409(p)(5), and standards for determining whether a 
transaction is an avoidance or evasion of section 409(p). These 
proposed regulations would generally affect plan sponsors of, and 
participants in, ESOPs holding stock of Subchapter S corporations. The 
text of those temporary regulations also serves as the text of these 
proposed regulations. This document also provides notice of a public 
hearing on these proposed regulations.

DATES: Written or electronic comments must be received by March 17, 
2005. Requests to speak (with outlines of oral comments to be 
discussed) at the public hearing scheduled for April 20, 2005, at 10 
a.m. must be received by March 14, 2005.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-129709-03), Room 
5203, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
129709-03), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC. Alternatively, taxpayers may submit 
comments electronically via the IRS Internet site at http://www.irs.gov/regs or the Federal eRulemaking Portal at http://www.regulations.gov (indicate IRS and REG-129703-03).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
John Ricotta at (202) 622-6060; concerning submissions of comments, 
contact Guy Traynor at (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    Temporary regulations in the Rules and Regulations portion of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating to section 409(p). The temporary regulations contain 
rules relating to the definition and effects of a prohibited allocation 
under section 409(p), identification of disqualified persons and 
determination of a nonallocation year, calculation of synthetic equity 
under section 409(p)(5), and standards for determining whether a 
transaction is an avoidance or evasion of section 409(p). The text of 
those temporary regulations also serves as the text of these proposed 
regulations. The preamble to the temporary regulations explains the 
temporary regulations.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It also has 
been determined that section 553(b) of the Administrative Procedure Act 
(5 U.S.C. chapter 5) does not apply to these regulations. Because Sec.  
1.409(p)-1 imposes no new collection of information on small entities, 
a Regulatory Flexibility Analysis under the Regulatory Flexibility Act 
(5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of 
the Internal Revenue Code, this notice of proposed rulemaking will be 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and 8 
copies) or electronic comments that are submitted timely to the IRS. 
All comments will be available for public inspection and copying.
    A public hearing has been scheduled for April 20, 2005, at 10 a.m. 
in the IRS Auditorium, Internal Revenue Building, 1111 Constitution 
Avenue NW., Washington, DC. All visitors must present photo 
identification to enter the building. Because of access restrictions, 
visitors will not be admitted beyond the immediate entrance area more 
than 30 minutes before the hearing starts at the Constitution Avenue 
entrance. For information about having your name placed on the building 
access list to attend the hearing, see the FOR FURTHER INFORMATION 
CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written 
comments and an outline of the topics to be discussed and the time to 
be devoted to each topic (signed original and eight (8) copies) by 
March 14, 2005. A period of 10 minutes will be allotted to each person 
for making comments. An agenda showing the scheduling of the speakers 
will be prepared after the deadline for receiving outlines has passed. 
Copies of the agenda will be available free of charge at the hearing.

[[Page 75493]]

Drafting Information

    The principal author of these regulations is John Ricotta of the 
Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and 
Government Entities). However, other personnel from the IRS and 
Treasury participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
an entry in numerical order to read, in part, as follows:

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

    Section 1.409(p)-1 also issued under 26 U.S.C. 409(p)(7)(A). * * 
*

    Par. 2. Section 1.409(p)-1 is added to read as follows:


Sec.  1.409(p)-1  Prohibited allocation of securities in an S 
corporation.

    [The text of proposed Sec.  1.409(p)-1 is the same as the text 
of Sec.  1.409(p)-1T published elsewhere in this issue of the 
Federal Register].

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 04-27295 Filed 12-16-04; 8:45 am]
BILLING CODE 4830-01-P