55768 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Proposed Rules

(b) You comply with the requirements

of this part and of any additional

guidance that the Area Director may

issue to implement this part.

§ 248.4 How may I use the sites?

If you meet the criteria in § 248.3, you

may use a site:

(a) For access to usual and

accustomed fishing areas and ancillary

facilities; and

(b) For camping with your family

(while you are fishing?).

§ 248.5 What identification do I need in

order to use a site?

(a) When you use a site you must have

with you either:

(1) Your tribal identification card; or

(2) If you belong to a tribe specified

in § 248.3(a)(4), a special identification

issued by the Area Director.

(b) You must show the identification

required in paragraph (a) of this section

to any authorized Federal, State, or local

official who asks to see it.

§ 248.6 What requirements must I obey in

order to be able to use a site?

(a) You may use a site only if you

obey:

(1) The requirements of tribal, State,

and Federal laws and regulations

(unless they conflict with your treaty

tribe’s rights); and

(2) Any additional requirements that

the Area Director may develop to

implement this part.

(b) The Area Director may suspend or

withdraw your access and use privileges

if you do not follow the requirements of

this section.

§ 248.7 How does this part affect tribal

treaty rights?

(a) This part does not limit or affect

the treaty rights of any tribe.

(b) You are not required to obey State

fishing laws or regulations if:

(1) You are an Indian properly

exercising tribal treaty rights; and

(2) The State laws or regulations are

not compatible with your treaty rights.

§ 248.8 What will happen if I damage

government-owned property?

If you commit any act of vandalism,

depredation, destruction, theft, or

misuse of land, buildings, fences, signs,

or other structures that are the property

of the United States, you can be

prosecuted under applicable Federal or

State law.

§ 248.9 Can I build a structure on a site?

You may erect, place, or maintain

dwellings, camping facilities, and other

structures (such as fish drying facilities

and fish platforms) if you need them for

treaty fishing or related activities.

§ 248.10 What sanitation requirements

must I meet?

(a) You must use the sites in

conformance with the health, sanitation,

and safety requirements of State or local

law. If there are no appropriate State or

local laws, you must follow the health,

sanitation, and safety requirements of

the U.S. Public Health Service.

(b) The Area Director may suspend or

withdraw your access and use privileges

if:

(1) You violate the requirements

referred to in paragraph (a) of this

section; and

(2) You repeat the violation after

having been given a notice to cease and

desist.

§ 248.11 What am I responsible for if I use

the facilities?

(a) You are responsible for:

(1) Campsites, drying sheds and other

facilities during the time you occupy or

use them; and

(2) Any personal property that you

erect, place, or maintain on the site

during the time you occupy the site,

including:

(i) Tents;

(ii) Tepees;

(iii) Campers;

(iv) Mobile trailers;

(v) Temporary drying sheds; and

(vi) Fishing platforms.

(b) Neither the United States nor any

of its employees is responsible for the

safety or condition of any personal

property.

§ 248.12 What will happen if I abandon

property?

If you abandon property at a site, it

may be removed without your consent

and disposed of at your expense, if the

Area Director approves.

§ 248.13 What other restrictions apply to

use of the sites?

The Area Director may prescribe and

post at the sites regulations covering:

(a) Camping;

(b) Picnicking;

(c) Use of alcoholic beverages;

(d) Setting or use of fires;

(e) Use of the sites for cleaning fish;

(f) Deposit of garbage, paper, cans,

bottles, or rubbish of any kind; or

(g) Use of the sites for any commercial

activity (including commercial purchase

of fish).

§ 248.14 Will I have to pay to use a site?

No. Neither you nor any member of

your family will be charged for using a

site in accordance with this part.

§ 248.15 Can I appeal an administrative

action?

You may appeal any decision made

by the Area Director under this part to

the Commissioner of Indian Affairs. You

may appeal any decision of the

Commissioner of Indian Affairs to the

Secretary of the Interior in accordance

with part 2 of this chapter.

Dated: October 17, 1997.

Ada E. Deer,

Assistant Secretary—Indian Affairs.

[FR Doc. 97–28493 Filed 10–27–97; 8:45 am]

BILLING CODE 4310–02–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[REG–105162–97]

RIN–1545–AV16

Treatment of Changes in Elective

Entity Classification

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking

and notice of public hearing.

SUMMARY: This document contains

proposed regulations addressing

elective changes in entity classification.

The proposed regulations describe how

elective changes in classification will be

treated for federal tax purposes. The

proposed regulations would affect

business entities and their members.

This document also contains a notice of

public hearing on these proposed

regulations.

DATES: Written comments must be

received by January 26, 1998. Requests

to speak (with outlines of oral

comments) at the public hearing

scheduled for February 24, 1997, must

be submitted by January 26, 1998.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–105162–97),

room 5228, Internal Revenue Service,

POB 7604, Ben Franklin Station,

Washington, DC 20044. In the

alternative, submissions may be hand

delivered between the hours of 8 a.m.

and 5 p.m. to: CC:DOM:CORP:R (REG–

105162–97), Courier’s Desk, Internal

Revenue Service, 1111 Constitution

Avenue NW., Washington, DC.

Alternatively, taxpayers may submit

comments electronically via the Internet

by selecting the ‘‘Tax Regs’’ option of

the IRS Home Page, or by submitting

comments directly to the IRS Internet

site at: http://www.irs.ustreas.gov/prod/

tax—regs/comments.html. The public

hearing will be held in room 2615,

Internal Revenue Building, 1111

Constitution Avenue, NW., Washington,

DC.
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Proposed Rules 55769

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Jeff

Erickson, (202) 622–3070 (not a toll-free

number); concerning international

issues, Philip Tretiak or Ronald M.

Gootzeit, (202) 622–3860 (not a toll free

number); concerning submissions and

the hearing, Evangelista Lee, (202) 622–

7190 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document proposes to amend the

current Income Tax Regulations (26 CFR

Parts 1 and 301) relating to the

classification of entities for federal tax

purposes. On December 18, 1996, the

IRS and Treasury published final

regulations under section 7701 (final

regulations), replacing the former

classification rules with an elective

regime. See TD 8697 (1997–2 I.R.B. 11).

Under the final regulations, a business

entity that is not specifically classified

as a corporation in the final regulations

(an eligible entity) can elect its

classification for federal tax purposes

under certain circumstances. An eligible

entity with at least two members can

elect to be classified as a partnership or

as an association taxable as a

corporation. An eligible entity with a

single member can elect to be classified

as an association or as an entity that is

disregarded as an entity separate from

its owner. An eligible entity may also

elect to change its classification, except

that an election may not be made more

than once in any sixty month period. An

eligible entity that does not make an

election is classified under certain

default provisions.

Explanation of Provisions

Characterization of Elective Changes in

Classification

The proposed regulations describe

how elective changes in an entity’s

classification will be treated for federal

tax purposes. Under the final

regulations, there are four possible

changes in classification by election: (i)

a partnership elects to be an association;

(ii) an association elects to be a

partnership; (iii) an association elects to

be a disregarded entity; and (iv) a

disregarded entity elects to be an

association. There are two other

possible ways in which an entity’s

classification could change (a

partnership converts to a disregarded

entity or a disregarded entity converts to

a partnership) but these changes occur

only as a result of a change in the

number of members, not as the result of

an elective change.

The proposed regulations do not

address the form of these two possible

types of changes.

The proposed regulations provide a

specific characterization for each of the

four possible elective changes. In each

case, the characterization provided in

the proposed regulations attempts to

minimize the tax consequences of the

change in classification and achieve

administrative simplicity. The proposed

regulations provide that if an

association elects to be classified as a

partnership, the association is deemed

to liquidate by distributing its assets and

liabilities to its shareholders. Then, the

shareholders are deemed to contribute

all of the distributed assets and

liabilities to the partnership. This

characterization of an elective change

from an association to a partnership is

consistent with Rev. Rul. 63–107 (1963–

1 C.B. 71).

If a partnership elects to be classified

as an association, the partnership is

deemed to contribute all of its assets

and liabilities to the association in

exchange for stock in the association.

Then, the partnership is deemed to

liquidate by distributing stock in the

association to its partners. The proposed

regulations do not affect the holdings in

Rev. Rul. 84–111 (1984–2 C.B. 88), in

which the IRS ruled that it would

respect the particular form undertaken

by the taxpayers when a partnership

converts to a corporation.

If an association elects to be

disregarded as an entity separate from

its owner, the association is deemed to

liquidate by distributing its assets and

liabilities to its sole owner. Conversely,

if an eligible entity that is disregarded

as an entity separate from its owner

elects to be classified as an association,

the owner of the eligible entity is

deemed to contribute all of the assets

and liabilities of that entity to the

association in exchange for stock of the

association.

The proposed regulations also provide

that the tax treatment of an elective

change in classification is determined

under all relevant provisions of the

Internal Revenue Code and general

principles of tax law, including the step

transaction doctrine. This provision in

the proposed regulations is intended to

ensure that the tax consequences of an

elective change will be identical to the

consequences that would have occurred

if the taxpayer had actually taken the

steps described in the proposed

regulations. The IRS and Treasury

request comments on the application of

general principles of tax law to the

transactions that are deemed to occur on

an elective change in classification.

Change in Number of Members of Entity

The proposed regulations address the

effect of a change in the number of

members on the classification of an

entity. Under the proposed regulations,

if there is a change in the number of

members of an association, the

classification of the entity is not

affected. If an eligible entity classified as

a partnership subsequently has only one

member (and is still treated as an entity

under local law), the entity will be

disregarded as an entity separate from

its owner. If a single member entity that

is disregarded as an entity separate from

its owner subsequently has more than

one member, the entity is classified as

a partnership as of the date the entity

has more than one member. The

classifications provided in the proposed

regulations can be changed by election,

assuming that the entity is not subject

to the sixty month limitation on

elections.

Timing of Elective Changes in

Classification

The proposed regulations provide that

an election to change the classification

of an entity is treated as occurring at the

start of the day for which the election

is effective. Any transactions that are

deemed to occur as a result of the

change in classification are treated as

occurring immediately before the close

of the day before the effective date of the

election. For example, if an election is

made to convert from an association to

a partnership effective on January 1, the

entity is treated as a partnership on

January 1, and the deemed transactions

specified in the proposed regulations

are treated as occurring immediately

before the close of December 31. As a

result, the last day of the association s

taxable year will be December 31 and

the first day of the partnership’s taxable

year will be January 1.

Treatment of Foreign Eligible Entities

Any eligible entity, including a

foreign eligible entity whose

classification is not relevant for federal

tax purposes, may elect to change its

classification. The IRS and Treasury

request comments on the

appropriateness of allowing such a

foreign eligible entity to make a

classification election, and comments

on what the federal tax consequences of

such an election should be (e.g., with

respect to the basis of property held by

the entity).

Foreign Per Se Entities

The final regulations provide a list of

the names of certain foreign business

entities that are treated as corporations

for federal tax purposes. In most cases,
55770 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Proposed Rules

the name by which an entity will be

known is provided by the statutory

corporate law of the relevant

jurisdiction. In certain cases, however,

the corporate law does not provide a

statutory name. In these jurisdictions,

taxpayers and practitioners often fill the

statutory void with a name derived from

a number of the statutory characteristics

of the entity. In an effort to make the list

of foreign per se corporations more

accessible, the final regulations use the

commonly used non-statutory term in

certain cases where the statute does not

provide a defined name. To minimize

any uncertainty, however, the

provisions of § 301.7701–2(b)(8) (iii) and

(iv) were included in the final

regulations to address this issue. In

response to comments from taxpayers,

these subsections of the final regulations

are clarified to provide guidance on the

terms used in the final regulations.

Furthermore, the regulations clarify that

the term Berhad used with regard to

Malaysia does not include a Sendirian

Berhad (the equivalent of a private

limited company). The regulations also

clarify that, in relation to Mexico, the

term Sociedad Anonima includes a

Sociedad Anonima that chooses to

apply the variable capital provision of

Mexican corporate law (Sociedad

Anonima de Capital Variable). The fact

that capital may be varied does not

make this a different type of entity from

a Sociedad Anonima that does not

choose to apply the variable capital

provision. These clarifications are not

intended to change the interpretation of

the final regulations.

The proposed regulations also clarify

the treatment of the Finnish, Maltese,

and Norwegian entities specified in the

final regulations. Effective January 1,

1996, Maltese and Norwegian corporate

law recognized a distinction between

public and private companies, and the

proposed regulations reflect this change.

The proposed regulations also provide

that the rules of the final regulations

with regard to the Maltese and

Norwegian entities may be applied

(when these proposed regulations are

finalized) as though the entities

specified in the proposed regulations

had been included in the final

regulations issued on December 18,

1996. Thus, a Maltese or Norwegian

entity that is no longer treated as a per

se corporation under the regulations

would be able to make an election

within 75 days of the date these

proposed regulations are finalized, and

such election could be effective as of

January 1, 1997. Finnish law, since

September 1, 1997, has recognized a

similar distinction between public and

private companies. It is proposed that a

Finnish entity that is no longer treated

as a per se corporation under the

regulations would be able to make an

election within 75 days of the date these

proposed regulations are finalized, and

such election could be effective as of

September 1, 1997.

Special Basis Adjustments Under

Section 743

Section 743 provides that the basis of

partnership property is not adjusted as

the result of a transfer of an interest in

the partnership by sale or exchange

unless the partnership has made an

election under section 754. If a section

754 election is made, the transferee

partner is treated as having a special

basis adjustment with respect to

partnership property. This adjustment

constitutes an adjustment to the basis of

partnership property with respect to the

transferee partner only. Some

uncertainty has remained as to the

treatment of this special basis

adjustment upon the contribution of the

partnership property to a corporation in

a section 351 exchange, and because the

proposed regulations provide for a

deemed contribution by the partnership

to a corporation in an elective

conversion to an association, the

proposed regulations address this

uncertainty.

The proposed regulations provide that

a corporate transferee’s basis in property

transferred by a partnership in a transfer

described in section 351 includes any

special basis adjustment under section

743. The special basis adjustment is also

taken into account in determining the

partner’s basis in the stock received in

the exchange. For example, assume a

partnership owns Property X, which has

a common basis of $100 for the

partnership and in which Partner A has

a $5 special basis adjustment under

section 743(b). Subsequently, the

partnership validly elects to be

classified as an association. The

partnership is deemed to contribute all

of its assets and liabilities to the

association in exchange for stock in the

association, and immediately thereafter,

the partnership liquidates by

distributing the stock of the association

to its partners. If the transfer of the

assets to the association would be a

transfer described in section 351, then

under the proposed regulations, the

association’s basis in Property X

includes Partner A’s $5 special basis

adjustment. Thus, the association has a

$105 basis in Property X (Partner A’s $5

special basis adjustment plus the

partnership’s $100 common basis).

Partner A’s basis in the association’s

stock will reflect the $5 special basis

adjustment previously on Property X.

The proposed regulations also

provide, however, that the amount of

gain, if any, recognized by the

partnership on the transfer is

determined without reference to any

special basis adjustment. The partner

with the special basis adjustment can

then use the special basis adjustment to

reduce its share of any gain recognized

by the partnership. This approach of

determining gain at the partnership

level and allowing the partner to use the

special basis adjustment as an offset is

similar to the treatment of a sale of

property with a special basis

adjustment.

Proposed Effective Date

Except as otherwise specified, these

regulations are proposed to apply as of

the date the final regulations are

published in the Federal Register.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a

significant regulatory action as defined

in EO 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, and because these

regulations do not impose on small

entities a collection of information

requirement, the Regulatory Flexibility

Act (5 U.S.C. chapter 6) does not apply.

Therefore, a Regulatory Flexibility

Analysis 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 Public Hearing

Before these proposed regulations are

adopted as final regulations,

consideration will be given to any

written comments (preferably a signed

original and eight (8) copies) that are

submitted timely to the IRS. All

comments will be available for public

inspection and copying.

A public hearing has been scheduled

for February 24, 1997, at 10 a.m., in

room 2615, Internal Revenue Building,

1111 Constitution Avenue NW.,

Washington, DC. Because of access

restrictions, visitors will not be

admitted beyond the Internal Revenue

Building lobby more than 15 minutes

before the hearing starts.

The rules of 26 CFR 601.601(a)(3)

apply to the hearing.
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Proposed Rules 55771

Persons that wish to present oral

comments at the hearing must submit

timely written comments and an outline

of the topics to be discussed and the

time to be devoted to each topic by

(preferably a signed original and eight

(8) copies) January 26, 1998.

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.

Drafting Information

The principal authors of these

regulations are Ann M. Veninga, Office

of Chief Counsel (Passthroughs and

Special Industries) and Philip Tretiak,

Office of Associate Chief Counsel

(International). However, other

personnel from the IRS and Treasury

Department participated in their

development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

26 CFR Part 301

Employment taxes, Estate taxes,

Excise taxes, Gift taxes, Income taxes,

Penalties, Reporting and recordkeeping

requirements.

Proposed Amendments to the

Regulations

Accordingly, 26 CFR parts 1 and 301

are proposed to be amended 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 1.743–2 is added

under the undesignated centerheading

‘‘Transfer of Interests in a Partnership’’

to read as follows:

§ 1.743–2 Transfer of property to a

corporation.

(a) Basis in transferred property. A

corporations adjusted tax basis in

property transferred to the corporation

by a partnership in a transfer described

in section 351 is determined with

reference to any special basis

adjustment to the property under

section 743(b) (other than any special

basis adjustment that reduces a partner’s

gain under paragraph (b) of this section).

(b) Partnership gain. The amount of

gain, if any, recognized by a partnership

on a transfer of property by the

partnership to a corporation in a transfer

described in section 351 is determined

without reference to any special basis

adjustment to the transferred property

under section 743(b). The amount of

gain, if any, recognized by the

partnership on the transfer that is

allocated to a partner with a special

basis adjustment in the transferred

property is adjusted to reflect the

partner’s special basis adjustment in the

transferred property.

(c) Basis in stock. The partnership’s

adjusted tax basis in stock received from

a corporation in a transfer described in

section 351 is determined without

reference to the special basis adjustment

in property transferred to the

corporation in the section 351 exchange.

A partner with a special basis

adjustment in property transferred to

the corporation, however, has a special

basis adjustment in the stock received

by the partnership in the section 351

exchange in an amount equal to the

partner’s special basis adjustment in the

transferred property, reduced by any

special basis adjustment that reduced

the partner’s gain under paragraph (b) of

this section.

(d) Effective date. This section applies

to transfers that occur on or after the

date final regulations are published in

the Federal Register.

PART 301—PROCEDURE AND

ADMINISTRATION

Par. 3. The authority citation for part

301 continues to read in part as follows:

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

Par. 4. Section 301.6109–1 is

amended as follows:

1. Paragraph (d)(2)(ii) is removed and

reserved.

2. Paragraph (h) is redesignated as

paragraph (i) and the first sentence of

newly designated paragraph (i)(1) is

amended by removing the language

‘‘paragraph (h)’’ and adding ‘‘paragraph

(i)’’ in its place.

3. A new paragraph (h) is added.

The addition reads as follows:

§ 301.6109–1 Identifying numbers.

* * * * *

(h) Special rules for certain entities

under § 301.7701–3—(1) General rule.

Any entity that has an employer

identification number (EIN) will retain

that EIN if its federal tax classification

changes under § 301.7701–3.

(2) Special rules for entities that are

disregarded as entities separate from

their owners—(i) When an entity

becomes disregarded as an entity

separate from its owner. Except as

otherwise provided in regulations or

other guidance, a single owner entity

that is disregarded as an entity separate

from its owner under § 301.7701–3,

must use its owner’s taxpayer

identifying number (TIN) for federal tax

purposes.

(ii) When an entity that was

disregarded as an entity separate from

its owner becomes recognized as a

separate entity. If a single owner entity’s

classification changes so that it is

recognized as a separate entity for

federal tax purposes, and that entity had

an EIN, then the entity must use that

EIN and not the TIN of the single owner.

If the entity did not already have its

own EIN, then the entity must acquire

an EIN and not use the TIN of the single

owner.

(3) Effective date. This paragraph (h)

applies to changes in classification that

occur on or after the date on which

these regulations are published as final

regulations in the Federal Register.

Par. 5. Section 301.7701–2 is

amended as follows:

1. Paragraph (b)(8)(i) is amended by

revising the entries for Finland, Malta,

and Norway.

2. Paragraph (b)(8)(ii)(A) is

redesignated as paragraph (b)(8)(ii)(A)(1)

and the language ‘‘and’’ at the end of the

paragraph is removed.

3. Paragraph (b)(8)(ii)(B) is

redesignated as paragraph (b)(8)(ii)(A)(2)

and the period at the end of the

paragraph is removed and the language

‘‘; and ’’ is added in its place.

4. Paragraph (b)(8)(ii) heading and

introductory text are redesignated as

paragraph (b)(8)(ii)(A) heading and

introductory text, and a new paragraph

heading is added for paragraph (b)(8)(ii).

5. Paragraphs (b)(8)(ii)(A)(3) and

(b)(8)(ii)(B) are added.

6. Paragraphs (b)(8)(iii), (b)(8)(iv), and

(e) are revised.

The revisions and additions read as

follows:

§ 301.7701–2 Business entities;

definitions.

* * * * *

(b) * * *

(8) * * *

(i) * * *

Finland, Julkinen Osakeyhtio/Publikt

Aktiebolag

* * * * *

Malta, Public Limited Company

* * * * *

Norway, Allment Aksjeselskap

* * * * *

(ii) Clarification of list of corporations

in paragraph (b)(8)(i) of this section—

(A) Exceptions in certain cases. * * *

* * * * *

(3) With regard to Malaysia, a

Sendirian Berhad.
55772 Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Proposed Rules

(B) Inclusions in certain cases. With

regard to Mexico, the term Sociedad

Anonima includes a Sociedad Anonima

that chooses to apply the variable

capital provision of Mexican corporate

law (Sociedad Anonima de Capital

Variable).

(iii) Public companies. For purposes

of paragraph (b)(8)(i) of this section,

with regard to Cyprus, Hong Kong,

Jamaica, and Trinidad and Tobago, the

term Public Limited Company includes

any Limited Company that is not

defined as a private company under the

corporate laws of those jurisdictions. In

all other cases, where the term Public

Limited Company is not defined, that

term shall include any Limited

Company defined as a public company

under the corporate laws of the relevant

jurisdiction.

(iv) Limited companies. For purposes

of this paragraph (b)(8), any reference to

a Limited Company includes, as the

case may be, companies limited by

shares and companies limited by

guarantee.

* * * * *

(e) Effective date. Except as otherwise

provided in this paragraph (e), the rules

of this section apply as of January 1,

1997. The reference to the Finnish,

Maltese, and Norwegian entities in

paragraph (b)(8)(i) of this section is

applicable on the date the final

regulations are published in the Federal

Register. Any Maltese or Norwegian

entity that becomes an eligible entity as

a result of paragraph (b)(8)(i) of this

section in effect on the date final

regulations are published in the Federal

Register may elect (within 75 days of

the date final regulations are published

in the Federal Register) to be classified

for federal tax purposes as an entity

other than a corporation retroactive to

any period from and including January

1, 1997. Any Finnish entity that

becomes an eligible entity as a result of

paragraph (b)(8)(i) of this section in

effect on the date final regulations are

published in the Federal Register may

elect (within 75 days of the date final

regulations are published in the Federal

Register) to be classified for federal tax

purposes as an entity other than a

corporation retroactive to any period

from and including September 1, 1997.

Par. 6. Section 301.7701–3 is

amended as follows:

1. A sentence is added at the end of

paragraph (c)(1)(iv).

2. Paragraph (c)(2)(iii) is added.

3. A heading is added to paragraph

(d)(1).

4. Paragraph (f) is redesignated as

paragraph (h) and newly designated

paragraph (h)(1) is revised.

5. Paragraphs (f) and (g) are added.

The revision and additions read as

follows:

§ 301.7701–3 Classification of certain

business entities.

* * * * *

(c) * * *

(1) * * *

(iv) Limitation. * * * An election by

a newly-formed eligible entity that is

effective on the date of formation is not

considered a change for purposes of this

paragraph (c)(1)(iv).

* * * * *

(2) * * *

(iii) Changes in classification. For

purposes of paragraph (c)(2)(i) of this

section, if an election under paragraph

(c)(1)(i) of this section is made to change

the classification of an entity, each

person who was an owner on the date

that any transactions under paragraph

(g) of this section are deemed to occur,

and who is not an owner at the time the

election is filed, must also sign the

election. This paragraph (c)(2)(iii)

applies to elections filed on or after the

date final regulations are published in

the Federal Register.

(d) Special rules for foreign eligible

entities—(1) Definition of relevance. * *

*

* * * * *

(f) Changes in number of members of

an entity—(1) Associations. The

classification of an eligible entity as an

association is not affected by any change

in the number of members of the entity.

(2) Partnerships and single member

entities. An eligible entity classified as

a partnership is disregarded as an entity

separate from its owner as of the date

the entity has only one member. A

single member entity disregarded as an

entity separate from its owner is

classified as a partnership as of the date

the entity has more than one member.

(3) Effect on sixty month limitation. A

change in the number of members of an

entity does not result in the creation of

a new entity for purposes of the sixty

month limitation on elections under

paragraph (c)(1)(iv) of this section.

(4) Examples. The following examples

illustrate the application of this

paragraph (f):

Example 1. (i) On April 1, 1998, A and B,

U.S. persons, form X, a foreign eligible entity.

X is treated as an association under the

default provisions of paragraph (b)(2)(i) of

this section, and X does not make an election

to be classified as a partnership. A

subsequently purchases all of B’s interest in

X.

(ii) Under paragraph (f)(1) of this section,

X continues to be classified as an association.

X, however, can subsequently elect to be

disregarded as an entity separate from A. The

sixty month limitation of paragraph (c)(1)(iv)

of this section does not prevent X from

making an election because X has not made

a prior election under paragraph (c)(1)(i) of

this section.

Example 2. (i) On April 1, 1998, A and B,

U.S. persons, form X, a foreign eligible entity.

X is treated as an association under the

default provisions of paragraph (b)(2)(i) of

this section, and X does not make an election

to be classified as a partnership. On January

1, 1999, X elects to be classified as a

partnership effective on that date. Under the

sixty month limitation of paragraph (c)(1)(iv)

of this section, X cannot elect to be classified

as an association until January 1, 2004 (i.e.,

sixty months after the effective date of the

election to be classified as a partnership).

(ii) On June 1, 1999, A purchases all of B’s

interest in X. After A’s purchase of B’s

interest, X can no longer be classified as a

partnership because X has only one member.

Under paragraph (f)(2) of this section, X is

disregarded as a separate entity as of the date

A becomes the only member of X. X,

however, is not treated as a new entity for

purposes of paragraph (c)(1)(iv) of this

section. As a result, the sixty month

limitation of paragraph (c)(1)(iv) of this

section continues to apply to X and X cannot

elect to be classified as an association until

January 1, 2004 (i.e., sixty months after

January 1, 1999, the effective date of the

election by X to be classified as a

partnership).

(5) Effective date. This paragraph (f)

applies as of the date the final

regulations are published in the Federal

Register.

(g) Elective changes in classification—

(1) Deemed treatment of elective

change—(i) Partnership to association.

If an eligible entity classified as a

partnership elects under paragraph

(c)(1)(i) of this section to be classified as

an association, the following is deemed

to occur: The partnership contributes all

of its assets and liabilities to the

association in exchange for stock in the

association, and immediately thereafter,

the partnership liquidates by

distributing the stock of the association

to its partners.

(ii) Association to partnership. If an

eligible entity classified as an

association elects under paragraph

(c)(1)(i) of this section to be classified as

a partnership, the following is deemed

to occur: The association distributes all

of its assets and liabilities to its

shareholders in liquidation of the

association, and immediately thereafter,

the shareholders contribute all of the

distributed assets and liabilities to a

newly formed partnership.

(iii) Association to disregarded entity.

If an eligible entity classified as an

association elects under paragraph

(c)(1)(i) of this section to be disregarded

as an entity separate from its owner, the

following is deemed to occur: The

association distributes all of its assets
Federal Register / Vol. 62, No. 208 / Tuesday, October 28, 1997 / Proposed Rules 55773

and liabilities to its single owner in

liquidation of the association.

(iv) Disregarded entity to an

association. If an eligible entity that is

disregarded as an entity separate from

its owner elects under paragraph

(c)(1)(i) of this section to be classified as

an association, the following is deemed

to occur: The owner of the eligible

entity contributes all of the assets and

liabilities of the entity to the association

in exchange for stock of the association.

(2) Effect of elective changes. The tax

treatment of a change in the

classification of an entity for federal tax

purposes by election under paragraph

(c)(1)(i) of this section is determined

under all relevant provisions of the

Internal Revenue Code and general

principles of tax law, including the step

transaction doctrine.

(3) Timing of election. An election

under paragraph (c)(1)(i) of this section

that changes the classification of an

eligible entity for federal tax purposes is

treated as occurring at the start of the

day for which the election is effective.

Any transactions that are deemed to

occur under this paragraph (g) as a

result of a change in classification are

treated as occurring immediately before

the close of the day before the election

is effective. For example, if an election

is made to change the classification of

an entity from an association to a

partnership effective on January 1, the

deemed transactions specified in

paragraph (g)(1)(ii) of this section

(including the liquidation of the

association) are treated as occurring

immediately before the close of

December 31 and must be reported by

the owners of the entity on December

31. As a result, the last day of the

association’s taxable year will be

December 31 and the first day of the

partnership’s taxable year will be

January 1.

(4) Effective date. This paragraph (g)

applies to elections that are filed on or

after the date the final regulations are

published in the Federal Register.

(h) Effective date—(1) In general.

Except as otherwise provided in this

section, the rules of this section are

applicable as of January 1, 1997.

* * * * *

Michael P. Dolan,

Acting Commissioner of Internal Revenue.

[FR Doc. 97–28165 Filed 10–27–97; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 208

RIN 1510–AA56

Management of Federal Agency

Disbursements: Hearing in Los

Angeles, CA

AGENCY: Financial Management Service,

Fiscal Service, Treasury.

ACTION: Proposed rule; notice of public

hearing.

SUMMARY: This document schedules an

additional public hearing on proposed

regulations relating to the government’s

use of electronic funds transfer to make

all Federal payments, with the

exception of tax refunds, after January 1,

1999.

DATES: There will be a public hearing in

Los Angeles on Tuesday, December 9,

1997 beginning at 9:00 a.m. Requests to

testify at the hearing and outlines of

testimony must be received by

December 1.

ADDRESSES: The public hearing in Los

Angeles will be held at the Federal

Reserve Bank. The Bank is located at

950 S. Grand Avenue, Los Angeles,

California, 90015.

Send requests to testify and outlines

of testimony to Martha ThomasMitchell. See FOR FURTHER INFORMATION

CONTACT.

FOR FURTHER INFORMATION CONTACT:

Martha Thomas-Mitchell at (202) 874–

6757 or at Internet address

martha.thomasmitchell@fms.sprint.com. The following

toll free number is also available for

registration information and inquiries:

1–800–344–0218 (hours of operation are

7:00 a.m.—5:00 p.m. Pacific Standard

Time). For general information on the

proposed regulation, contact Robyn

Schulhof at (202) 874–6754 or Diana

Shevlin at (202) 874–7032.

SUPPLEMENTARY INFORMATION: A notice

of proposed rulemaking appearing in

the Federal Register on September 16,

1997 (62 FR 48714) announced that

three public hearings would be held in

Dallas, New York City, and Baltimore.

This notice adds an additional hearing

in Los Angeles.

Dated: October 23, 1997.

Michael T. Smokovich,

Deputy Commissioner.

[FR Doc. 97–28523 Filed 10–27–97; 8:45 am]

BILLING CODE 4810–35–P

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Health Care Financing Administration

42 CFR Chapter IV

[HCFA–1007–N]

Medicare Program; Meetings of the

Negotiated Rulemaking Committee on

the Provider-sponsored Organization

Solvency Standards

AGENCY: Health Care Financing

Administration (HCFA), HHS.

ACTION: Notice of meetings.

SUMMARY: In accordance with section

10(a) of the Federal Advisory Committee

Act, this notice announces the dates and

locations for the second through sixth

meetings of the Negotiated Rulemaking

Committee on the provider-sponsored

organization (PSO) solvency standards.

The purpose of this committee is to

negotiate the development of an interim

final rule establishing solvency

standards for provider-sponsored

organizations under Part C of the

Medicare program, as statutorilymandated by the Balanced Budget Act

of 1997. These meetings are open to the

public.

DATES: The five scheduled meetings will

be held on November 12–14, 1997;

December 3–5, 1997; January 6–8, 1998;

January 27–29, 1998; and February 18–

20, 1998. The hours of the meetings are

9:00 a.m. to 5:00 p.m. on the first two

days of each meeting and 8:00 a.m. to

3:00 p.m. on the third day of each

meeting.

ADDRESSES:

• November 12, 13, and 14, 1997, at

The Phoenix Park Hotel, 520 N. Capitol

St., NW, Washington, DC 20001; (202)

638–6900;

• December 3, 4, and 5, 1997, at the

Holiday Inn Capitol, 550 C St., SW,

Washington, DC 20024; (202) 479–4000;

• January 6, 7, and 8, 1998, at The

Phoenix Park Hotel at the above

address;

• January 27, 28, and 29, 1998, at The

Phoenix Park Hotel; and

• February 18, 19, and 20, 1998, at

The Phoenix Park Hotel.

FOR FURTHER INFORMATION: Inquiries

regarding these meetings should be

addressed to Maureen Miller, Health

Care Financing Administration, Center

for Health Plans and Providers, Room

S3–21–17, 7500 Security Boulevard,

Baltimore, Maryland 21244, (410) 786–

1097.