12980 Federal Register / Vol. 72, No. 53 / Tuesday, March 20, 2007 / Rules and Regulations 

cash. Therefore, the transaction satisfies the 

continuity of interest requirement. 

Example 9. Shareholder election. On 

January 3 of Year 1, P and T sign a binding 

contract pursuant to which T will be merged 

with and into P on June 1 of Year 1. On 

January 2 of Year 1, the value of the P stock 

and the T stock is $1 per share. Pursuant to 

the contract, at the shareholders’ election, 

each share of T will be exchanged for cash 

of $1, or alternatively, P stock. The contract 

provides that the determination of the 

number of shares of P stock to be exchanged 

for a share of T stock is made using the value 

of the P stock on the last business day before 

the first date there is a binding contract (i.e., 

$1 per share). Accordingly, the contract 

provides for fixed consideration, and the 

determination of whether the transaction 

satisfies the continuity of interest 

requirement is based on the number of shares 

of P stock the T shareholders receive in the 

exchange and by reference to the value of the 

P stock on January 2 of Year 1. 

Example 10. Contingent adjustment based 

on the value of the issuing corporation 

stock—continuity not preserved. On January 

3 of Year 1, P and T sign a binding contract 

pursuant to which T will be merged with and 

into P on June 1 of Year 1. On January 2 of 

Year 1, the value of the P stock is $1 per 

share. Pursuant to the contract, if the value 

of the P stock does not decrease after January 

2 of Year 1, the T shareholders will receive 

40 P shares and $60 of cash in exchange for 

all of the outstanding stock of T. 

Furthermore, the contract provides that the T 

shareholders will receive $.16 of additional 

P shares and $.24 for every $.01 decrease in 

the value of one share of P stock after January 

2 of Year 1. On June 1 of Year 1, T merges 

with and into P pursuant to the terms of the 

contract. On that date, the value of the P 

stock is $.40 per share. Pursuant to the terms 

of the contract, the consideration is adjusted 

so that the T shareholders receive 24 more P 

shares ((60 × $.16)/$.40) and $14.40 more 

cash (60 × $.24) than they would absent an 

adjustment. Accordingly, at closing the T 

shareholders receive 64 P shares and $74.40 

of cash. Because the contract provides that 

additional P shares and cash will be 

delivered to the T shareholders if the value 

of the stock of P decreases after January 2 of 

Year 1, under paragraph (e)(2)(iii)(B)(2) of 

this section, the contract is not treated as 

providing for fixed consideration, and 

therefore whether the transaction satisfies the 

continuity of interest requirement cannot be 

determined by reference to the value of the 

P stock on January 2 of Year 1. For continuity 

of interest purposes, the T stock is exchanged 

for $25.60 of P stock (64 × $.40) and $74.40 

of cash and the transaction does not preserve 

a substantial part of the value of the 

proprietary interest in T. Therefore, the 

transaction does not satisfy the continuity of 

interest requirement. 

Example 11. Contingent adjustment to boot 

based on the value of the target corporation 

stock—continuity not preserved. On January 

3 of Year 1, P and T sign a binding contract 

pursuant to which T will be merged with and 

into P on June 1 of Year 1. On January 2 of 

Year 1, T has 100 shares outstanding, and 

each T share is worth $1. On January 2 of 

Year 1, each P share is worth $1. Pursuant 

to the contract, if the value of the T stock 

does not increase after January 3 of Year 1, 

the T shareholders will receive 40 P shares 

and $60 of cash in exchange for all of the 

outstanding stock of T. Furthermore, the 

contract provides that the T shareholders will 

receive $1 of additional cash for every $.01 

increase in the value of one share of T stock 

after January 3 of Year 1. On June 1 of Year 

1, the value of the T stock is $1.40 per share 

and the value of the P stock is $.75 per share. 

Pursuant to the terms of the contract, the 

consideration is adjusted so that the T 

shareholders receive $40 more cash (40 × $1) 

than they would absent an adjustment. 

Accordingly, at closing the T shareholders 

receive 40 P shares and $100 of cash. Because 

the contract provides the number of shares of 

P stock and the amount of money to be 

exchanged for all the proprietary interests in 

T, and the contingent adjustment to the cash 

consideration is not based on changes in the 

value of the P stock, P assets, or any surrogate 

thereof, after January 2 of Year 1, there is a 

binding contract providing for fixed 

consideration as of January 3 of Year 1. 

Therefore, whether the transaction satisfies 

the continuity of interest requirement is 

determined by reference to the value of the 

P stock on January 2 of Year 1. For continuity 

of interest purposes, the T stock is exchanged 

for $40 of P stock (40 × $1) and $100 of cash. 

Therefore, the transaction does not satisfy the 

continuity of interest requirement. 

Example 12. Contingent adjustment to 

stock based on the value of the target 

corporation stock—continuity preserved. On 

January 3 of Year 1, P and T sign a binding 

contract pursuant to which T will be merged 

with and into P on June 1 of Year 1. On that 

date T has 100 shares outstanding, and each 

T share is worth $1. On January 2 of Year 1, 

each P share is worth $1. Pursuant to the 

contract, if the value of the T stock does not 

decrease after January 3 of Year 1, the T 

shareholders will receive 40 P shares and $60 

of cash in exchange for all of the outstanding 

stock of T. Furthermore, the contract 

provides that the T shareholders will receive 

$.40 less P stock and $.60 less cash for every 

$.01 decrease in the value of one share of T 

stock after January 3 of Year 1. The contract 

also provides that the number of P shares by 

which the consideration will be reduced as 

a result of this adjustment will be determined 

based on the value of the P stock on January 

2 of Year 1. On June 1 of Year 1, T merges 

with and into P pursuant to the terms of the 

contract. On that date, the value of the T 

stock is $.70 per share and the value of the 

P stock is $.75 per share. Pursuant to the 

terms of the contract, the consideration is 

adjusted so that the T shareholders receive 12 

fewer P shares ((30 × $.40)/$1) and $18 less 

cash (30 × $.60) than they would absent an 

adjustment. Accordingly, at closing the T 

shareholders receive 28 P shares and $42 of 

cash. Because the contract provides for the 

number of shares of P stock and the amount 

of money to be exchanged for all of the 

proprietary interests in T, the contract does 

not provide for contingent adjustments to the 

consideration based on a change in value of 

the P stock, P assets, or any surrogate thereof, 

after January 2 of Year 1, and the adjustment 

to the number of P shares the T shareholders 

receive is determined based on the value of 

the P shares on January 2 of Year 1, there is 

a binding contract providing for fixed 

consideration as of January 3 of Year 1. 

Therefore, whether the transaction satisfies 

the continuity of interest requirement is 

determined by reference to the value of the 

P stock on January 2 of Year 1. For continuity 

of interest purposes, the T stock is exchanged 

for $28 of P stock (28 × $1) and $42 of cash. 

Therefore, the transaction satisfies the 

continuity of interest requirement. 

(e)(3) through (7) [Reserved]. For 

further guidance, see § 1.368–1(e)(3) 

through (7). 

(8) Effective dates. (i) [Reserved]. For 

further guidance, see § 1.368–1(e)(8)(i). 

(ii) Signing date rule. Paragraph (e)(2) 

of this section applies to transactions 

occurring pursuant to binding contracts 

entered into after September 16, 2005. 

For transactions occurring pursuant to 

binding contracts entered into after 

September 16, 2005, and on or before 

March 20, 2007, the parties to the 

transaction may elect to apply the 

provisions of § 1.368–1(e)(2) as 

contained in 26 CFR part 1, revised 

April 1, 2006, instead of the provisions 

of this paragraph (e)(2). However, the 

target corporation, the issuing 

corporation, the controlling corporation 

of the acquiring corporation if stock 

thereof is provided as consideration in 

the transaction, and any direct or 

indirect transferee of transferred basis 

property from any of the foregoing, may 

not elect to apply the provisions of 

§ 1.368–1(e)(2) as contained in 26 CFR 

part 1, revised April 1, 2006, unless all 

such taxpayers elect to apply the 

provisions of such regulations. This 

election requirement will be satisfied if 

none of the specified parties adopts 

inconsistent treatment. The 

applicability of this section expires on 

or before March 19, 2010. 

Kevin M. Brown, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: March 14, 2007. 

Eric Solomon, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. E7–5128 Filed 3–19–07; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF THE TREASURY 

Office of Foreign Assets Control 

31 CFR Parts 538 and 560 

Sudanese Sanctions Regulations; 

Iranian Transactions Regulations 

AGENCY: Office of Foreign Assets 

Control, Treasury. 


erjones on PRODPC74 with RULES
Federal Register / Vol. 72, No. 53 / Tuesday, March 20, 2007 / Rules and Regulations 12981 

ACTION: Policy statement. 

SUMMARY: The Office of Foreign Assets 

Control of the U.S. Department of the 

Treasury is issuing this notice to clarify 

its policy with respect to the process for 

issuing one-year licenses to export 

agricultural commodities, medicine, and 

medical devices to Sudan and Iran 

pursuant to section 906 of the Trade 

Sanctions Reform and Export 

Enhancement Act of 2000, Title IX of 

Public Law 106–387 (October 28, 2000). 

FOR FURTHER INFORMATION CONTACT: 

Assistant Director for Compliance 

Outreach & Implementation, tel.: 202/ 

622–2490, Assistant Director for 

Licensing, tel.: 202/622–2480, Assistant 

Director for Policy, tel.: 202/622–4855, 

or Chief Counsel, tel.: 202/622–2410, 

Office of Foreign Assets Control, 

Department of the Treasury, 

Washington, DC 20220. 

Clarification of Policy With Respect to 

the Process for Issuing One-Year 

Licenses To Export Agricultural 

Commodities, Medicine, and Medical 

Devices to Sudan and Iran 

The Trade Sanctions Reform and 

Export Enhancement Act of 2000, Title 

IX of Public Law 106–387 (October 28, 

2000), as amended (‘‘TSRA’’), provides 

that, with certain exceptions, the 

President may not impose a unilateral 

agricultural sanction or unilateral 

medical sanction against a foreign 

country or foreign entity unless, at least 

60 days before imposing such a 

sanction, the President submits a report 

describing the proposed sanction and 

the reasons for it and Congress enacts a 

joint resolution approving the report. 

Section 906 of TSRA, however, requires 

that the export of agricultural 

commodities, medicine, and medical 

devices to Cuba, or to the government of 

a country that has been determined by 

the Secretary of State to have repeatedly 

provided support for acts of 

international terrorism, or to any entity 

in such country, shall only be made 

pursuant to one-year licenses issued by 

the United States Government. Section 

906 also requires that procedures shall 

be in place to deny licenses for exports 

to any entity within such country that 

promotes international terrorism. 

Effective July 26, 2001, the Office of 

Foreign Assets Control (‘‘OFAC’’) 

promulgated amendments to the 

Sudanese Sanctions Regulations, 31 

CFR part 538 (the ‘‘SSR’’), and the 

Iranian Transactions Regulations, 31 

CFR part 560 (the ‘‘ITR’’), to implement 

section 906 of TSRA. See 66 FR 36683 

(July 12, 2001) (the ‘‘rule’’). The 

preamble to the rule described an 

expedited process for the issuance of the 

one-year license required by section 906 

for all exports and reexports of 

agricultural commodities, medicine, and 

medical devices to Sudan or Iran. The 

expedited process included, when 

appropriate, referral of the one-year 

license request to other government 

agencies for guidance in evaluating the 

request. If no government agency raised 

an objection to or concern with the 

application within nine business days 

from the date of any such referral, OFAC 

would issue the one-year license, 

provided that the request otherwise met 

the requirements set forth in the rule. 

Conversely, if any government agency 

raised an objection to the request within 

nine business days from the date of 

referral, OFAC would deny the license 

request. Finally, if any government 

agency raised a concern short of an 

objection with the request within nine 

business days from the date of referral, 

OFAC would delay its response to the 

license request for no more than thirty 

additional days to allow for further 

review of the request. 

OFAC instituted this expedited 

licensing process described in the 

preamble following the rule’s 

publication in July 2001. However, the 

terrorist attacks of September 11, 2001, 

magnified concerns about international 

terrorism and proliferation of weapons 

of mass destruction. These concerns 

prompted greater scrutiny on the part of 

OFAC and other agencies of the U.S. 

Government of those entities within 

state sponsors of terrorism to whom 

agricultural commodities, medicine, and 

medical devices were being exported. 

Moreover, the volume of license 

requests has increased substantially 

since the inception of the TSRA 

program, and applications are now 

much more complicated than earlier 

ones, often involving dozens and 

sometimes hundreds of products and 

parties to the transaction. All of these 

factors have contributed to longer OFAC 

and interagency reviews of the 

applications, and thus longer processing 

times for the applications, than 

suggested in the preamble to the rule. 

This review is often further complicated 

by the fact that these license requests 

are evaluated both in terms of whether 

the foreign entities involved in the 

transaction ‘‘promote international 

terrorism,’’ as required by section 906 of 

TSRA, and in terms of whether the 

products at issue implicate independent 

export control regimes involving 

chemical or biological weapons or 

weapons of mass destruction, as 

provided in section 904(2)(C) of TSRA. 

Scrutiny of license applications on the 

latter ground often results in requests 

for additional information by the 

reviewing agencies, which neither the 

applicant nor OFAC can anticipate, 

further delaying the review process. 

Accordingly, today OFAC is issuing 

this notice to clarify its policy with 

respect to the licensing process for 

TSRA exports. OFAC will continue to 

conduct a review of all applications for 

one-year licenses consistent with the 

requirements of section 906 of TSRA, 

which may include a referral to other 

government agencies for guidance, and 

will respond to such applications upon 

completion of the review. Please be 

aware that OFAC’s processing of oneyear license requests may take longer 

than the time periods suggested at the 

inception of the TSRA program. OFAC 

will continue to respond to such 

applications in as timely a manner as is 

possible under the circumstances of 

each individual license application, 

consistent with OFAC’s obligations 

under TSRA, the ITR, and the SSR. 

Dated: February 9, 2007. 

Adam J. Szubin, 

Director, Office of Foreign Assets Control. 

[FR Doc. E7–4950 Filed 3–19–07; 8:45 am] 

BILLING CODE 4811–42–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 117 

[CGD01–07–027] 

Drawbridge Operation Regulations; 

Raritan River, Arthur Kill, and Their 

Tributaries, NJ 

AGENCY: Coast Guard, DHS. 

ACTION: Notice of temporary deviation 

from regulations; request for comments. 

SUMMARY: The Commander, First Coast 

Guard District, has issued a temporary 

deviation from the regulation governing 

the operation of the AK Railroad Bridge 

across Arthur Kill at mile 11.6, between 

Staten Island, New York and Elizabeth, 

New Jersey. This temporary deviation 

requires the AK Railroad Bridge to 

remain in the open position at all times, 

except that the draw would close for the 

passage of trains for two daily one-hour 

closure periods on a fixed schedule with 

a one hour adjustment whenever high 

water occurs during or up to one hour 

after the applicable closure period. In 

addition, a number of unscheduled 

requests for one hour closure periods 

may be granted by the Coast Guard 

within one to three hours of receipt of 

the request. The purpose of this 


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