82792 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Proposed Rules 

first and last names, organization 

names, correspondence containing 

comments, and any documents 

submitted with the comments. 

Do not submit to www.regulations.gov 

information for which disclosure is 

restricted by statute, such as trade 

secrets and commercial or financial 

information (hereinafter referred to as 

Confidential Business Information 

(CBI)). Comments submitted through 

www.regulations.gov cannot be claimed 

as CBI. Comments received through 

www.regulations.gov will waive any CBI 

claims for the information submitted. 

For information on submitting CBI, see 

the Confidential Business Information 

section. 

DOE processes submissions made 

through www.regulations.gov before 

posting. Normally, comments will be 

posted within a few days of being 

submitted. However, if large volumes of 

comments are being processed 

simultaneously, your comment may not 

be viewable for up to several weeks. 

Please keep the comment tracking 

number that www.regulations.gov 

provides after you have successfully 

uploaded your comment. 

Comments, data, and other 

information submitted to DOE 

electronically should be provided in 

PDF (preferred), Microsoft Word or 

Excel, WordPerfect, or text (ASCII) file 

format. Provide documents that are not 

secured, that are written in English, and 

that are free of any defects or viruses. 

Documents should not contain special 

characters or any form of encryption 

and, if possible, they should carry the 

electronic signature of the author. 

2. Confidential Business Information. 

Pursuant to the provisions of 10 CFR 

1004.11, anyone submitting information 

or data he or she believes to be 

confidential and exempt by law from 

public disclosure should submit two 

well-marked copies: one copy of the 

document marked ‘‘CONFIDENTIAL’’ 

including all the information believed to 

be confidential, and one copy of the 

document marked ‘‘NON– 

CONFIDENTIAL’’ with the information 

believed to be confidential deleted. 

Submit these documents via email. DOE 

will make its own determination as to 

the confidentiality of the information 

and treat it according to its 

determination. 

It is DOE’s policy that all comments 

may be included in the public docket, 

without change and as received, 

including any personal information 

provided in the comments (except 

information deemed to be exempt from 

public disclosure). 

3. Campaign form letters. Please 

submit campaign form letters by the 

originating organization in batches of 

between 50 to 500 form letters per PDF 

or as one form letter with a list of 

supporters’ names compiled into one or 

more PDFs. This reduces comment 

processing and posting time. 

V. Approval by the Office of the 

Secretary of Energy 

The Secretary of Energy has approved 

publication of this notice of proposed 

rulemaking. 

List of Subjects in 10 CFR Part 1008 

Administration practice and 

procedure, Freedom of information, 

Privacy, Reporting and recordkeeping 

requirements. 

Signing Authority 

This document of the Department of 

Energy was signed on November 9, 

2023, by Ann Dunkin, Senior Agency 

Official for Privacy, pursuant to 

delegated authority from the Secretary 

of Energy. That document with the 

original signature and date is 

maintained by DOE. For administrative 

purposes only, and in compliance with 

requirements of the Office of the Federal 

Register, the undersigned DOE Federal 

Register Liaison Officer has been 

authorized to sign and submit the 

document in electronic format for 

publication, as an official document of 

the Department of Energy. This 

administrative process in no way alters 

the legal effect of this document upon 

publication in the Federal Register. 

Signed in Washington, DC, on November 

20, 2023. 

Treena V. Garrett, 

Federal Register Liaison Officer, U.S. 

Department of Energy. 

For the reasons set forth in the 

preamble, the Department of Energy 

proposes to amend part 1008 of chapter 

X of title 10 of the Code of Federal 

Regulations as set forth below: 

PART 1008—RECORDS MAINTAINED 

ON INDIVIDUALS (PRIVACY ACT) 

■ 1. The authority citation for part 1008 

continues to read as follows: 

Authority: 42 U.S.C. 7101 et seq.; 50 U.S.C. 

2401 et seq.; 5 U.S.C. 552a. 

■ 2. Amend § 1008.12 by adding 

paragraphs (a)(2)(iii); (b)(1)(ii)(N); 

(b)(2)(ii)(Q) and (b)(3)(ii)(S) to read as 

follows: 

§ 1008.12 Exemptions. 

(a) * * * 

(2) * * * 

(iii) Data Analytics Program Records 

(DOE–78). This System of Records is 

being exempted pursuant to paragraph 

(j)(2) of the Act to enable the Office of 

the Inspector General in the 

performance of its law enforcement 

function. The system is exempted from 

paragraphs (c)(3) and (4); (d)(1) through 

(4); (e)(1) through (3), (4)(G), (4)(H), and 

(4)(I); (e)(5) and (8); and (g) of the 

Privacy Act pursuant to 5 U.S.C. 

552a(j)(2). In addition, the system has 

been exempted from the Privacy Act, 

pursuant to 5 U.S.C. 552a(k)(1), (k)(2) 

and (k)(5). The system is exempt from 

these provisions for the following 

reasons: notifying an individual at the 

individual’s request of the existence of 

records in an investigative file 

pertaining to such individual, or 

granting access to an investigative file 

could: 

(A) Interfere with investigative and 

enforcement proceedings and with codefendants’ right to a fair trial; 

(B) Disclose the identity of 

confidential sources and reveal 

confidential information supplied by 

these sources; and 

(C) Disclose investigative techniques 

and procedures. 

(b) * * * 

(1) * * * 

(ii) * * * 

(N) Data Analytics Program Records 

(DOE–78). 

(2) * * * 

(ii) * * * 

(Q) Data Analytics Program Records 

(DOE–78). 

(3) * * * 

(ii) * * * 

(S) Data Analytics Program Records 

(DOE–78). 

* * * * * 

[FR Doc. 2023–25982 Filed 11–24–23; 8:45 am] 

BILLING CODE 6450–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–131756–11] 

RIN 1545–BI49 

Transactions Between Related 

Persons and Partnerships 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking. 

SUMMARY: This document contains 

proposed regulations that would update 

regulations regarding whether persons 

are treated as related persons who are 

subject to certain special rules 

pertaining to transactions with 

partnerships. The regulations affect 


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partnerships that enter into transactions 

with related persons that result in gain 

or loss on a sale or exchange of property 

or result in a difference in the time at 

which income and deductions are 

recognized because of the persons’ 

different methods of accounting. 

DATES: Written or electronic comments 

and requests for a public hearing must 

be received by February 26, 2024. 

Requests for a public hearing must be 

submitted as prescribed in the 

‘‘Comments and Requests for a Public 

Hearing’’ section. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically. Submit electronic 

submissions via the Federal 

eRulemaking Portal at https://

www.regulations.gov (indicate IRS and 

REG–131756–11). Once submitted to the 

Federal eRulemaking Portal, comments 

cannot be edited or withdrawn. The 

Department of Treasury (Treasury 

Department) and the IRS will publish 

any comments submitted electronically 

and comments submitted on paper to 

the IRS’s public docket. Send paper 

submissions to: CC:PA:LPD:PR (REG– 

131756–11), Room 5203, Internal 

Revenue Service, P.O. Box 7604, Ben 

Franklin Station, Washington, DC 

20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the proposed regulations 

relating to section 267, Livia Piccolo, 

(202) 317–7007 (not a toll-free number); 

concerning the proposed regulation 

relating to section 707, Charles D. Wien, 

(202) 317–5279 (not a toll-free number); 

and concerning the submission of 

comments and requests for a public 

hearing, Vivian Hayes, (202) 317–6960 

(not a toll-free number) or by sending an 

email to publichearings@irs.gov 

(preferred). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains proposed 

amendments to the Income Tax 

Regulations (26 CFR part 1) under 

sections 267 and 707 of the Internal 

Revenue Code (Code) relating to the 

disallowance or deferral of deductions 

for losses and expenses in certain 

transactions with partnerships and 

related persons (proposed regulations). 

The proposed regulations would remove 

§ 1.267(b)–1(b) and amend § 1.267(a)–1 

to remove the application of Questions 

and Answers 2 and 3 in § 1.267(a)–2T(c) 

for taxable years ending on or after the 

date the Treasury decision adopting 

these regulations as final regulations is 

published in the Federal Register. In 

addition, the proposed regulations 

would amend § 1.707–1(b). 

In general, section 267(a)(1) provides 

that a taxpayer may not deduct a loss on 

the sale or exchange of property with a 

related person as defined in section 

267(b). Section 267(a)(2) sets forth a 

‘‘matching rule’’ that provides that if 

because of a payee’s method of 

accounting, an amount is not (unless 

paid) includible in the payee’s gross 

income, the taxpayer (payor) may not 

deduct the otherwise deductible amount 

until the payee includes the amount in 

gross income if the taxpayer and payee 

are related persons within the meaning 

of section 267(b) on the last day of the 

taxpayer’s taxable year in which the 

amount otherwise would have been 

deductible. 

As part of enacting the Internal 

Revenue Code of 1954, Public Law 83– 

591, ch. 736, 68A Stat. 1 (1954), 

Congress added section 707(b)(1) to the 

Code to address the sale or exchange of 

property between a partnership and a 

partner owning, directly or indirectly, 

more than 50 percent of the capital or 

profit interest in the partnership. 68A 

Stat. at 243. Given a lack of statutory 

and regulatory guidance addressing 

transactions between a partnership and 

a related person who was not a partner, 

the Treasury Department and the IRS 

issued § 1.267(b)–1(b) in 1958. See TD 

6312, 23 FR 7035 (Sep. 11, 1958). 

Section 1.267(b)–1(b) applies an 

aggregate theory of partnerships to 

provide that any transaction described 

in section 267(a) between a partnership 

and a person other than a partner is 

considered as occurring between the 

other person and the members of the 

partnership separately. Specifically, 

§ 1.267(b)–1(b) provides that if the other 

person and a partner are within any of 

the relationships specified in section 

267(b), no deductions with respect to 

the transaction between the other 

person and the partnership will be 

allowed: (i) to the related partner to the 

extent of the related partner’s 

distributive share of partnership 

deductions for losses or unpaid 

expenses or interest resulting from the 

transactions, and (ii) to the other person 

to the extent the related partner acquires 

an interest in any property sold to or 

exchanged with the partnership by the 

other person at a loss, or to the extent 

of the related partner’s distributive 

share of the unpaid expenses or interest 

payable to the partnership by the other 

person as a result of the transaction. 

The U.S. Tax Court upheld the 

validity of § 1.267(b)–1(b) and its use of 

the aggregate theory in Casel v. 

Commissioner, 79 T.C. 424 (1982). 

However, subsequent statutory changes 

to sections 267 and 707(b) have made 

§ 1.267(b)–1(b) inconsistent with the 

statute. 

In 1982, Congress enacted section 

3(h)(1) of the Subchapter S Revision Act 

of 1982, Public Law 97–354, 96 Stat. 

1669, 1689 (1982) to add section 

267(b)(10) to the Code to disallow a 

deduction resulting from a transaction 

between a commonly-controlled 

partnership and an S corporation. 

Specifically, section 267(b)(10) provides 

that an S corporation and a partnership 

were related persons if the same persons 

owned more than 50 percent of the 

outstanding stock of the S corporation 

and more than 50 percent of the capital 

interest or the profits interest in the 

partnership. 

In 1984, Congress enacted section 

174(b)(1) of the Tax Reform Act of 1984 

(TRA 1984), Public Law 98–369, 98 Stat. 

494, 705 (1984), to add section 267(e) to 

the Code generally to extend the 

matching rule of section 267(a)(2) to 

transactions between a partnership and 

a partner or a person related to a partner 

(within the meaning of sections 267(b) 

or 707(b)(1)). Congress also enacted 

section 174(b)(3) of the TRA 1984, 98 

Stat. at 707, to amend section 267(b)(10) 

to include C corporations as well as S 

corporations. 

In 1985, the Treasury Department and 

the IRS issued § 1.267(a)–2T(c) to 

provide guidance for transactions 

between related partnerships. 

Consistent with the legislative history of 

the TRA 1984, the regulations generally 

apply an aggregate theory of 

partnerships in deferring deductions 

according to the partners’ aggregate 

interests in the payor partnership. See S. 

Rep. No. 98–169, 98th Cong., 2nd Sess., 

at 496 and n. 17 (1984); TD 7991, 49 FR 

46992 (Nov. 30, 1984). 

In the Tax Reform Act of 1986 (TRA 

1986), Public Law 99–514, 100 Stat. 

2085 (1986), Congress amended section 

707(b) in two ways. First, Congress 

revised sections 707(b)(1)(A) and 

707(b)(2)(A) to expand the application 

of those provisions to a person who is 

not a partner and modified section 

707(b)(2) to reduce the thresholds 

described in that section from more than 

80 percent of profits or capital to more 

than 50 percent of profits or capital for 

purposes of treating recognized gain 

between related persons as ordinary 

income. As amended by section 

1812(c)(3) of the TRA 1986, 100 Stat. at 

2834, the loss disallowance rules of 

section 707(b)(1)(A) and the character of 

gain rules of section 707(b)(2)(A) apply 

to transactions between a partnership 

and any person (a partner or nonpartner) who directly or indirectly owns 

more than 50 percent of the capital or 

profits interest in the partnership. See 


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sections 707(b)(1)(A), (b)(2)(A), and 

(b)(3). 

Second, in enacting section 642(a)(2) 

of the TRA 1986, 100 Stat. at 2284, 

Congress amended section 707(b)(1)(B) 

to provide that for purposes of the 

matching rule in section 267(a)(2), two 

partnerships in which the same persons 

own, directly or indirectly, more than 

50 percent of the capital interests or 

profits interests are treated as related 

persons within the meaning of section 

267(b). The related committee reports 

state that the modifications to section 

707(b), and in particular to section 

707(b)(1)(B), were intended to replace 

Questions and Answers 2 and 3 of 

§ 1.267(a)–2T(c). See H. Rept. No. 99– 

426, 99th Cong., 1st Sess., at 940 and n. 

7 (1986), 1986–3 C.B. Vol. 2, at 940 and 

n. 7; S. Rep. No. 99–313, 99th Cong., 

2nd Sess., at 960 and n. 7, 1986–3 C.B. 

Vol. 3, 959, 960 and n. 7. 

Explanation of Provisions 

The statutory changes to sections 267 

and 707(b) enacted since 1982 indicate 

that Congress intended for a partnership 

to be viewed as an entity, rather than as 

an aggregate of its partners, in applying 

the rules of sections 267 and 707(b). 

Therefore, the loss disallowance rules of 

sections 267(a)(1) and 707(b)(1), the gain 

recharacterization rules of section 

707(b)(2), and the matching rule of 

section 267(a)(2) similarly should be 

applied at the partnership level and not 

the partner level. Accordingly, the rules 

relating to partnerships in § 1.267(b)– 

1(b) and § 1.267(a)–2T(c), Questions and 

Answers 2 and 3, do not conform to 

Congress’s view of how section 267 

should be applied to partnerships. 

To conform the regulations under 

section 267 with the current statute, the 

proposed regulations propose: (1) to 

remove § 1.267(b)–1(b), (2) to amend 

§ 1.267(a)–1 to reflect the rules in 

Questions and Answers 1 and 4 in 

§ 1.267(a)–2T(c) as § 1.267(a)–1(d)(2) 

and (3); and (3) to amend § 1.267(a)–1 to 

terminate the application of Questions 

and Answers 2 and 3 in § 1.267(a)– 

2T(c). The regulations under § 1.267(a)– 

2T(b), which provide questions and 

answers applying section 267(a)(2) and 

(b) generally, would continue to apply. 

The Treasury Department and IRS are 

aware that some of the citations in the 

existing regulations under section 267 

may be outdated due to subsequent 

legislative and regulatory changes. 

However, the rules in these questions 

and answers remain substantively 

accurate. For example, Question 1 under 

§ 1.267(a)–2T(b) refers to the completed 

contract method under § 1.451–3(d). 

The substance of this answer remains 

correct; however, the correct citation to 

the completed contract method is now 

under § 1.460–4(d). Modifications to 

update incorrect citations in § 1.267(a)– 

2T(b) are outside the scope of these 

proposed regulations. Finally, these 

proposed regulations also revise 

§ 1.707–1(b) to conform to the statutory 

changes made to sections 267 and 

707(b). 

Proposed Applicability Date 

These regulations are proposed to 

apply to taxable years ending on or after 

the date the Treasury decision adopting 

these rules as final regulations is 

published in the Federal Register. Thus, 

§ 1.267(b)–1(b) would be removed, and 

the revisions to § 1.267(a)–1 would 

apply to taxable years ending on or after 

the date the Treasury decision adopting 

these rules as final regulations is 

published in the Federal Register. 

Similarly, the revisions to § 1.707–1(b) 

would apply to sales or exchanges of 

property with respect to controlled 

partnerships in taxable years ending on 

or after the date the Treasury decision 

adopting these rules as final regulations 

is published in the Federal Register. 

Special Analyses 

I. Regulatory Impact Analysis 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6 of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

II. Paperwork Reduction Act 

These proposed regulations do not 

impose any additional information 

collection requirements in the form of 

reporting, recordkeeping requirements, 

or third-party disclosure statements. 

However, a taxpayer may continue to be 

required to report on Form 1065, U.S. 

Return of Partnership Income, 

information about partners that own 

directly or indirectly more than 50 

percent of the partnership. Data on the 

number of affected taxpayers is not 

available. 

For purposes of the Paperwork 

Reduction Act of 1995 (44 U.S.C. 

3507(c)) (PRA), the reporting burden 

associated with the collection of 

information for Form 1065 will be 

reflected in the PRA submission 

associated with the income tax returns 

under the OMB control number 1545– 

0123. 

The overall burden estimates 

associated with the OMB control 

number 1545–0123 is an aggregate 

number related to the entire package of 

forms associated with the applicable 

OMB control number and will include, 

but not isolate, the estimated burden of 

the tax forms that will be created or 

revised as a result of these proposed 

regulations. These numbers are 

therefore not specific to any burden 

imposed by these proposed regulations. 

The burdens have been reported for 

other income tax regulations that rely on 

the same information collections and 

the Treasury Department and the IRS 

urge readers to recognize that these 

numbers are duplicates and to guard 

against overcounting the burdens 

imposed by tax provisions prior to the 

Act. No burden estimates specific to the 

forms affected by the proposed 

regulations are currently available. For 

the OMB control numbers discussed in 

this paragraph, the Treasury Department 

and the IRS estimate PRA burdens on a 

taxpayer-type-basis rather than a 

provision-specific basis. Those 

estimates capture both changes made by 

the Act and those that arise out of 

discretionary authority exercised in the 

proposed regulations (when final) and 

other regulations that affect the 

compliance burden for that form. 

The Treasury Department and the IRS 

request comments on all aspects of 

information collection burdens related 

to the proposed regulations, including 

estimates for how much time it would 

take to comply with the paperwork 

burdens described above for each 

relevant form and ways for the IRS to 

minimize paperwork burden. In 

addition, when available, drafts of IRS 

forms are posted for comment at https:// 

appsirs.gov/app/pickleist/lit/draftTax

Forms.htm. IRS forms are available at 

https://www.irs.gov/forms-instructions. 

Forms will not be finalized until after 

they have been approved by OMB under 

the PRA. 

III. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

U.S.C. 601 et seq.) (RFA) imposes 

certain requirements with respect to 

Federal rules that are subject to the 

notice and comment requirements of 

section 553(b) of the Administrative 

Procedure Act (5 U.S.C. 551 et seq.) and 

that are likely to have a significant 

economic impact on a substantial 

number of small entities. The Treasury 

Department and the IRS certify that this 

proposal will not have a significant 

economic impact on a substantial 

number of small entities. The proposed 

regulations would remove certain 

outdated regulations under section 267 

that apply an aggregate theory of 

partnerships and relocate other 

regulations that are not intended to be 


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Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Proposed Rules 82795 

obsoleted. These regulations would 

preserve the status quo by updating the 

existing regulations to reflect the 

currently effective statutory provisions. 

Accordingly, this proposal is unlikely to 

have a significant economic impact on 

any small entities affected. The Treasury 

Department and the IRS invite 

comments on the impact on small 

entities. 

Pursuant to section 7805(f) of the 

Code, this notice of proposed 

rulemaking has been submitted to the 

Chief Counsel of the Office of Advocacy 

of the Small Business Administration 

for comment on its impact on small 

business. 

IV. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. This rule does 

not include any Federal mandate that 

may result in expenditures by State, 

local, or Tribal governments, nor does 

this rule include any Federal mandate 

that may exceed the threshold for the 

private sector. 

V. Executive Order 13132: Federalism 

Executive Order 13132 (Federalism) 

prohibits an agency from publishing any 

rule that has federalism implications if 

the rule either imposes substantial, 

direct compliance costs on State and 

local governments, and is not required 

by statute, or preempts State law, unless 

the agency meets the consultation and 

funding requirements of section 6 of the 

Executive Order. This proposed rule 

does not have federalism implications 

and does not impose substantial, direct 

compliance costs on State and local 

governments or preempt State law 

within the meaning of the Executive 

Order. 

Comments and Requests for a Public 

Hearing 

Consideration will be given to 

comments that are submitted timely to 

the IRS as prescribed in the preamble 

under the ‘‘ADDRESSES’’ section. The 

Treasury Department and the IRS 

request comments on all aspects of the 

proposed regulations. Any electronic 

and paper comments submitted will be 

available at https://www.regulations.gov 

or upon request. A public hearing will 

be scheduled if requested in writing by 

any person that timely submits written 

comments. If a public hearing is 

scheduled, notice of the date, time, and 

place for the public hearing will be 

published in the Federal Register. 

Announcement 2023–16, 2023–20 I.R.B. 

854 (May 15, 2023), provides that public 

hearings will be conducted in person, 

although the IRS will continue to 

provide a telephonic option for 

individuals who wish to attend or 

testify at a hearing by telephone. Any 

telephonic hearing will be made 

accessible to people with disabilities. 

Drafting Information 

The principal author of these 

proposed regulations is Livia Piccolo of 

the Office of Associate Chief Counsel 

(Income Tax and Accounting). However, 

other personnel from the Treasury 

Department and the IRS participated in 

the development of the regulations. 

List of Subjects in 26 CFR Part 1 

Income taxes, Reporting and 

recordkeeping requirements. 

Proposed Amendments to the 

Regulations 

Accordingly, the Treasury Department 

and the IRS propose to amend 26 CFR 

part 1 as follows: 

PART 1—INCOME TAXES 

■ Paragraph 1. The authority citation 

for part 1 continues to read in part as 

follows: 

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

* * * * * 

■ Par. 2. Section 1.267(a)–1 is amended 

by adding new paragraphs (d) and (e) to 

read as follows: 

§ 1.267(a)–1 Deductions disallowed. 

* * * * * 

(d) Rules for partnerships under the 

Tax Reform Act of 1984—(1) In general. 

Paragraphs (d)(2) and (d)(3) of this 

section provide rules under section 

267(a) and related provisions, as 

amended by section 174 of the Tax 

Reform Act of 1984, Public Law 98–369, 

98 Stat. 494, 705 (1984), applicable 

specifically to partnerships for taxable 

years ending on or after [DATE OF 

PUBLICATION OF FINAL RULE IN 

THE Federal Register]. Section 

1.267(a)–2T(c) does not apply to taxable 

years ending on or after [DATE OF 

PUBLICATION OF FINAL RULE IN 

THE Federal Register]. 

(2) Application of section 267(a) to 

disallow losses and defer otherwise 

deductible amounts at the partnership 

(entity) level. If a loss realized by a 

partnership from a sale or exchange of 

property is disallowed under section 

267(a)(1), that loss does not enter into 

the computation of the partnership’s 

taxable income. If an amount that 

otherwise would be deductible by a 

partnership is deferred by section 

267(a)(2), that amount does not enter 

into the computation of the 

partnership’s taxable income until the 

taxable year of the partnership in which 

falls the day on which the amount is 

includible in the gross income of the 

person to whom payment of the amount 

is made. 

(3) Application of section 

267(e)(5)(C)(ii). The phrase incurred at 

an annual rate not in excess of 12 

percent in section 267(e)(5)(C)(ii) refers 

to interest that accrues but is not 

includible in the income of the person 

to whom payment is to be made during 

the taxable year of the payor. Thus, in 

determining whether the requirements 

of section 267(e)(5) (providing an 

exception to certain provisions of 

section 267 for certain expenses and 

interest of partnerships owning low 

income housing) are met with respect to 

a transaction, the requirement of section 

267(e)(5)(C)(ii) will be satisfied, even 

though the total interest (both stated and 

unstated) paid or accrued in any taxable 

year of the payor taxpayer exceeds 12 

percent, if the interest in excess of 12 

percent per annum, compounded semiannually, on the outstanding loan 

balance (principal and accrued but 

unpaid interest) is includible in the 

income of the person to whom payment 

is to be made no later than the last day 

of such taxable year of the payor 

taxpayer. 

(e) Applicability date. Paragraph (d) of 

this section applies to taxable years 

ending on or after [DATE OF 

PUBLICATION OF FINAL RULE IN 

THE FEDERAL REGISTER]. 

■ Par. 3. Section 1.267(b)–1 is amended 

by revising paragraph (b) to read as 

follows: 

§ 1.267(b)–1. Relationships. 

* * * * * 

(b) Applicability date. This section 

applies to taxable years ending on or 

after [DATE OF PUBLICATION OF 

FINAL RULE IN THE FEDERAL 

REGISTER]. 

■ Par. 4. Section 1.707–1 is amended 

by: 

■ 1. Removing the language ‘‘partner’’ in 

paragraph (b)(1)(i) and adding the 

language ‘‘person’’ in its place; 

■ 2. Removing the language ‘‘the 

provisions of subdivision (i) of this 

subparagraph,’’ in paragraph (b)(1)(ii) 

and adding the language ‘‘paragraph 

(b)(1)(i) of this section,’’ in its place; 

■ 3. Adding new paragraph (b)(1)(iii); 


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82796 Federal Register / Vol. 88, No. 226 / Monday, November 27, 2023 / Proposed Rules 

■ 4. Removing the language ‘‘partner’’ in 

paragraph (b)(2) and adding the 

language ‘‘person’’ in its place; 

■ 5. Removing the language ‘‘80 

percent’’ in the first and second 

sentences of paragraph (b)(2) and adding 

the language ‘‘50 percent’’ in its place; 

and 

■ 6. Revising paragraph (b)(3). 

The additions and revision read as 

follows: 

§ 1.707–1 Transactions between partner 

and partnership. 

* * * * * 

(b) * * * 

(1) * * * 

(iii) For purposes of matching 

deductions and income in the case of 

expenses and interest under section 

267(a)(2), two partnerships in which the 

same persons own, directly or 

indirectly, more than 50 percent of the 

capital interests or profits interests in 

each partnership will be treated as 

persons specified in section 267(b). 

* * * * * 

(3) Ownership of a capital or profits 

interest. For the purpose of applying 

section 707(b), the rules for constructive 

ownership of stock provided in section 

267(c)(1), (2), (4), and (5) apply in 

determining the extent to which a 

capital interest or profits interest in a 

partnership is owned, directly or 

indirectly, by any person, including a 

person who does not own a partnership 

interest prior to application of 267(c). 

For example, where trust T is a partner 

in the partnership ABT, and AW, A’s 

wife, is the sole beneficiary of the trust, 

the ownership of a capital and profits 

interest in the partnership by T will be 

attributed to AW both for the purpose of 

further attributing the ownership of 

such interest to A and for determining 

whether AW is a constructive owner of 

an interest in the partnership. See 

section 267(c) (1), (2), and (5). 

Accordingly, if A, B, and T are equal 

partners in ABT, because AW is treated 

as constructively owning the one-third 

capital and profits interest in ABT 

owned by T and AW’s ownership is 

attributed to A, A will be considered as 

owning a more than 50 percent capital 

and profits interest in ABT, and a loss 

sustained by A on a sale or exchange of 

property with ABT will be disallowed 

by section 707(b)(1)(A). Similarly, 

because AW is treated as constructively 

owning the one-third capital and profits 

interest in ABT owned by T and is 

attributed the ownership of A’s capital 

and profits interest in ABT, AW will be 

considered as owning a more than 50 

percent capital and profits interest in 

ABT and a loss sustained by AW on a 

sale or exchange of property with ABT 

would also be disallowed by section 

707(b)(1)(A). 

* * * * * 

■ Par. 5. Section 1.707–9 is amended 

by: 

■ 1. Revising the section heading; 

■ 2. Redesignating paragraphs (a) and 

(b) as paragraphs (b) and (c); and 

■ 3. Adding new paragraph (a). 

The addition and revision read as 

follows: 

§ 1.707–9. Applicability dates and 

transitional rules. 

(a) Section 1.707–1. Paragraphs 

(b)(1)(i) through (iii), (b)(2), and (b)(3) of 

§ 1.707–1 apply to sales or exchanges of 

property with respect to controlled 

partnerships in taxable years ending on 

or after [DATE OF PUBLICATION OF 

FINAL RULE IN THE FEDERAL 

REGISTER]. 

* * * * * 

Douglas W. O’Donnell, 

Deputy Commissioner for Services and 

Enforcement. 

[FR Doc. 2023–25715 Filed 11–24–23; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–104194–23] 

RIN 1545–BQ70 

Long-Term, Part-Time Employee Rules 

for Cash or Deferred Arrangements 

Under Section 401(k) 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Notice of proposed rulemaking 

and notice of public hearing. 

SUMMARY: This document sets forth a 

proposed regulation that would amend 

the rules applicable to plans that 

include cash or deferred arrangements 

under section 401(k) to provide 

guidance with respect to long-term, 

part-time employees. The proposed 

regulation reflects statutory changes 

made by the SECURE Act and the 

SECURE 2.0 Act that relate to long-term, 

part-time employees. The proposed 

regulation would affect participants in, 

beneficiaries of, employers maintaining, 

and administrators of plans that include 

cash or deferred arrangements. This 

document also provides notice of a 

public hearing. 

DATES: Written or electronic comments 

must be received by January 26, 2024. 

A public hearing on this proposed 

regulation has been scheduled for 

March 15, 2024, at 10 a.m. ET. Requests 

to speak and outlines of topics to be 

discussed at the public hearing must be 

received by January 26, 2024. If no 

outlines are received by January 26, 

2024, the public hearing will be 

cancelled. Requests to attend the public 

hearing must be received by 5 p.m. ET 

on March 13, 2024. The public hearing 

will be made accessible to people with 

disabilities. Requests for special 

assistance during the public hearing 

must be received by March 12, 2024. 

ADDRESSES: Commenters are strongly 

encouraged to submit public comments 

electronically. Submit electronic 

submissions via the Federal 

eRulemaking Portal at 

www.regulations.gov (indicate IRS and 

REG–104194–23) by following the 

online instructions for submitting 

comments. Requests to speak at or 

attend the public hearing must be 

submitted as prescribed in the 

‘‘Comments and Public Hearing’’ 

section. Once submitted to the Federal 

eRulemaking Portal, comments cannot 

be edited or withdrawn. The 

Department of the Treasury (Treasury 

Department) and the IRS will publish 

for public availability any comment 

submitted electronically or on paper to 

its public docket on 

www.regulations.gov. Send paper 

submissions to: CC:PA:01:PR (REG– 

104194–23), Room 5203, Internal 

Revenue Service, P.O. Box 7604, Ben 

Franklin Station, Washington, DC 

20044. 

FOR FURTHER INFORMATION CONTACT: 

Concerning the regulation, call Kara M. 

Soderstrom at (202) 317–6799 or Jason 

E. Levine at (202) 317–4148; concerning 

submission of comments, the hearing, 

and the access code to attend the 

hearing by telephone, call Vivian Hayes 

at (202) 317–6901 (not toll-free 

numbers) or email publichearings@

irs.gov (preferred). 

SUPPLEMENTARY INFORMATION: 

Background 

This document sets forth proposed 

amendments to the Income Tax 

Regulations (26 CFR part 1) under 

section 401 of the Internal Revenue 

Code (Code). This proposed regulation 

would amend § 1.401(k)–5 to set forth 

rules and definitions applicable to longterm, part-time employees under section 

112 of the Setting Every Community Up 

for Retirement Enhancement Act of 

2019 (SECURE Act), enacted on 

December 20, 2019, as Division O of the 

Further Consolidated Appropriations 

Act, 2020 (Pub. L. 116–94, 133 Stat. 

2534 (2019)), and sections 125 and 401 

of the SECURE 2.0 Act of 2022 (SECURE 


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