[Federal Register Volume 72, Number 40 (Thursday, March 1, 2007)]
[Rules and Regulations]
[Pages 9262-9263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-3534]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9313]
RIN 1545-BG29


Corporate Reorganizations; Additional Guidance on Distributions 
Under Sections 368(a)(1)(D) and 354(b)(1)(B)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations amending Sec.  
1.368-2T(l), which provides guidance regarding the qualification of 
certain transactions as reorganizations described in section 
368(a)(1)(D) where no stock and/or securities of the acquiring 
corporation are issued and distributed in the transaction. These 
regulations clarify that the rules in Sec.  1.368-2T(l) are not 
intended to affect the qualification of related party triangular asset 
acquisitions as reorganizations described in section 368. These 
regulations affect corporations engaging in such transactions and their 
shareholders. The text of the temporary regulations also serves as the 
text of the proposed regulations set forth in the notice of proposed 
rulemaking on this subject in the Proposed Rules section in this issue 
of the Federal Register.

DATES: Effective Date: These regulations are effective on March 1, 
2007.
    Applicability Date: For dates of applicability, see Sec.  1.368-
2T(l)(4)(i).

FOR FURTHER INFORMATION CONTACT: Bruce A. Decker at (202) 622-7550 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    On December 19, 2006, the IRS and Treasury Department published 
temporary regulations (TD 9303) under Sec.  1.368-2T(l) in the Federal 
Register (71 FR 75879) providing guidance regarding the qualification 
of certain transactions as reorganizations described in section 
368(a)(1)(D) where no stock and/or securities of the acquiring 
corporation are issued and distributed in the transaction. Under the 
temporary regulations, in cases where it is determined that the same 
person or persons own, directly or indirectly, all of the stock of the 
transferor and transferee corporations in identical proportions, the 
distribution requirement under sections 368(a)(1)(D) and 354(b)(1)(B) 
will be treated as satisfied even though no stock is actually issued in 
the transaction.
    In each case where it is determined that the same person or persons 
own all of the stock of the transferor and transferee corporations in 
identical proportions, a nominal share of stock of the transferee 
corporation will be deemed issued in addition to the actual 
consideration exchanged in the transaction. The nominal share of stock 
in the transferee corporation will then be deemed distributed by the 
transferor corporation to its shareholders and, in appropriate 
circumstances, further transferred to the extent necessary to reflect 
the actual ownership of the transferor and transferee corporations.
    The IRS and Treasury Department have become aware that the 
temporary regulations may have unintended consequences regarding 
related party triangular asset acquisitions otherwise qualifying under 
section 368. Specifically, the temporary regulations may cause certain 
related party asset acquisitions that would otherwise qualify as tax-
free triangular reorganizations to be treated as reorganizations 
described in section 368(a)(1)(D) with boot.
    For example, the temporary regulations may cause a related party 
transaction that would otherwise qualify as a tax-free reorganization 
described in section 368(a)(1)(C) in which substantially all of the 
target corporation's properties are acquired solely in exchange for 
voting stock of the corporation in control of the acquiring corporation 
to also be described in section 368(a)(1)(D). If so, section 
368(a)(2)(A) would preclude the transaction from being treated as 
described in section 368(a)(1)(C). Accordingly, the transaction would 
be treated as described only in section 368(a)(1)(D), and the voting 
stock of the corporation in control of the acquiring corporation would 
be treated as boot. Further, the temporary regulations may cause a 
related party transaction that

[[Page 9263]]

would otherwise qualify as a tax-free reorganization described in 
section 368(a)(1)(A) by reason of section 368(a)(2)(D) from so 
qualifying because the deemed issuance of a nominal share of stock of 
the acquiring corporation would violate the requirements of section 
368(a)(2)(D)(i). If so, the transaction would be treated as described 
only in section 368(a)(1)(D), and the stock of the corporation in 
control of the acquiring corporation would be treated as boot.
    The IRS and Treasury Department did not intend for the temporary 
regulations to apply to such transactions.

Explanation of Provisions

    These temporary regulations clarify and amend the temporary 
regulations (TD 9303) under Sec.  1.368-2T(l) by providing that the 
deemed issuance of the nominal share of stock of the transferee 
corporation in a transaction otherwise described in section 
368(a)(1)(D) does not apply if the transaction otherwise qualifies as a 
triangular reorganization described in Sec.  1.358-6(b)(2) or section 
368(a)(1)(G) by reason of section 368(a)(2)(D). Accordingly, if a 
transaction qualifies as a triangular reorganization described in Sec.  
1.358-6(b)(2) or section 368(a)(1)(G) by reason of section 368(a)(2)(D) 
without regard to the temporary regulations, it will not be treated as 
a reorganization described in section 368(a)(1)(D).

Special Analyses

    It has been determined that this Treasury decision 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. For the 
applicability of the Regulatory Flexibility Act, please refer to the 
cross-reference notice of proposed rulemaking published elsewhere in 
this issue of the Federal Register. Pursuant to section 7805(f) of the 
Internal Revenue Code, these regulations were submitted to the Chief 
Counsel for Advocacy of the Small Business Administration for comment 
on their impact on small business.

Drafting Information

    The principal author of these regulations is Bruce A. Decker of the 
Office of the Associate Chief Counsel (Corporate).

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read as 
follows:


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


0
Par. 2. Section 1.368-2T is amended by adding paragraph (l)(2)(iv) to 
read as follows:


Sec.  1.368-2T  Definition of terms (temporary).

* * * * *
    (l) * * *
    (2) * * *
    (iv) Exception. Paragraph (l)(2) of this section does not apply to 
a transaction otherwise described in Sec.  1.358-6(b)(2) or section 
368(a)(1)(G) by reason of section 368(a)(2)(D).
* * * * *

Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.

    Approved: February 21, 2007.
Eric Solomon,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E7-3534 Filed 2-28-07; 8:45 am]
BILLING CODE 4830-01-P