Federal Register / Vol. 65, No. 224 / Monday, November 20, 2000 / Rules and Regulations 69667

Federal Registers of October 19, 1984

(49 FR 41019), December 24, 1996 (61

FR 67710), December 27, 1996 (61 FR

68145), and December 23, 1998 (63 FR

71015)). Use of a uniform compliance

date provides for an orderly and

economical industry adjustment to new

labeling requirements by allowing

sufficient lead time to plan for the use

of existing label inventories and the

development of new labeling materials.

This policy serves consumers’ interests

as well because the cost of multiple

short-term label revisions that would

otherwise occur would likely be passed

on to consumers in the form of higher

prices.

The agency has determined under 21

CFR 25.30(k) that this action is of a type

that does not individually or

cumulatively have a significant effect on

the human environment. Therefore,

neither an environmental assessment

nor an environmental impact statement

is required.

This final rule contains no collections

of information. Therefore, clearance by

the Office of Management and Budget

(OMB) under the Paperwork Reduction

Act of 1995 is not required.

FDA has examined the economic

implications of this final rule as

required by Executive Order 12866.

Executive Order 12866 directs agencies

to assess all costs and benefits of

available regulatory alternatives and,

when regulation is necessary, to select

regulatory approaches that maximize

net benefits (including potential

economic, environmental, public health,

safety, distributive, and equity effects).

Executive Order 12866 classifies a rule

as ‘‘economically significant’’ if it meets

any one of a number of specified

conditions including having an annual

effect on the economy of $100 million,

adversely affecting some sector of the

economy in a material way, or adversely

affecting jobs or competition. A

regulation is considered a ‘‘significant’’

regulatory action under Executive Order

12866 if it raises novel legal or policy

issues. FDA finds that this final rule is

neither an economically significant rule

nor a significant regulatory action as

defined by Executive Order 12866. In

addition, in accordance with the Small

Business Regulatory Enforcement

Fairness Act of 1996, the administration

of OMB has determined that this final

rule is not a major rule for purposes of

congressional review. The establishment

of a uniform compliance date does not

impose either costs or benefits. For

future labeling requirements, FDA will

assess the costs and benefits of the

uniform compliance date as well as the

option of setting other dates.

Because FDA has issued this final rule

without first publishing a general notice

of proposed rulemaking, a final

regulatory analysis is not required by

the Regulatory Flexibility Act (5 U.S.C.

601–612). Nonetheless, the uniform

compliance date does not impose any

burden on small entities. The agency

will assess the costs and benefits of

setting alternative dates as part of the

regulatory flexibility analyses of future

labeling regulations.

FDA has analyzed this final rule in

accordance with the principles set forth

in Executive Order 13132. FDA has

determined that the rule does not

contain policies that have substantial

direct effects 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. Accordingly, the

agency has concluded that the rule does

not contain policies that have

federalism implications as defined in

the order and, consequently, a

federalism summary impact statement is

not required.

This action is not intended to change

existing requirements for compliance

dates contained in final rules published

before January 1, 2001. Therefore, all

final FDA regulations published in the

Federal Register before January 1, 2001,

will still go into effect on the date stated

in the respective final rule.

The agency generally encourages

industry to comply with new labeling

regulations as quickly as feasible,

however. Thus, when industry members

voluntarily change their labels, it is

appropriate that they incorporate any

new requirements that have been

published as final regulations up to that

time.

In rulemaking that began with

publication of a proposal on April 15,

1996 (61 FR 16422), and ended with a

final rule on December 24, 1996 (61 FR

67710), FDA provided notice and an

opportunity for comment on the

practice of establishing uniform

compliance dates by issuance of a final

rule announcing the date. Receiving no

comments objecting to this practice,

FDA finds any further rulemaking

unnecessary for establishment of the

uniform compliance date. Nonetheless,

under 21 CFR 10.40(e)(1), FDA is

providing an opportunity for comment

on whether this uniform compliance

date should be modified or revoked.

Interested persons may submit to the

Dockets Management Branch (address

above) written comments regarding this

final rule by February 5, 2001. Two

copies of any comments are to be

submitted, except that individuals may

submit one copy. Comments are to be

identified with the docket number

found in brackets in the heading of this

document. Received comments may be

seen in the Dockets Management Branch

between 9 a.m. and 4 p.m., Monday

through Friday. After its review of any

comments received to this final rule,

FDA will either publish a document

providing its conclusions concerning

the comments or will initiate notice and

comment rulemaking to modify or

revoke the uniform compliance date

established by this final rule.

The new uniform compliance date

will apply only to final FDA food

labeling regulations that require changes

in the labeling of food products and that

publish after January 1, 2001, and before

December 31, 2002. Those regulations

will specifically identify January 1,

2004, as their compliance date. All food

products subject to the January 1, 2004,

compliance date must comply with the

appropriate regulations when initially

introduced into interstate commerce on

or after January 1, 2004. If any food

labeling regulation involves special

circumstances that justify a compliance

date other than January 1, 2004, the

agency will determine for that

regulation an appropriate compliance

date, which will be specified when the

final regulation is published.

Dated: November 8, 2000.

Margaret M. Dotzel,

Associate Commissioner for Policy.

[FR Doc. 00–29538 Filed 11–17–00; 8:45 am]

BILLING CODE 4160–01–F

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8907]

RIN 1545–AX73

Application of the Anti-Churning Rules

for Amortization of Intangibles in

Partnerships

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations relating to the amortization

of certain intangible property under

section 197. Specifically, the regulations

apply the anti-churning rules under

section 197(f)(9) to partnership

distributions resulting in basis

adjustments under sections 732(b) and

734(b). This document also amends

certain parts of the previously issued

69668 Federal Register / Vol. 65, No. 224 / Monday, November 20, 2000 / Rules and Regulations

final regulations (TD 8865), including

those parts that relate to the amount of

a basis adjustment under sections 732(d)

and 743(b) that is subject to the antichurning rules under section 197(f)(9).

The final regulations interpret the

provisions of section 197(f)(9), reflecting

changes to the law made by the

Omnibus Budget Reconciliation Act of

1993 (OBRA ’93), and affect taxpayers

who acquired intangible property after

August 10, 1993, or made a retroactive

election to apply OBRA ’93 to

intangibles acquired after July 25, 1991.

DATES: Effective Date: These regulations

are effective November 20, 2000.

Applicability Date: These regulations

apply to distributions or transfers

occurring on or after November 20,

2000. However, a taxpayer may choose,

on a transaction-by-transaction basis, to

apply these regulations to property

acquired (or partnership transactions

occurring) after August 10, 1993 (or July

25, 1991, if a valid retroactive election

has been made under § 1.197–1T) and

before November 20, 2000.

FOR FURTHER INFORMATION CONTACT:

David J. Sotos or Robert G. Honigman at

(202) 622–3050 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document amends § 1.197–2 of

the Income Tax Regulations (26 CFR

Part 1) to provide additional rules

regarding the application of section

197(f)(9) to partnership transactions

under sections 732(b) and 734(b). This

document also amends certain

provisions of the final regulations under

section 197 issued on January 25, 2000

(TD 8865, 65 FR 3820).

On January 16, 1997, the IRS

published proposed regulations (REG–

209709–94) in the Federal Register (62

FR 2336) under sections 167(f) and 197,

including the anti-churning rules in

section 197(f)(9). In commenting on the

proposed regulations, some

practitioners noted that additional

guidance was needed regarding how the

special anti-churning rule of section

197(f)(9)(E) should apply to increases in

the basis of partnership property under

sections 732, 734, and 743. In response

to these comments, the IRS published

proposed regulations (REG–100163–00)

in the Federal Register (65 FR 3903) on

January 25, 2000, providing rules for

determining the portion of a basis

adjustment under sections 732(b) and

734(b) that will be subject to the antichurning rules. Final regulations (TD

8865, 65 FR 3820) (referred to herein as

the ‘‘existing regulations’’) were issued

at the same time as the proposed

regulations. The existing regulations

provide guidance regarding the

application of the anti-churning rules to

basis adjustments under sections 732(d)

and 743(b) and to remedial allocations

of deductions for amortization of section

197(f)(9) intangibles (i.e., goodwill and

going concern value that was held or

used at any time during the period

beginning on July 25, 1991, and ending

on August 10, 1993 (unless an election

was made under § 1.197–1T) and any

other section 197 intangible that was

held or used during such period and

was not depreciable or amortizable

under prior law).

The IRS received no requests to speak

at a public hearing that was scheduled

for May 24, 2000, and consequently the

IRS canceled the hearing. Written

comments were received in response to

the notice of proposed rulemaking. The

comments received and revisions made

are discussed below.

Explanation of Provisions and

Summary of Comments

A. In General

Section 197(f)(9)(E) provides that, in

applying the anti-churning rules for

basis adjustments under sections 732,

734, and 743, determinations are made

at the partner level, and each partner is

treated as having owned and used such

partner’s proportionate share of the

partnership’s assets. With respect to

basis adjustments under sections 732(b)

and 734(b), this rule requires taxpayers

and the IRS to analyze transactions that

actually involve a distribution of

property from the partnership to a

partner as deemed transactions

involving transfers of property directly

among the partners. In applying the

anti-churning rules to basis adjustments

under section 732(b), the distributee

partner is deemed to acquire the

distributed intangible directly from the

continuing partners of the distributing

partnership. Similarly, in applying the

anti-churning rules to basis adjustments

under section 734(b), the continuing

partners are deemed to acquire interests

in the intangible that remains in the

partnership from the partner who

received a distribution (giving rise to the

section 734(b) basis adjustment) of

property other than the intangible.

Consistent with this view of the

transactions, § 1.197–2(g)(3) of the

existing regulations provides that the

increase in the basis of a distributed

section 197(f)(9) intangible under

section 732(b) or the increase in the

partnership’s basis of an undistributed

section 197(f)(9) intangible under

section 734(b) is treated as a new

intangible acquired as a result of the

distribution. The rules for determining

whether such basis adjustments are

subject to the anti-churning rules under

section 197(f)(9) operate by reference to

the facts surrounding each partner’s

acquisition of its interest in the

partnership, the relation of the

distributee partner and the continuing

partners, and the portion of the

intangible that is allocable to such

partners. Although the specific rules are

not phrased in terms of analyzing a

deemed transfer of a portion of an

intangible between the distributee

partner and the continuing partners, the

effect of the rules is to analyze such a

deemed transfer.

Under the proposed regulations, it

first is necessary to determine whether

the portion of an intangible that a

partner is deemed to acquire as a result

of the distribution was subject to the

anti-churning rules immediately prior to

the deemed transfer. Even if the

intangible is a section 197(f)(9)

intangible with respect to the

partnership, for purposes of analyzing a

deemed transfer, the partner’s share of

the intangible is treated as not being

subject to the anti-churning rules if the

intangible was held by the partnership

at the time that the partner (or

predecessor partner) acquired the

partnership interest, and the partner (or

predecessor partner) would have been

able to amortize the intangible had the

partner (or predecessor partner) directly

acquired the intangible under the same

circumstances that the partner (or

predecessor partner) acquired the

partnership interest. If a partner’s share

of the intangible is treated as not being

subject to the anti-churning rules for

this purpose, then the anti-churning

rules would not apply to the portion of

the basis adjustment that is attributable

to the deemed transfer.

If the partner’s share of the intangible

was treated as being subject to the antichurning rules immediately prior to the

deemed transfer, it is necessary, as a

further step, to determine whether the

deemed transferor and transferee are

related. If the partners are not related,

the anti-churning rules would not apply

to the basis adjustment that gives rise to

the deemed transfer.

The proposed regulations also contain

rules for measuring the portion of the

intangible that is deemed to be

transferred by the relevant partners in

the deemed transactions together with

certain additional rules designed to

prevent circumvention of the antichurning rules through the use of

partnerships.

Federal Register / Vol. 65, No. 224 / Monday, November 20, 2000 / Rules and Regulations 69669

B. Continuing Partner’s Share of Basis

Adjustment Under Section 734(b)

The proposed regulations provide

that, for purposes of analyzing basis

adjustments under section 734(b), a

continuing partner’s share of a basis

increase is equal to (1) the total basis

increase allocable to the intangible;

multiplied by (2) a fraction equal to (A)

the unrealized appreciation from the

intangible that would have been

allocated to the continuing partner if the

partnership had sold the intangible

immediately before the distribution for

its fair market value in a fully taxable

transaction; over (B) the total unrealized

appreciation from the intangible that

would have been realized by the

partnership if the partnership had sold

the intangible immediately before the

distribution for its fair market value in

a fully taxable transaction.

One commentator stated that, under

the proposed regulations, the fraction

for determining a continuing partner’s

share of the basis adjustment under

section 734(b) could lead to

inappropriate results in some

circumstances. For example, if a partner

contributes to a partnership a section

197(f)(9) intangible which has a fair

market value that exceeds its tax basis

at the time of the contribution, and, at

some later date, in an unrelated

transaction, the contributing partner is

redeemed from the partnership resulting

in a section 734(b) adjustment to the

intangible, the proposed regulations

could determine that the entire

adjustment under section 734(b) is

allocable to the contributing partner

(assuming that the basis adjustment

does not exceed the section 704(c) gain

attributable to the property), even

though the contributing partner is no

longer a partner in the partnership.

Treasury and the IRS agree that the

fraction used in the proposed

regulations can lead to inappropriate

results. Furthermore, as discussed

below, particularly in situations

involving intangibles with built-in gain

that are contributed to a partnership, an

approach relying on a partner’s share of

appreciation in an intangible (whether

measured before or after a distribution)

to determine the partner’s share of a

basis increase under section 734(b)

appears to be inconsistent with the

purpose of section 197(f)(9)(E).

Positive basis adjustments under

section 734(b) can be analyzed from two

different perspectives: gain eliminated

or deductions created. Under § 1.755–

1(c)(2)(i), positive section 734(b) basis

adjustments are allocated first to

appreciated properties within a class so

as to eliminate the built-in gain (and

hence section 704(c) gain) with respect

to such properties. In analyzing gain on

disposition of the asset, the basis

adjustment inures first to the benefit of

the contributing partner since it will

reduce the section 704(c) gain

recognized by the partner upon the

disposition of the asset by the

partnership. However, in analyzing

depreciation or amortization deductions

attributable to the asset, the basis will

inure first to the non-contributing

partners to the extent that they were

being denied such deductions as a result

of the ceiling rule. In determining the

portion of an intangible that a partner is

deemed to receive from the distributee

partner for purposes of applying the

anti-churning rules, it seems that a rule

focused on who would receive a

deduction as a result of a section 734(b)

basis adjustment, rather than who

would avoid gain, is more appropriate.

A partner’s proportionate share of

partnership capital generally serves as a

good proxy for estimating a partner’s

share of deductions. Accordingly, for

purposes of determining a continuing

partner’s share of a section 734(b) basis

adjustment, the fraction utilized in the

final regulations compares a continuing

partner’s post-distribution capital

account as determined under section

704(b) and § 1.704–1(b)(2)(iv) to the

aggregate of all of the continuing

partners’ post-distribution capital

accounts (or if the partnership does not

maintain capital accounts in accordance

with § 1.704–1(b)(2)(iv), the fraction is

determined by reference to the partner’s

overall interest in the partnership under

§ 1.704–1(b)(3)). Treasury and the IRS

believe this change best reflects how

deductions are likely to flow from the

intangible asset in a typical partnership

arrangement.

C. Amortization of Section 197(f)(9)

Intangible Where Some But Not All of

the Basis Adjustment Under Section

734(b) Is Amortizable

The proposed regulations provide that

taxpayers may use any reasonable

method to determine amortization of a

section 734(b) adjustment with respect

to an intangible for book purposes,

provided that the method does not

permit any portion of the tax deduction

for amortization attributable to the

adjustment to be allocated to a partner

who is subject to the anti-churning

rules. Several commentators requested

guidance as to what methods would be

considered reasonable in situations

where part, but not all, of a section

734(b) basis adjustment is attributable to

an intangible that is subject to the antichurning rules.

In response to the comments, the final

regulations contain an example

illustrating one method for determining

book amortization that will be

considered reasonable under the

regulations.

D. Adjustments Under Sections 743(b)

and 732(d) Where the Transferor of the

Partnership Interest Is Related to the

Transferee

The existing regulations provide that

the anti-churning rules apply with

respect to positive basis adjustments

under section 743(b) only if the person

acquiring the partnership interest is

related to the person transferring the

partnership interest. One commentator

pointed out that, even if the transferor

partner is related to the transferee

partner, there still may be situations

where the section 743(b) adjustment

should be amortizable by the transferee.

To illustrate the commentator’s point,

consider the following example: A

partnership (PRS) with two partners, A

and B, held an intangible subject to the

anti-churning rules on August 10, 1993.

The partnership has made a section 754

election. On June 1, 1995, A transfers

his entire interest in PRS to C, an

unrelated person. C has a positive

section 743(b) basis adjustment with

respect to the intangible that is not

subject to the anti-churning rules. On

April 30, 2000, C transfers his entire

interest in PRS to D, a person related to

C. C’s section 743(b) basis adjustment

disappears as a result of the transfer,

and D obtains a new section 743(b) basis

adjustment with respect to the

intangible. According to the

commentator, the ownership of the

interest in PRS by C (a party unrelated

to A) should permanently purge any

taint with respect to a section 743(b)

basis adjustment attributable to C’s

interest. The fact that D is related to C

should not prevent D from amortizing

the basis adjustment.

The commentator’s suggestion is

consistent with the aggregate approach

in the regulations for adjustments under

sections 732(b) and 734(b). Under

§ 1.197–2(h)(12)(ii) and (iv) of these

final regulations, if a partner acquires an

interest in a partnership from an

unrelated partner after August 10, 1993,

and after the partnership has acquired

the section 197(f)(9) intangible, the

partner will be treated as holding a

portion of the intangible that is not

subject to the anti-churning rules for

purposes of analyzing subsequent

deemed transfers relating to basis

adjustments under sections 732(b) and

734(b). The existing regulations are

amended to include similar provisions

for purposes of analyzing the

69670 Federal Register / Vol. 65, No. 224 / Monday, November 20, 2000 / Rules and Regulations

application of the anti-churning rules

with respect to basis adjustments under

section 743(b).

The existing regulations pertaining to

section 732(d) adjustments also are

amended to coordinate those provisions

with the change discussed above for

section 743(b) adjustments. The

amendment provides that the antichurning rules do not apply to an

increase in the basis of a section

197(f)(9) intangible under section 732(d)

if, had an election been in effect under

section 754 at the time of the transfer of

the partnership interest, the distributee

partner would have been able to

amortize the basis adjustment made

pursuant to section 743(b).

E. Modification of Rule Where a Partner

Is or Becomes a User of a Partnership

Intangible

Section 1.197–2(h)(12)(vi) of the

proposed regulations provides a rule to

prevent avoidance of the anti-churning

rules where a partner subject to the antichurning rules becomes or remains a

user of the intangible after the basis of

the intangible is adjusted with respect to

another partner under section 732, 734,

or 743. One commentator noted that

§ 1.197–2(h)(12)(vi) could apply if the

partnership itself continues to use the

intangible, at least where the deemed

transferor of the intangible continues to

own more than a 20 percent interest in

the partnership, because the partner

would be treated under the attribution

rules as continuing to use the intangible

by virtue of the partnership’s use of the

intangible. The commentator stated that

such a result appears inconsistent with

the policies underlying section

197(f)(9)(E), which ignore the existence

of the partnership for purposes of antichurning determinations with respect to

basis adjustments under sections 732,

734, and 743. The commentator

requested that the final regulations

make clear that a partnership’s

continued use of an intangible would

not invoke the rule of § 1.197–

2(h)(12)(vi).

Consistent with this comment,

§ 1.197–2(h)(12)(vi) of these final

regulations makes clear that the

proscribed use must be by an antichurning partner or related person other

than the partnership. Attributed use of

the intangible from the partnership to a

partner will not cause this rule to apply.

F. Clarification With Respect to

Remedial Allocations

Section 1.197–2(g)(4)(ii) of the

existing regulations provides that ‘‘if a

partner contributes a section 197

intangible to a partnership and the

partnership adopts the remedial

allocation method for making section

704(c) allocations of amortization

deductions, the partnership generally

may make remedial allocations of

amortization deductions with respect to

the contributed section 197 intangible in

accordance with § 1.704–3(d).’’

Comments have been received

expressing concern that, because no

similar affirmative rule is contained in

the anti-churning section of the

regulations, if a contributing partner

owns a greater than 20 percent interest

in the partnership (and thus is

considered related to the partnership),

the rule allowing remedial allocations

will not be available. While Treasury

and the IRS believe that it was clear

under the existing regulations that

remedial allocations of amortization

deductions could be made where the

contributing partner is related to the

partnership (as opposed to the noncontributing partners), an affirmative

rule has been added to the anti-churning

rules at § 1.197–2(h)(12)(vii)(B) in order

to eliminate any doubt with respect to

this issue.

In addition, the rule regarding the

disallowance of remedials where a noncontributing partner is related to the

contributing partner is amended in

these final regulations to also cover

situations where, as part of a series of

related transactions that includes the

contribution of the section 197(f)(9)

intangible to the partnership, the

contributing partner (or a related

person) becomes or remains a direct

user of the contributed intangible.

Consistent with the analysis of

remedials as being akin to a section

743(b) basis adjustment for the noncontributing partners, Treasury and the

IRS believe that it is inappropriate for a

non-contributing partner to obtain

amortization deductions with respect to

a portion of a contributed section

197(f)(9) intangible where the prior

owner of the intangible becomes or

remains a direct user of the intangible

in connection with the contribution. See

also section 197(f)(9)(A)(iii) and

§ 1.197–2(h)(12)(vi).

G. Rules for Determining When a

Partnership Interest Is Treated as Being

Acquired From a Related Person for

Purposes of Analyzing Basis

Adjustments Under Sections 732(b) and

734(b)

For purposes of analyzing deemed

transfers resulting from basis

adjustments under sections 732(b) and

734(b) in applying the anti-churning

rules, the proposed regulations provide

that if a partner contributed the

distributed section 197(f)(9) intangible

to the partnership, the partnership

interest acquired by such partner is

treated as not being described in

§ 1.197–2(h)(12)(ii)(A)(2) and (3) (for

section 732(b) adjustments) or 1.197–

2(h)(12)(iv)(A)(2) and (3) (for section

734(b) adjustments) (i.e., the rules that

allow a prior purchase of a partnership

interest from an unrelated person to

purge the partner’s anti-churning taint

in analyzing subsequent deemed

transfers relating to basis adjustments).

Accordingly, in order for a basis

adjustment to a section 197(f)(9)

intangible under section 732(b) or

734(b) to be amortizable, the deemed

transfer (as a result of the basis

adjustment) from the contributing

partner must be to an unrelated partner.

Commentators indicated that this rule

is unnecessary. According to the

commentators, §§ 1.197–

2(h)(12)(ii)(A)(2) and (3) and 1.197–

2(h)(12)(iv)(A)(2) and (3), by their terms,

cannot apply where the deemed

transferor contributed the section

197(f)(9) intangible to the partnership.

Treasury and the IRS agree with this

comment. Accordingly, the final

regulations omit the rule regarding a

partner who contributes the distributed

section 197(f)(9) intangible.

Special Analyses

It has been determined that the final

regulations are not a significant

regulatory action as defined in

Executive Order 12866. It also has been

determined that section 533(b) of the

Administrative Procedures Act (5 U.S.C.

chapter 5) does not apply to these

regulations, and because these

regulations do not impose a collection

of information on small entities, the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) does not apply. Pursuant to

section 7805(f) of the Internal Revenue

Code, the final regulations will be

submitted to the Chief Counsel for

Advocacy of the Small Business

Administration for comment on its

impact on small business.

Drafting Information

The principal authors of these

regulations are David J. Sotos and

Robert G. Honigman of Associate Chief

Counsel (Passthroughs & Special

Industries). However, other personnel

from the Treasury Department and IRS

participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is

amended as follows:

Federal Register / Vol. 65, No. 224 / Monday, November 20, 2000 / Rules and Regulations 69671

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 1.197–2 is amended

by:

1. Revising paragraphs (h)(12)(ii),

(h)(12)(iii), (h)(12)(iv), (h)(12)(v), and

paragraph (h)(12)(vi)(A).

2. Removing ‘‘, and’’ at the end of

paragraph (h)(12)(vi)(B)(2)(ii) and

adding a period in its place.

3. Removing paragraph

(h)(12)(vi)(B)(3).

4. Removing the first sentence of

paragraph (h)(12)(vii)(B) and adding two

new sentences in its place.

5. Removing the last two sentences of

paragraph (iii) of Example 27 in

paragraph (k) and adding three

sentences in their place.

6. Adding Examples 28, 29, 30, and 31

to paragraph (k).

7. Revising paragraphs (l)(1) and (l)(2).

The additions and revisions read as

follows:

§ 1.197–2 Amortization of goodwill and

certain other intangibles.

* * * * *

(h) * * *

(12) * * *

(ii) Section 732(b) adjustments—(A)

In general. The anti-churning rules of

this paragraph (h) apply to any increase

in the adjusted basis of a section

197(f)(9) intangible under section 732(b)

to the extent that the basis increase

exceeds the total unrealized

appreciation from the intangible

allocable to—

(1) Partners other than the distributee

partner or persons related to the

distributee partner;

(2) The distributee partner and

persons related to the distributee

partner if the distributed intangible is a

section 197(f)(9) intangible acquired by

the partnership on or before August 10,

1993, to the extent that—

(i) The distributee partner and related

persons acquired an interest or interests

in the partnership after August 10, 1993;

(ii) Such interest or interests were

held after August 10, 1993, by a person

or persons other than either the

distributee partner or persons who were

related to the distributee partner; and

(iii) The acquisition of such interest or

interests by such person or persons was

not part of a transaction or series of

related transactions in which the

distributee partner (or persons related to

the distributee partner) subsequently

acquired such interest or interests; and

(3) The distributee partner and

persons related to the distributee

partner if the distributed intangible is a

section 197(f)(9) intangible acquired by

the partnership after August 10, 1993,

that is not amortizable with respect to

the partnership, to the extent that—

(i) The distributee partner and

persons related to the distributee

partner acquired an interest or interests

in the partnership after the partnership

acquired the distributed intangible;

(ii) Such interest or interests were

held after the partnership acquired the

distributed intangible, by a person or

persons other than either the distributee

partner or persons who were related to

the distributee partner; and

(iii) The acquisition of such interest or

interests by such person or persons was

not part of a transaction or series of

related transactions in which the

distributee partner (or persons related to

the distributee partner) subsequently

acquired such interest or interests.

(B) Effect of retroactive elections. For

purposes of paragraph (h)(12)(ii)(A) of

this section, references to August 10,

1993, are treated as references to July

25, 1991, if the relevant party made a

valid retroactive election under § 1.197–

1T.

(C) Intangible still subject to antichurning rules. Notwithstanding

paragraph (h)(12)(ii) of this section, in

applying the provisions of this

paragraph (h) with respect to

subsequent transfers, the distributed

intangible remains subject to the

provisions of this paragraph (h) in

proportion to a fraction (determined at

the time of the distribution), as

follows—

(1) The numerator of which is equal

to the sum of—

(i) The amount of the distributed

intangible’s basis that is nonamortizable

under paragraph (g)(2)(ii)(B) of this

section; and

(ii) The total unrealized appreciation

inherent in the intangible reduced by

the amount of the increase in the

adjusted basis of the distributed

intangible under section 732(b) to which

the anti-churning rules do not apply;

and

(2) The denominator of which is the

fair market value of such intangible.

(D) Partner’s allocable share of

unrealized appreciation from the

intangible. The amount of unrealized

appreciation from an intangible that is

allocable to a partner is the amount of

taxable gain that would have been

allocated to that partner if the

partnership had sold the intangible

immediately before the distribution for

its fair market value in a fully taxable

transaction.

(E) Acquisition of partnership interest

by contribution. Solely for purposes of

paragraphs (h)(12)(ii)(A)(2) and (3) of

this section, a partner who acquires an

interest in a partnership in exchange for

a contribution of property to the

partnership is deemed to acquire a pro

rata portion of that interest in the

partnership from each person who is a

partner in the partnership at the time of

the contribution based on each partner’s

respective proportionate interest in the

partnership.

(iii) Section 732(d) adjustments. The

anti-churning rules of this paragraph (h)

do not apply to an increase in the basis

of a section 197(f)(9) intangible under

section 732(d) if, had an election been

in effect under section 754 at the time

of the transfer of the partnership

interest, the distributee partner would

have been able to amortize the basis

adjustment made pursuant to section

743(b).

(iv) Section 734(b) adjustments—(A)

In general. The anti-churning rules of

this paragraph (h) do not apply to a

continuing partner’s share of an increase

in the basis of a section 197(f)(9)

intangible held by a partnership under

section 734(b) to the extent that the

continuing partner is an eligible partner.

(B) Eligible partner. For purposes of

this paragraph (h)(12)(iv), eligible

partner means—

(1) A continuing partner that is not

the distributee partner or a person

related to the distributee partner;

(2) A continuing partner that is the

distributee partner or a person related to

the distributee partner, with respect to

any section 197(f)(9) intangible acquired

by the partnership on or before August

10, 1993, to the extent that—

(i) The distributee partner’s interest in

the partnership was acquired after

August 10, 1993;

(ii) Such interest was held after

August 10, 1993 by a person or persons

who were not related to the distributee

partner; and

(iii) The acquisition of such interest

by such person or persons was not part

of a transaction or series of related

transactions in which the distributee

partner or persons related to the

distributee partner subsequently

acquired such interest; or

(3) A continuing partner that is the

distributee partner or a person related to

the distributee partner, with respect to

any section 197(f)(9) intangible acquired

by the partnership after August 10,

1993, that is not amortizable with

respect to the partnership, to the extent

that—

(i) The distributee partner’s interest in

the partnership was acquired after the

partnership acquired the relevant

intangible;

69672 Federal Register / Vol. 65, No. 224 / Monday, November 20, 2000 / Rules and Regulations

(ii) Such interest was held after the

partnership acquired the relevant

intangible by a person or persons who

were not related to the distributee

partner; and

(iii) The acquisition of such interest

by such person or persons was not part

of a transaction or series of related

transactions in which the distributee

partner or persons related to the

distributee partner subsequently

acquired such interest.

(C) Effect of retroactive elections. For

purposes of paragraph (h)(12)(iv)(A) of

this section, references to August 10,

1993, are treated as references to July

25, 1991, if the distributee partner made

a valid retroactive election under

§ 1.197–1T.

(D) Partner’s share of basis increase—

(1) In general. Except as provided in

paragraph (h)(12)(iv)(D)(2) of this

section, for purposes of this paragraph

(h)(12)(iv), a continuing partner’s share

of a basis increase under section 734(b)

is equal to—

(i) The total basis increase allocable to

the intangible; multiplied by

(ii) A fraction the numerator of which

is the amount of the continuing

partner’s post-distribution capital

account (determined immediately after

the distribution in accordance with the

capital accounting rules of § 1.704–

1(b)(2)(iv)), and the denominator of

which is the total amount of the postdistribution capital accounts

(determined immediately after the

distribution in accordance with the

capital accounting rules of § 1.704–

1(b)(2)(iv)) of all continuing partners.

(2) Exception where partnership does

not maintain capital accounts. If a

partnership does not maintain capital

accounts in accordance with § 1.704–

1(b)(2)(iv), then for purposes of this

paragraph (h)(12)(iv), a continuing

partner’s share of a basis increase is

equal to—

(i) The total basis increase allocable to

the intangible; multiplied by

(ii) The partner’s overall interest in

the partnership as determined under

§ 1.704–1(b)(3) immediately after the

distribution.

(E) Interests acquired by

contribution—(1) Application of

paragraphs (h)(12)(iv)(B) (2) and (3) of

this section. Solely for purposes of

paragraphs (h)(12)(iv)(B)(2) and (3) of

this section, a partner who acquires an

interest in a partnership in exchange for

a contribution of property to the

partnership is deemed to acquire a pro

rata portion of that interest in the

partnership from each person who is a

partner in the partnership at the time of

the contribution based on each such

partner’s proportionate interest in the

partnership.

(2) Special rule with respect to

paragraph (h)(12)(iv)(B)(1) of this

section. Solely for purposes of

paragraph (h)(12)(iv)(B)(1) of this

section, if a distribution that gives rise

to an increase in the basis under section

734(b) of a section 197(f)(9) intangible

held by the partnership is undertaken as

part of a series of related transactions

that include a contribution of the

intangible to the partnership by a

continuing partner, the continuing

partner is treated as related to the

distributee partner in analyzing the

basis adjustment with respect to the

contributed section 197(f)(9) intangible.

(F) Effect of section 734(b)

adjustments on partners’ capital

accounts. If one or more partners are

subject to the anti-churning rules under

this paragraph (h) with respect to a

section 734(b) adjustment allocable to

an intangible asset, taxpayers may use

any reasonable method to determine

amortization of the asset for book

purposes, provided that the method

used does not contravene the purposes

of the anti-churning rules under section

197 and this paragraph (h). A method

will be considered to contravene the

purposes of the anti-churning rules if

the effect of the book adjustments

resulting from the method is such that

any portion of the tax deduction for

amortization attributable to the section

734 adjustment is allocated, directly or

indirectly, to a partner who is subject to

the anti-churning rules with respect to

such adjustment.

(v) Section 743(b) adjustments—(A)

General rule. The anti-churning rules of

this paragraph (h) do not apply to an

increase in the basis of a section 197

intangible under section 743(b) if the

person acquiring the partnership

interest is not related to the person

transferring the partnership interest. In

addition, the anti-churning rules of this

paragraph (h) do not apply to an

increase in the basis of a section 197

intangible under section 743(b) to the

extent that—

(1) The partnership interest being

transferred was acquired after August

10, 1993, provided—

(i) The section 197(f)(9) intangible

was acquired by the partnership on or

before August 10, 1993;

(ii) The partnership interest being

transferred was held after August 10,

1993, by a person or persons (the post1993 person or persons) other than the

person transferring the partnership

interest or persons who were related to

the person transferring the partnership

interest; and

(iii) The acquisition of such interest

by the post-1993 person or persons was

not part of a transaction or series of

related transactions in which the person

transferring the partnership interest or

persons related to the person

transferring the partnership interest

acquired such interest; or

(2) The partnership interest being

transferred was acquired after the

partnership acquired the section

197(f)(9) intangible, provided—

(i) The section 197(f)(9) intangible

was acquired by the partnership after

August 10, 1993, and is not amortizable

with respect to the partnership;

(ii) The partnership interest being

transferred was held after the

partnership acquired the section

197(f)(9) intangible by a person or

persons (the post-contribution person or

persons) other than the person

transferring the partnership interest or

persons who were related to the person

transferring the partnership interest; and

(iii) The acquisition of such interest

by the post-contribution person or

persons was not part of a transaction or

series of related transactions in which

the person transferring the partnership

interest or persons related to the person

transferring the partnership interest

acquired such interest.

(B) Acquisition of partnership interest

by contribution. Solely for purposes of

paragraph (h)(12)(v)(A) (1) and (2) of

this section, a partner who acquires an

interest in a partnership in exchange for

a contribution of property to the

partnership is deemed to acquire a pro

rata portion of that interest in the

partnership from each person who is a

partner in the partnership at the time of

the contribution based on each such

partner’s proportionate interest in the

partnership.

(C) Effect of retroactive elections. For

purposes of paragraph (h)(12)(v)(A) of

this section, references to August 10,

1993, are treated as references to July

25, 1991, if the transferee partner made

a valid retroactive election under

§ 1.197–1T.

(vi) Partner is or becomes a user of

partnership intangible—(A) General

rule. If, as part of a series of related

transactions that includes a transaction

described in paragraph (h)(12)(ii), (iii),

(iv), or (v) of this section, an antichurning partner or related person

(other than the partnership) becomes (or

remains) a direct user of an intangible

that is treated as transferred in the

transaction (as a result of the partners

being treated as having owned their

proportionate share of partnership

assets), the anti-churning rules of this

paragraph (h) apply to the proportionate

share of such intangible that is treated

Federal Register / Vol. 65, No. 224 / Monday, November 20, 2000 / Rules and Regulations 69673

as transferred by such anti-churning

partner, notwithstanding the application

of paragraph (h)(12)(ii), (iii), (iv), or (v)

of this section.

* * * * *

(vii) * * *

(B) Allocations where the intangible is

not amortizable by the contributor. If a

section 197(f)(9) intangible was not an

amortizable section 197 intangible in

the hands of the contributing partner, a

non-contributing partner generally may

receive remedial allocations of

amortization under section 704(c) that

are deductible for Federal income tax

purposes. However, such a partner may

not receive remedial allocations of

amortization under section 704(c) if that

partner is related to the partner that

contributed the intangible or if, as part

of a series of related transactions that

includes the contribution of the section

197(f)(9) intangible to the partnership,

the contributing partner or related

person (other than the partnership)

becomes (or remains) a direct user of the

contributed intangible. * * *

* * * * *

(k) * * *

Example 27. ***

(iii) * * * However, A is an anti-churning

partner under paragraph (h)(12)(vi)(B)(2)(i) of

this section. As a result of the license

agreement, A remains a direct user of the

section 197(f)(9) intangible after the transfer

to C. Accordingly, paragraph (h)(12)(vi)(A) of

this section will cause the anti-churning

rules to apply to the entire basis adjustment

under section 743(b).

Example 28. Distribution of section

197(f)(9) intangible to partner who acquired

partnership interest prior to the effective

date. (i) In 1990, A, B, and C each contribute

$150 cash to form general partnership ABC

for the purpose of engaging in a consulting

business and a software manufacturing

business. The partners agree to share

partnership profits and losses equally. In

2000, the partnership distributes the

consulting business to A in liquidation of A’s

entire interest in ABC. The only asset of the

consulting business is a nonamortizable

intangible, which has a fair market value of

$180 and a basis of $0. At the time of the

distribution, the adjusted basis of A’s interest

in ABC is $150. A is not related to B or C.

ABC does not have a section 754 election in

effect.

(ii) Under section 732(b), A’s adjusted basis

in the intangible distributed by ABC is $150,

a $150 increase over the basis of the

intangible in ABC’s hands. In determining

whether the anti-churning rules apply to any

portion of the basis increase, A is treated as

having owned and used A’s proportionate

share of partnership property. Thus, A is

treated as holding an interest in the

intangible during the transition period.

Because the intangible was not amortizable

prior to the enactment of section 197, the

section 732(b) increase in the basis of the

intangible may be subject to the antichurning provisions. Paragraph (h)(12)(ii) of

this section provides that the anti-churning

provisions apply to the extent that the

section 732(b) adjustment exceeds the total

unrealized appreciation from the intangible

allocable to partners other than A or persons

related to A, as well as certain other partners

whose purchase of their interests meet

certain criteria. Because B and C are not

related to A, and A’s acquisition of its

partnership interest does not satisfy the

necessary criteria, the section 732(b) basis

increase is subject to the anti-churning

provisions to the extent that it exceeds B and

C’s proportionate share of the unrealized

appreciation from the intangible. B and C’s

proportionate share of the unrealized

appreciation from the intangible is $120 (2/

3 of $180). This is the amount of gain that

would be allocated to B and C if the

partnership sold the intangible immediately

before the distribution for its fair market

value of $180. Therefore, $120 of the section

732(b) basis increase is not subject to the

anti-churning rules. The remaining $30 of the

section 732(b) basis increase is subject to the

anti-churning rules. Accordingly, A is treated

as having two intangibles, an amortizable

section 197 intangible with an adjusted basis

of $120 and a new amortization period of 15

years and a nonamortizable intangible with

an adjusted basis of $30.

(iii) In applying the anti-churning rules to

future transfers of the distributed intangible,

under paragraph (h)(12)(ii)(C) of this section,

one-third of the intangible will continue to be

subject to the anti-churning rules,

determined as follows: The sum of the

amount of the distributed intangible’s basis

that is nonamortizable under paragraph

(g)(2)(ii)(B) of this section ($0) and the total

unrealized appreciation inherent in the

intangible reduced by the amount of the

increase in the adjusted basis of the

distributed intangible under section 732(b) to

which the anti-churning rules do not apply

($180¥$120 = $60), over the fair market

value of the distributed intangible ($180).

Example 29. Distribution of section

197(f)(9) intangible to partner who acquired

partnership interest after the effective date.

(i) The facts are the same as in Example 28,

except that B and C form ABC in 1990. A

does not acquire an interest in ABC until

1995. In 1995, A contributes $150 to ABC in

exchange for a one-third interest in ABC. At

the time of the distribution, the adjusted

basis of A’s interest in ABC is $150.

(ii) As in Example 28, the anti-churning

rules do not apply to the increase in the basis

of the intangible distributed to A under

section 732(b) to the extent that it does not

exceed the unrealized appreciation from the

intangible allocable to B and C. Under

paragraph (h)(12)(ii) of this section, the antichurning provisions also do not apply to the

section 732(b) basis increase to the extent of

A’s allocable share of the unrealized

appreciation from the intangible because A

acquired the ABC interest from an unrelated

person after August 10, 1993, and the

intangible was acquired by the partnership

before A acquired the ABC interest. Under

paragraph (h)(12)(ii)(E) of this section, A is

deemed to acquire the ABC partnership

interest from an unrelated person because A

acquired the ABC partnership interest in

exchange for a contribution to the

partnership of property other than the

distributed intangible and, at the time of the

contribution, no partner in the partnership

was related to A. Consequently, the increase

in the basis of the intangible under section

732(b) is not subject to the anti-churning

rules to the extent of the total unrealized

appreciation from the intangible allocable to

A, B, and C. The total unrealized

appreciation from the intangible allocable to

A, B, and C is $180 (the gain the partnership

would have recognized if it had sold the

intangible for its fair market value

immediately before the distribution). Because

this amount exceeds the section 732(b) basis

increase of $150, the entire section 732(b)

basis increase is amortizable.

(iii) In applying the anti-churning rules to

future transfers of the distributed intangible,

under paragraph (h)(12)(ii)(C) of this section,

one-sixth of the intangible will continue to be

subject to the anti-churning rules,

determined as follows: The sum of the

amount of the distributed intangible’s basis

that is nonamortizable under paragraph

(g)(2)(ii)(B) of this section ($0) and the total

unrealized appreciation inherent in the

intangible reduced by the amount of the

increase in the adjusted basis of the

distributed intangible under section 732(b) to

which the anti-churning rules do not apply

($180¥$150 = $30), over the fair market

value of the distributed intangible ($180).

Example 30. Distribution of section

197(f)(9) intangible contributed to the

partnership by a partner.

(i) The facts are the same as in Example 29,

except that C purchased the intangible used

in the consulting business in 1988 for $60

and contributed the intangible to ABC in

1990. At that time, the intangible had a fair

market value of $150 and an adjusted tax

basis of $60. When ABC distributes the

intangible to A in 2000, the intangible has a

fair market value of $180 and a basis of $60.

(ii) As in Examples 28 and 29, the adjusted

basis of the intangible in A’s hands is $150

under section 732(b). However, the increase

in the adjusted basis of the intangible under

section 732(b) is only $90 ($150 adjusted

basis after the distribution compared to $60

basis before the distribution). Pursuant to

paragraph (g)(2)(ii)(B) of this section, A steps

into the shoes of ABC with respect to the $60

of A’s adjusted basis in the intangible that

corresponds to ABC’s basis in the intangible

and this portion of the basis is

nonamortizable. B and C are not related to A,

A acquired the ABC interest from an

unrelated person after August 10, 1993, and

the intangible was acquired by ABC before A

acquired the ABC interest. Therefore, under

paragraph (h)(12)(ii) of this section, the

section 732(b) basis increase is amortizable to

the extent of A, B, and C’s allocable share of

the unrealized appreciation from the

intangible. The total unrealized appreciation

from the intangible that is allocable to A, B,

and C is $120. If ABC had sold the intangible

immediately before the distribution to A for

its fair market value of $180, it would have

recognized gain of $120, which would have

been allocated $10 to A, $10 to B, and $100

to C under section 704(c). Because A, B, and

69674 Federal Register / Vol. 65, No. 224 / Monday, November 20, 2000 / Rules and Regulations

C’s allocable share of the unrealized

appreciation from the intangible exceeds the

section 732(b) basis increase in the

intangible, the entire $90 of basis increase is

amortizable by A. Accordingly, after the

distribution, A will be treated as having two

intangibles, an amortizable section 197

intangible with an adjusted basis of $90 and

a new amortization period of 15 years and a

nonamortizable intangible with an adjusted

basis of $60.

(iii) In applying the anti-churning rules to

future transfers of the distributed intangible,

under paragraph (h)(12)(ii)(C) of this section,

one-half of the intangible will continue to be

subject to the anti-churning rules,

determined as follows: The sum of the

amount of the distributed intangible’s basis

that is nonamortizable under paragraph

(g)(2)(ii)(B) of this section ($60) and the total

unrealized appreciation inherent in the

intangible reduced by the amount of the

increase in the adjusted basis of the

distributed intangible under section 732(b) to

which the anti-churning rules do not apply

($120¥$90 = $30), over the fair market value

of the distributed intangible ($180).

Example 31. Partnership distribution

causing section 734(b) basis adjustment to

section 197(f)(9) intangible.

(i) On January 1, 2001, A, B, and C form

a partnership (ABC) in which each partner

shares equally in capital and income, gain,

loss, and deductions. On that date, A

contributes a section 197(f)(9) intangible with

a zero basis and a value of $150, and B and

C each contribute $150 cash. A and B are

related, but neither A nor B is related to C.

ABC does not adopt the remedial allocation

method for making section 704(c) allocations

of amortization expenses with respect to the

intangible. On December 1, 2004, when the

value of the intangible has increased to $600,

ABC distributes $300 to B in complete

redemption of B’s interest in the partnership.

ABC has an election under section 754 in

effect for the taxable year that includes

December 1, 2004. (Assume that, at the time

of the distribution, the basis of A’s

partnership interest remains zero, and the

basis of each of B’s and C’s partnership

interest remains $150.)

(ii) Immediately prior to the distribution,

the assets of the partnership are revalued

pursuant to § 1.704–1(b)(2)(iv)(f), so that the

section 197(f)(9) intangible is reflected on the

books of the partnership at a value of $600.

B recognizes $150 of gain under section

731(a)(1) upon the distribution of $300 in

redemption of B’s partnership interest. As a

result, the adjusted basis of the intangible

held by ABC increases by $150 under section

734(b). A does not satisfy any of the tests set

forth under paragraph (h)(12)(iv)(B) and thus

is not an eligible partner. C is not related to

B and thus is an eligible partner under

paragraph (h)(12)(iv)(B)(1) of this section.

The capital accounts of A and C are equal

immediately after the distribution, so,

pursuant to paragraph (h)(12)(iv)(D)(1) of this

section, each partner’s share of the basis

increase is equal to $75. Because A is not an

eligible partner, the anti-churning rules apply

to A’s share of the basis increase. The antichurning rules do not apply to C’s share of

the basis increase.

(iii) For book purposes, ABC determines

the amortization of the asset as follows: First,

the intangible that is subject to adjustment

under section 734(b) will be divided into

three assets: the first, with a basis and value

of $75 will be amortizable for both book and

tax purposes; the second, with a basis and

value of $75 will be amortizable for book, but

not tax purposes; and a third asset with a

basis of zero and a value of $450 will not be

amortizable for book or tax purposes. Any

subsequent revaluation of the intangible

pursuant to § 1.704–1(b)(2)(iv)(f) will be

made solely with respect to the third asset

(which is not amortizable for book purposes).

The book and tax attributes from the first

asset (i.e., book and tax amortization) will be

specially allocated to C. The book and tax

attributes from the second asset (i.e., book

amortization and non-amortizable tax basis)

will be specially allocated to A. Upon

disposition of the intangible, each partner’s

share of gain or loss will be determined first

by allocating among the partners an amount

realized equal to the book value of the

intangible attributable to such partner, with

any remaining amount realized being

allocated in accordance with the partnership

agreement. Each partner then will compare

its share of the amount realized with its

remaining basis in the intangible to arrive at

the gain or loss to be allocated to such

partner. This is a reasonable method for

amortizing the intangible for book purposes,

and the results in allocating the income, gain,

loss, and deductions attributable to the

intangible do not contravene the purposes of

the anti-churning rules under section 197 or

paragraph (h) of this section.

(l) * * * (1) In general. This section

applies to property acquired after

January 25, 2000, except that paragraph

(c)(13) of this section (exception from

section 197 for separately acquired

rights of fixed duration or amount)

applies to property acquired after

August 10, 1993 (or July 25, 1991, if a

valid retroactive election has been made

under § 1.197–1T), and paragraphs

(h)(12)(ii), (iii), (iv), (v), (vi)(A), and

(vii)(B) of this section (anti-churning

rules applicable to partnerships) apply

to partnership transactions occurring on

or after November 20, 2000.

(2) Application to pre-effective date

acquisitions. A taxpayer may choose, on

a transaction-by-transaction basis, to

apply the provisions of this section and

§ 1.167(a)–14 to property acquired (or

partnership transactions occurring) after

August 10, 1993 (or July 25, 1991, if a

valid retroactive election has been made

under § 1.197–1T) and—

(i) On or before January 25, 2000; or

(ii) With respect to paragraphs

(h)(12)(ii), (iii), (iv), (v), (vi)(A), and

(vii)(B) of this section, before November

20, 2000.

* * * * *

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

Approved: November 9, 2000.

Jonathan Talisman,

Acting Assistant Secretary of the Treasury.

[FR Doc. 00–29524 Filed 11–17–00; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF LABOR

Office of the Secretary

Employment Standards Administration

Wage and Hour Division

29 CFR Parts 1 and 5

RIN 1215–AA94

Procedures for Predetermination of

Wage Rates; Labor Standards

Provisions Applicable to Contracts

Covering Federally Financed and

Assisted Construction and to Certain

Nonconstruction Contracts

AGENCY: Wage and Hour Division,

Employment Standards Administration,

Labor.

ACTION: Final rule.

SUMMARY: This document adopts as a

final rule an amendment to the

regulations that govern the employment

of ‘‘helpers’’ on federally-financed and

assisted construction contracts subject

to the prevailing wage standards of the

Davis-Bacon and Related Acts (DBRA).

Specifically, this document amends the

regulations to incorporate the Wage and

Hour Division’s longstanding policy of

recognizing helper classifications and

wage rates only where their duties are

clearly defined and distinct from those

of journeyworker and laborer

classifications in the area; the use of

such helpers is an established prevailing

practice in the area; and the term

‘‘helper’’ is not synonymous with

‘‘trainee’’ in an informal training

program.

EFFECTIVE DATE: January 19, 2001.

FOR FURTHER INFORMATION CONTACT:

William W. Gross, Director, Office of

Wage Determinations, Wage and Hour

Division, Employment Standards

Administration, U.S. Department of

Labor, Room S–3028, 200 Constitution

Avenue, NW., Washington, DC 20210.

Telephone (202) 693–0569. (This is not

a toll-free number.)

SUPPLEMENTARY INFORMATION: