26318 Federal Register / Vol. 73, No. 91 / Friday, May 9, 2008 / Rules and Regulations 

that is likely to exist or develop on 

products identified in this rulemaking 

action. 

List of Subjects in 14 CFR Part 39 

Air transportation, Aircraft, Aviation 

safety, Incorporation by reference, 

Safety. 

Adoption of the Amendment 

■ Accordingly, pursuant to the authority 

delegated to me by the Administrator, 

the Federal Aviation Administration 

amends part 39 of the Federal Aviation 

Regulations (14 CFR part 39) as follows: 

PART 39—AIRWORTHINESS 

DIRECTIVES 

■ 1. The authority citation for part 39 

continues to read as follows: 

Authority: 49 U.S.C. 106(g), 40113, 44701. 

§ 39.13 [Amended] 

■ 2. Section 39.13 is amended by adding 

a new airworthiness directive to read as 

follows: 

2007–26–52 Agusta S.p.A.: Amendment 39–

15519. Docket No. FAA–2008–0524; 

Directorate Identifier 2007–SW–77–AD. 

Supersedes AD 2001–24–07 R1, 

Amendment 39–13687, Docket No. 

2001–SW–15–AD. 

Applicability: Model A109C, A109E, and 

A109K2 helicopters, with a main rotor blade 

(MRB), Part Number (P/N) 709–0103–01–all 

dash numbers, certificated in any category. 

Compliance: Required as indicated. 

(a) For a MRB with a serial number that has 

a prefix of either ‘‘EM–’’ or ‘‘A5–’’, except a 

MRB with a tip cap, P/N 709–0103–29–109, 

installed, within 10 hours time-in-service 

(TIS), unless accomplished previously, and 

thereafter at intervals not to exceed 25 hours 

TIS: 

(1) Tap inspect the upper and lower sides 

of each tip cap for bonding separation 

between the metal shells and the honeycomb 

core using a steel tap hammer, P/N 109–

3101–58–1, or a coin (quarter) in the area 

indicated as honeycomb core on Figure 1 of 

Alert Bollettino Tecnico (BT) No. 109–106, 

No. 109K–22, or No. 109EP–1, all Revision B, 

and all dated December 19, 2000, as 

applicable to your model helicopter. Also, 

tap inspect for bonding separation in the tip 

cap to blade bond area (no bonding voids are 

permitted in this area). 

(2) Visually inspect the upper and lower 

sides of each blade tip cap for swelling or 

deformation. 

(3) Dye-penetrant inspect the tip cap 

leading edge along the welded joint line of 

the upper and lower tip cap skin shells for 

a crack in accordance with the Compliance 

Instructions, steps 3. through 3.2.6., of the 

applicable BT. 

(4) If any swelling, deformation, crack, or 

bonding separation that exceeds the 

prescribed limits in the applicable 

maintenance manual is found, replace the 

blade with an airworthy blade before further 

flight. 

(b) For a MRB with a tip cap, P/N 709–

0103–29–109, installed, perform the 

following in accordance with Table 1: 

TABLE 1 

For each tip cap: Comply: 

With 600 or more hours TIS .................................................... Within the next 5 hours TIS or 30 days, whichever occurs first, and thereafter at 

intervals not to exceed 50 hours TIS. 

With less than 600 hours TIS .................................................. Before reaching 600 hours TIS, and thereafter, at intervals not to exceed 50 

hours TIS. 

(1) Using a 10x or higher power magnifying 

glass, visually inspect the tip cap leading 

edge welded bead (joint line between the two 

metallic shells) for a crack in accordance 

with the Compliance Instructions, steps 1. 

through 2. of BT No. 109–125, No. 109EP–85, 

or No. 109K–48, all dated December 13, 2007, 

as applicable to your model helicopter. 

(2) If there is damage other than a crack, 

inspect the tip cap leading edge along the 

welded joint line of the shells for a crack 

using a dye penetrant method in accordance 

with the Compliance Instructions, steps 3. 

through 3.7. of BT No. 109–125, No. 109EP–

85, or No. 109K–48, all dated December 13, 

2007, as applicable to your model helicopter. 

(3) If a crack is present, remove the blade 

and replace it with an airworthy blade before 

further flight. 

(c) To request a different method of 

compliance or a different compliance time 

for this AD, follow the procedures in 14 CFR 

39.19. Contact the Manager, Safety 

Management Group, FAA, ATTN: Sharon 

Miles, Rotorcraft Directorate, Fort Worth, 

Texas 76193–0111, telephone (817) 222–

5122, fax (817) 222–5961, for information 

about previously approved alternative 

methods of compliance. 

(d) The inspections shall be done in 

accordance with the specified portions of the 

service information described in paragraphs 

(d)(1) and (d)(2) of this AD. 

(1) The Director of the Federal Register 

approved the incorporation by reference of 

Agusta Bollettino Tecnico No. 109–125, No. 

109EP–85, and No. 109K–48, all dated 

December 13, 2007, in accordance with 5 

U.S.C. 552(a) and 1 CFR part 51. 

(2) The Director of the Federal Register 

previously approved the incorporation by 

reference of Agusta Alert Bollettino Tecnico 

No. 109–106, No. 109K–22, and No. 109EP–

1, all Revision B and all dated December 19, 

2000, on January 7, 2002 (66 FR 60144, 

December 3, 2001). 

(3) Copies may be obtained from Agusta, 

21017 Cascina Costa di Samarate (VA) Italy, 

Via Giovanni Agusta 520, telephone 39 

(0331) 229111, fax 39 (0331) 229605–222595. 

(4) Copies may be inspected at the FAA, 

Office of the Regional Counsel, Southwest 

Region, 2601 Meacham Blvd., Room 663, Fort 

Worth, Texas or at the National Archives and 

Records Administration (NARA). For 

information on the availability of this 

material at NARA, call 202–741–6030, or go 

to: http://www.archives.gov/federal_register/

code_of_federal_regulations/ibr_

locations.html. 

Note: The subject of this AD is addressed 

in European Aviation Safety Agency (EASA) 

AD No. 2007–0306–E, dated December 14, 

2007. 

(e) This amendment becomes effective on 

May 27, 2008, to all persons except those 

persons to whom it was made immediately 

effective by Emergency AD 2007–26–52, 

issued December 20, 2007, which contained 

the requirements of this amendment. 

Issued in Fort Worth, Texas, on May 1, 

2008. 

Mark R. Schilling, 

Acting Manager, Rotorcraft Directorate, 

Aircraft Certification Service. 

[FR Doc. E8–10054 Filed 5–8–08; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2008–0527; Directorate 

Identifier 2008–CE–027–AD; Amendment 

39–15520; AD 2008–10–13] 

RIN 2120–AA64 

Airworthiness Directives; EADS 

SOCATA Model TBM 700 Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule; request for 

comments. 

SUMMARY: We are adopting a new 

airworthiness directive (AD) for the 

products listed above. This AD results 

from mandatory continuing 

airworthiness information (MCAI) 

issued by the aviation authority of 

another country to identify and correct 


rwilkins on PROD1PC63 with RULES
Federal Register / Vol. 73, No. 91 / Friday, May 9, 2008 / Rules and Regulations 26319 

an unsafe condition on an aviation 

product. The MCAI describes the unsafe 

condition as: 

A rupture of the alternator and vapour 

cycle cooling system pulley drive assembly 

has reportedly been found. Such a failure 

could lead to the loss of the alternator and 

vapour cycle cooling systems and could also 

cause mechanical damage inside the 

powerplant compartment. 

This AD requires actions that are 

intended to address the unsafe 

condition described in the MCAI. 

DATES: This AD becomes effective May 

29, 2008. 

On May 29, 2008, the Director of the 

Federal Register approved the 

incorporation by reference of certain 

publications listed in this AD. 

We must receive comments on this 

AD by June 9, 2008. 

ADDRESSES: You may send comments by 

any of the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: (202) 493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, M–

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue, SE., 

Washington, DC 20590. 

• Hand Delivery: U.S. Department of 

Transportation, Docket Operations, M–

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue, SE., 

Washington, DC 20590, between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. 

Examining the AD Docket 

You may examine the AD docket on 

the Internet at http:// 

www.regulations.gov; or in person at the 

Docket Management Facility between 9 

a.m. and 5 p.m., Monday through 

Friday, except Federal holidays. The AD 

docket contains this AD, the regulatory 

evaluation, any comments received, and 

other information. The street address for 

the Docket Office (telephone (800) 647–

5527) is in the ADDRESSES section. 

Comments will be available in the AD 

docket shortly after receipt. 

FOR FURTHER INFORMATION CONTACT: 

Albert Mercado, Aerospace Engineer, 

FAA, Small Airplane Directorate, 901 

Locust, Room 301, Kansas City, 

Missouri 64106; telephone: (816) 329–

4119; fax: (816) 329–4090. 

SUPPLEMENTARY INFORMATION: 

Discussion 

The European Aviation Safety Agency 

(EASA), which is the Technical Agent 

for the Member States of the European 

Community, has issued EASA AD No.: 

2008–0067–E, dated April 3, 2008 

(referred to after this as ‘‘the MCAI’’), to 

correct an unsafe condition for the 

specified products. The MCAI states: 

A rupture of the alternator and vapour 

cycle cooling system pulley drive assembly 

has reportedly been found. Such a failure 

could lead to the loss of the alternator and 

vapour cycle cooling systems and could also 

cause mechanical damage inside the 

powerplant compartment. 

To address this condition, AD 2008–0063–

E had been published to require a check of 

the pulley drive assembly for leakage and, as 

an interim action, removal of the compressor 

drive belt from the assembly, and adoption 

of a new operational procedure to keep the 

air-conditioning system deactivated. 

This AD retains the requirements of AD 

2008–0063–E which is superseded, 

introduces a mandatory terminating action 

which consists in replacing the original 

pulley drive assembly by a new one of an 

improved design—corresponding to the 

EADS SOCATA modification MOD 70–0231–

21—that permits reinstallation of the 

compressor drive belt. 

The MCAI requires you to deactivate the 

air conditioning system, inspect the 

pulley drive assembly for leaks, and 

replace the pulley drive assembly if 

leaks are found. 

You may obtain further information 

by examining the MCAI in the AD 

docket. 

Relevant Service Information 

EADS SOCATA has issued Mandatory 

Service Bulletin SB 70–156, 

Amendment 1, dated March 2008. The 

actions described in this service 

information are intended to correct the 

unsafe condition identified in the 

MCAI. 

FAA’s Determination and Requirements 

of the AD 

This product has been approved by 

the aviation authority of another 

country, and is approved for operation 

in the United States. Pursuant to our 

bilateral agreement with this State of 

Design Authority, they have notified us 

of the unsafe condition described in the 

MCAI and service information 

referenced above. We are issuing this 

AD because we evaluated all 

information provided by the State of 

Design Authority and determined the 

unsafe condition exists and is likely to 

exist or develop on other products of the 

same type design. 

The MCAI and the service 

information require replacement of the 

pulley drive assembly part number 

(P/N) T700G215504900000 with the 

new P/N T700G215505710000 and 

reinstallation of the compressor drive 

belt by no later than March 31, 2009. 

This AD is considered an interim action 

because we are only mandating this 

replacement if a leak is found. The 

Administrative Procedure Act does not 

permit the FAA to ‘‘bootstrap’’ a longterm requirement into an urgent safety 

of flight action where the rule becomes 

effective at the same time the public has 

the opportunity to comment. The shortterm action and the long-term action are 

analyzed separately for justification to 

bypass prior public notice. 

After issuing this AD, we may initiate 

further AD action (notice of proposed 

rulemaking followed by a final rule) to 

require such a terminating action. 

Differences Between This AD and the 

MCAI or Service Information 

We have reviewed the MCAI and 

related service information and, in 

general, agree with their substance. But 

we might have found it necessary to use 

different words from those in the MCAI 

to ensure the AD is clear for U.S. 

operators and is enforceable. In making 

these changes, we do not intend to differ 

substantively from the information 

provided in the MCAI and related 

service information. 

We might have also required different 

actions in this AD from those in the 

MCAI in order to follow FAA policies. 

Any such differences are described in a 

separate paragraph of the AD. These 

requirements take precedence over 

those copied from the MCAI. 

FAA’s Determination of the Effective 

Date 

An unsafe condition exists that 

requires the immediate adoption of this 

AD. The FAA has found that the risk to 

the flying public justifies waiving notice 

and comment prior to adoption of this 

rule because a rupture of the alternator 

and vapour cycle cooling system pulley 

drive assembly has been reported. Such 

a failure could lead to the loss of the 

alternator and vapor cycle cooling 

systems and could cause mechanical 

damage inside the powerplant 

compartment. 

Therefore, we determined that notice 

and opportunity for public comment 

before issuing this AD are impracticable 

and that good cause exists for making 

this amendment effective in fewer than 

30 days. 

Comments Invited 

This AD is a final rule that involves 

requirements affecting flight safety, and 

we did not precede it by notice and 

opportunity for public comment. We 

invite you to send any written relevant 

data, views, or arguments about this AD. 

Send your comments to an address 

listed under the ADDRESSES section. 

Include ‘‘Docket No. FAA–2008–0527; 

Directorate Identifier 2008–CE–027–


rwilkins on PROD1PC63 with RULES
26320 Federal Register / Vol. 73, No. 91 / Friday, May 9, 2008 / Rules and Regulations 

AD’’ at the beginning of your comments. 

We specifically invite comments on the 

overall regulatory, economic, 

environmental, and energy aspects of 

this AD. We will consider all comments 

received by the closing date and may 

amend this AD because of those 

comments. 

We will post all comments we 

receive, without change, to http:// 

www.regulations.gov, including any 

personal information you provide. We 

will also post a report summarizing each 

substantive verbal contact we receive 

about this AD. 

Authority for This Rulemaking 

Title 49 of the United States Code 

specifies the FAA’s authority to issue 

rules on aviation safety. Subtitle I, 

section 106, describes the authority of 

the FAA Administrator. ‘‘Subtitle VII: 

Aviation Programs,’’ describes in more 

detail the scope of the Agency’s 

authority. 

We are issuing this rulemaking under 

the authority described in ‘‘Subtitle VII, 

Part A, Subpart III, Section 44701: 

General requirements.’’ Under that 

section, Congress charges the FAA with 

promoting safe flight of civil aircraft in 

air commerce by prescribing regulations 

for practices, methods, and procedures 

the Administrator finds necessary for 

safety in air commerce. This regulation 

is within the scope of that authority 

because it addresses an unsafe condition 

that is likely to exist or develop on 

products identified in this rulemaking 

action. 

Regulatory Findings 

We determined that this AD will not 

have federalism implications under 

Executive Order 13132. This AD will 

not have a substantial direct effect on 

the States, on the relationship between 

the national government and the States, 

or on the distribution of power and 

responsibilities among the various 

levels of government. 

For the reasons discussed above, I 

certify that this AD: 

(1) Is not a ‘‘significant regulatory 

action’’ under Executive Order 12866; 

(2) Is not a ‘‘significant rule’’ under 

DOT Regulatory Policies and Procedures 

(44 FR 11034, February 26, 1979); and 

(3) Will not have a significant 

economic impact, positive or negative, 

on a substantial number of small entities 

under the criteria of the Regulatory 

Flexibility Act. 

We prepared a regulatory evaluation 

of the estimated costs to comply with 

this AD and placed it in the AD docket. 

List of Subjects in 14 CFR Part 39 

Air transportation, Aircraft, Aviation 

safety, Incorporation by reference, 

Safety. 

Adoption of the Amendment 

■ Accordingly, under the authority 

delegated to me by the Administrator, 

the FAA amends 14 CFR part 39 as 

follows: 

PART 39—AIRWORTHINESS 

DIRECTIVES 

■ 1. The authority citation for part 39 

continues to read as follows: 

Authority: 49 U.S.C. 106(g), 40113, 44701. 

§ 39.13 [Amended] 

■ 2. The FAA amends § 39.13 by adding 

the following new AD: 

2008–10–13 EADS SOCATA: Amendment 

39–15520; Docket No. FAA–2008–0527; 

Directorate Identifier 2008–CE–027–AD. 

Effective Date 

(a) This airworthiness directive (AD) 

becomes effective May 29, 2008. 

Affected ADs 

(b) None. 

Applicability 

(c) This AD applies to Models TBM 700 

airplanes, serial numbers 434 through 455, 

certificated in any category. 

Subject 

(d) Air Transport Association of America 

(ATA) Code 24: Electric Power. 

Reason 

(e) The mandatory continuing 

airworthiness information (MCAI) states: 

A rupture of the alternator and vapour 

cycle cooling system pulley drive assembly 

has reportedly been found. Such a failure 

could lead to the loss of the alternator and 

vapour cycle cooling systems and could also 

cause mechanical damage inside the 

powerplant compartment. 

To address this condition, AD 2008–0063–

E had been published to require a check of 

the pulley drive assembly for leakage and, as 

an interim action, removal of the compressor 

drive belt from the assembly, and adoption 

of a new operational procedure to keep the 

air-conditioning system deactivated. 

This AD retains the requirements of AD 

2008–0063–E which is superseded, 

introduces a mandatory terminating action 

which consists in replacing the original 

pulley drive assembly by a new one of an 

improved design—corresponding to the 

EADS SOCATA modification MOD 70–0231–

21—that permits reinstallation of the 

compressor drive belt. 

The MCAI requires you to deactivate the air 

conditioning system, inspect the pulley drive 

assembly for leaks, and replace the pulley 

drive assembly if leaks are found. 

Actions and Compliance 

(f) Unless already done, before further 

flight after May 29, 2008 (the effective date 

of this AD), do the following actions: 

(1) Position to ‘‘OFF’’ the air-conditioning 

‘‘AIR COND’’ switch. 

(2) Check for oil leakage in the pulley drive 

assembly by following EADS SOCATA 

Service Bulletin (SB) No. 70–156 

Amendment 1, dated March 2008. 

(3) If any leak is found, before further 

flight, replace the pulley drive assembly part 

number (P/N) T700G215504900000 with P/N 

T700G215505710000 following EADS 

SOCATA Service Bulletin (SB) No. 70–156 

Amendment 1, dated March 2008. 

(4) If no leak is found, before further flight, 

remove the compressor drive belt from the 

pulley drive assembly following either EADS 

SOCATA Service Bulletin (SB) No. 70–156, 

original issue; or EADS SOCATA Service 

Bulletin (SB) No. 70–156, Amendment 1; 

both dated March 2008. 

(5) The air-conditioning ‘‘AIR COND’’

switch must be in the ‘‘OFF’’ position and 

the compressor drive belt must remain 

removed until the pulley drive assembly part 

number (P/N) T700G215504900000 is 

replaced with P/N T700G215505710000 

following EADS SOCATA Service Bulletin 

(SB) No. 70–156 Amendment 1, dated March 

2008. This replacement must be done before 

further flight if any leak is found and may be 

done at any time as terminating action to this 

AD. 

FAA AD Differences 

Note: This AD differs from the MCAI and/ 

or service information as follows: 

(1) The MCAI and the service information 

require replacement of the pulley drive 

assembly part number (P/N) 

T700G215504900000 with the improved 

design P/N T700G215505710000 and 

reinstallation of the compressor drive belt by 

no later than March 31, 2009. 

(2) This AD is considered an interim action 

because we are only mandating this 

replacement if a leak is found. The 

Administrative Procedure Act does not 

permit the FAA to ‘‘bootstrap’’ a long-term 

requirement into an urgent safety of flight 

action where the rule becomes effective at the 

same time the public has the opportunity to 

comment. The short-term action and the 

long-term action are analyzed separately for 

justification to bypass prior public notice. 

(3) After issuing this AD, we may initiate 

further AD action (notice of proposed 

rulemaking followed by a final rule) to 

require the replacement of the pulley drive 

assembly part number (P/N) 

T700G215504900000 with the new P/N 

T700G215505710000, and reinstallation of 

the compressor drive belt as a terminating 

action. Appropriate credit would be given for 

the initial actions done under this AD. 

Other FAA AD Provisions 

(g) The following provisions also apply to 

this AD: 

(1) Alternative Methods of Compliance 

(AMOCs): The Manager, Standards Office, 

FAA, has the authority to approve AMOCs 

for this AD, if requested using the procedures 

found in 14 CFR 39.19. Send information to 


rwilkins on PROD1PC63 with RULES
Federal Register / Vol. 73, No. 91 / Friday, May 9, 2008 / Rules and Regulations 26321 

ATTN: Albert Mercado, Aerospace Engineer, 

FAA, Small Airplane Directorate, 901 Locust, 

Room 301, Kansas City, Missouri 64106; 

telephone: (816) 329–4119; fax: (816) 329–

4090. Before using any approved AMOC on 

any airplane to which the AMOC applies, 

notify your appropriate principal inspector 

(PI) in the FAA Flight Standards District 

Office (FSDO), or lacking a PI, your local 

FSDO. 

(2) Airworthy Product: For any requirement 

in this AD to obtain corrective actions from 

a manufacturer or other source, use these 

actions if they are FAA-approved. Corrective 

actions are considered FAA-approved if they 

are approved by the State of Design Authority 

(or their delegated agent). You are required 

to assure the product is airworthy before it 

is returned to service. 

(3) Reporting Requirements: For any 

reporting requirement in this AD, under the 

provisions of the Paperwork Reduction Act 

(44 U.S.C. 3501 et seq.), the Office of 

Management and Budget (OMB) has 

approved the information collection 

requirements and has assigned OMB Control 

Number 2120–0056. 

Special Flight Permit 

(h) Under 14 CFR 39.23, we are limiting 

the special flight permits for this AD under 

the following condition: The air-conditioning 

‘‘AIR–COND’’ switch is set to the ‘‘OFF’’

position. 

Related Information 

(i) Refer to MCAI European Aviation Safety 

Agency (EASA) Emergency AD No.: 2008–

0067–E, dated April 3, 2008, and EADS 

SOCATA Service Bulletin (SB) No. 70–156, 

Amendment 1, dated March 2008, for related 

information. 

Material Incorporated by Reference 

(j) You must use EADS SOCATA Service 

Bulletin (SB) No. 70–156, original issue; or 

EADS SOCATA Service Bulletin (SB) No. 70–

156, Amendment 1, both dated March 2008, 

to do the actions required by this AD, unless 

the AD specifies otherwise. 

(1) The Director of the Federal Register 

approved the incorporation by reference of 

this service information under 5 U.S.C. 

552(a) and 1 CFR part 51. 

(2) For service information identified in 

this AD, contact EADS SOCATA—Direction 

des Services, 65921 Tarbes Cedex 9, France; 

telephone: +33 (0)5 62 41 73 00; fax: +33 (0)5 

62 41 7–54; or in the United States contact 

EADS SOCATA North America, Inc., North 

Perry Airport, 7501 South Airport Road., 

Pembroke Pines, Florida 33023; telephone: 

(954) 893–1400; fax: (954) 964–4141. 

(3) You may review copies at the FAA, 

Central Region, Office of the Regional 

Counsel, 901 Locust, Room 506, Kansas City, 

Missouri 64106; or at the National Archives 

and Records Administration (NARA). For 

information on the availability of this 

material at NARA, call 202–741–6030, or go 

to: http://www.archives.gov/federal-register/ 

cfr/ibr-locations.html. 

Issued in Kansas City, Missouri, on April 

30, 2008. 

Patrick R. Mullen, 

Acting Manager, Small Airplane Directorate, 

Aircraft Certification Service. 

[FR Doc. E8–10066 Filed 5–8–08; 8:45 am] 

BILLING CODE 4910–13–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9397] 

RIN 1545–BH95 

Assumption of Liabilities 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations and removal of 

temporary regulations. 

SUMMARY: This document contains final 

regulations relating to the assumption of 

liabilities under section 358(h) of the 

Internal Revenue Code (Code). Section 

358(h) provides that, after application of 

section 358(d), the basis in stock 

received in a nonrecognition transaction 

shall be reduced to the fair market value 

of the stock by the amount of any 

liability assumed in the exchange. The 

Treasury Department and the IRS have 

determined that removing an exception 

to section 358(h) is necessary to prevent 

abuse. These regulations affect 

corporations and their shareholders. 

DATES: Effective Date: These regulations 

are effective on May 9, 2008. 

Applicability Date: For dates of 

applicability, see §§ 1.358–5(a) and (b). 

FOR FURTHER INFORMATION CONTACT: 

Robert M. Rhyne (202) 622–7550 (not a 

toll-free number). 

SUPPLEMENTARY INFORMATION: 

Background 

This document contains amendments 

to 26 CFR part 1 under section 358(h) 

of the Code. As part of the Consolidated 

Appropriations Act of 2001 (Pub. L. 

106–554, 114 Stat. 2763), Congress 

enacted, on December 21, 2000, section 

358(h), applicable to assumptions of 

liability after October 18, 1999, to 

address certain transactions in which 

property is transferred to a corporation 

in exchange for both stock and the 

corporation’s assumption of certain 

obligations of the transferor. In these 

transactions, transferors took the 

position that the obligations were not 

liabilities within the meaning of section 

357(c) or that they were described in 

section 357(c)(3), and, therefore, the 

obligations did not reduce the basis of 

the stock received by transferor. These 

assumed obligations, however, did 

reduce the value of the stock. The 

transferors then sold the stock and 

claimed a loss. In this way, taxpayers 

attempted to duplicate a loss in 

corporate stock and to accelerate 

deductions that typically are allowed 

only on the economic performance of 

these types of obligations. 

Section 358(h)(1) addresses these 

transactions by requiring that, after 

application of section 358(d), the basis 

in stock received in an exchange to 

which section 351, 354, 355, 356, or 361 

applies be reduced (but not below the 

fair market value of the stock) by the 

amount of any liability assumed in the 

exchange. Section 358(h)(2) provides 

exceptions to section 358(h)(1) where: 

(A) The trade or business with which 

the liability is associated is transferred 

to the person assuming the liability as 

part of the exchange; or (B) substantially 

all of the assets with which the liability 

is associated are transferred to the 

person assuming the liability as part of 

the exchange (the ‘‘Asset Exception’’). 

The Secretary, however, has the 

authority to limit these exceptions. 

Section 358(h)(3) provides that the term 

‘‘liability’’ for purposes of section 358(h) 

includes any fixed or contingent 

obligation to make payment without 

regard to whether the obligation is 

otherwise taken into account for 

purposes of the Code. 

On May 26, 2005, temporary 

regulations (TD 9207) were published in 

the Federal Register (70 FR 30334) 

making unavailable the exception of 

section 358(h)(2)(B), the Asset 

Exception. A notice of proposed 

rulemaking (REG–106736–00) crossreferencing those temporary regulations 

was published in the Federal Register 

(71 FR 30380) on the same day. 

The IRS and the Treasury Department 

received no comments responding to the 

proposed and temporary regulations. No 

public hearing was requested or held. 

The IRS and the Treasury Department 

have determined that making the 

exception of section 358(h)(2)(B) 

unavailable is necessary to prevent 

abuse; therefore, this document contains 

final regulations adopting the provisions 

of the proposed regulations with no 

change and the corresponding 

temporary regulations are removed. 

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. 

Pursuant to 5 U.S.C. 553(d)(3) it has 

been determined that a delayed effective 


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