Federal Register / Vol. 62, No. 2 / Friday, January 3, 1997 / Proposed Rules 361

omission, without good cause, the

processing of a claim at any stage of the

administrative review process;

(5) Divulge, except as may be

authorized by regulations prescribed by

us, any information we furnish or

disclose about a claim or prospective

claim of another person;

(6) Attempt to influence, directly or

indirectly, the outcome of a decision,

determination or other administrative

action by offering or granting a loan,

gift, entertainment or anything of value

to a presiding official, Agency employee

or witness who is or may reasonably be

expected to be involved in the

administrative review process, except as

reimbursement for legitimately incurred

expenses or lawful compensation for the

services of an expert witness retained on

a non-contingency basis to provide

evidence; or

(7) Engage in actions or behavior

prejudicial to the fair and orderly

conduct of oral proceedings, including

but not limited to:

(i) Repeated instances of unauthorized

absences, or persistent tardiness at

scheduled proceedings;

(ii) Willful behavior which has the

effect of improperly disrupting

proceedings or obstructing the

adjudicative process; and

(iii) Threatening or intimidating

language, gestures or actions directed at

a presiding official, witness or Agency

employee.

10. Section 416.1545 is revised to read

as follows:

§ 416.1545 Violations of our requirements,

rules, or standards.

When we have evidence that a

representative fails to meet our

qualification requirements or has

violated the rules governing dealings

with us, we may begin proceedings to

suspend or disqualify that individual

from acting in a representational

capacity before us. We may file charges

seeking such sanctions when we have

evidence that a representative:

(a) Does not meet the qualifying

requirements described in § 416.1505;

(b) Has violated the affirmative duties

or engaged in the prohibited actions set

forth in § 416.1540; or

(c) Has been convicted of a violation

under section 1631(d) of the Act.

11. Section 416.1550 is amended by

revising paragraphs (a) and (d) to read

as follows:

§ 416.1550 Notice of charges against a

representative.

(a) The Deputy Commissioner for

Programs, Policy, Evaluation and

Communications (or other official the

Commissioner may designate), or his or

her designee, will prepare a notice

containing a statement of charges that

constitutes the basis for the proceeding

against the representative.

* * * * *

(d) The Deputy Commissioner for

Programs, Policy, Evaluation and

Communications (or other official the

Commissioner may designate), or his or

her designee, may extend the 30-day

period for good cause.

* * * * *

12. Section 416.1565 is amended by

revising paragraph (a), the second

sentence of paragraph (e), and paragraph

(g)(3) to read as follows:

§ 416.1565 Hearing on charges.

(a) Scheduling the hearing. If the

Deputy Commissioner for Programs,

Policy, Evaluation and Communications

(or other official the Commissioner may

designate), or his or her designee, does

not take action to withdraw the charges

within 15 days after the date on which

the representative filed an answer, we

will hold a hearing and make a decision

on the charges.

* * * * *

(e) Parties. * * * The Deputy

Commissioner for Programs, Policy,

Evaluation and Communi cations (or

other official the Commissioner may

designate), or his or her designee, shall

also be a party to the hearing.

* * * * *

(g) * * *

(3) If the representative did file an

answer to the charges, and if the hearing

officer believes that there is material

evidence available that was not

presented at the hearing, the hearing

officer may at any time before mailing

notice of the hearing decision reopen

the hearing to accept the additional

evidence.

* * * * *

13. Section 416.1599 is amended by

revising the first sentence of paragraph

(c) and the second sentence of

paragraph (e) to read as follows:

§ 416.1599 Reinstatement after

suspension or disqualification—period of

suspension not expired.

* * * * *

(c) The Appeals Council shall allow

the Deputy Commissioner for Programs,

Policy, Evaluation and Communications

(or other official the Commissioner may

designate), or his or her designee, upon

notification of receipt of the request, 30

days in which to present a written

report of any experiences with the

suspended or disqualified person

subsequent to that person’s suspension

or disqualification. * * *

* * * * *

(e) * * * It shall also mail a copy to

the Deputy Commissioner for Programs,

Policy, Evaluation and Communications

(or other official the Commissioner may

designate), or his or her designee.

* * * * *

[FR Doc. 97–38 Filed 1–2–97; 8:45 am]

BILLING CODE 4190–29–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG–252233–96]

RIN 1545–AU73

Continuity of Interest and Business

Enterprise

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking

and notice of public hearing.

SUMMARY: This document proposes rules

providing that for certain

reorganizations, transfers by the

acquiring corporation of target assets or

stock to certain controlled corporations,

and under prescribed conditions,

transfers of target assets to partnerships,

will not disqualify the transaction from

satisfying the continuity of interest and

continuity of business enterprise

requirements. This document also

provides notice of a public hearing on

these proposed regulations.

DATES: Comments must be received by

April 3, 1997. Requests to speak and

outlines of topics to be discussed at the

public hearing scheduled for

Wednesday, May 7, 1997 must be

received by Wednesday, April 16, 1997.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–252233–96),

room 5228, Internal Revenue Service,

POB 7604, Ben Franklin Station,

Washington, DC 20044. Submissions

may be hand delivered between the

hours of 8 a.m. and 5 p.m. to

CC:DOM:CORP:R (REG–252233–96),

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 on the

IRS Home Page, or by submitting

comments directly to the IRS Internet

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

taxlregs/comments.html. The public

hearing will be held in the Auditorium,

Internal Revenue Building, 1111

Constitution Avenue NW., Washington

DC.
362 Federal Register / Vol. 62, No. 2 / Friday, January 3, 1997 / Proposed Rules

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Marlene

Peake Oppenheim, (202) 622–7750;

concerning submissions and the

hearing, Christina Vasquez, (202) 622–

6808 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed

amendments to the Income Tax

Regulations (26 CFR part 1) under

section 368. The proposed regulations

establish rules providing that for certain

reorganizations transfers by the

acquiring corporation of target

corporation assets or stock to certain

controlled corporations and under

prescribed conditions transfers of target

assets to partnerships, will not

disqualify the transaction from

satisfying the continuity of interest and

continuity of business enterprise

requirements.

Explanation of Proposed Regulations

A. Remote Continuity of Interest

1. Overview

The Internal Revenue Code of 1986

(Code) provides general nonrecognition

treatment for reorganizations

specifically described in section 368 of

the Code. Literal compliance with the

statutory requirements is not sufficient,

however, for nonrecognition treatment.

The Supreme Court, in Groman v.

Commissioner, 302 U.S. 82 (1937), and

Helvering v. Bashford, 302 U.S. 454

(1938), established the basis of what has

become known as the ‘‘remote

continuity of interest doctrine.’’ Under

this doctrine, stock consideration

received by the target corporation’s (T)

shareholders does not provide

continuity unless the target assets or

stock are ultimately held by the

corporation that issued the stock. Thus,

if T transfers its assets to an acquiring

corporation (P), in exchange for stock of

the corporation controlling P (see

Groman), or if P acquires the T assets

but pursuant to the plan of

reorganization transfers them to a

controlled subsidiary (S) (see Bashford),

the continuity of interest requirement is

not satisfied.

Congress has substantially limited the

remote continuity of interest doctrine.

In 1954, Congress enacted section

368(a)(2)(C) which provides that P’s

transfer of T assets acquired in a

reorganization under section

368(a)(1)(A) (merger or consolidation) or

section 368(a)(1)(C) (asset acquisition) to

S does not disqualify the reorganization.

Section 368(a)(1)(C) was also amended

to provide that P can acquire T assets

directly in exchange for voting stock of

a corporation in control of P (a

triangular C reorganization).

In the 1960’s, the Treasury

Department and IRS issued several

revenue rulings attempting to clarify to

what extent the remote continuity

doctrine had remaining vitality. Where

the guidance held that the remote

continuity doctrine applied to

disqualify the transaction from

reorganization treatment, Congress at

times responded by amending the

relevant Code section and overturning

the result. For example, Rev. Rul. 63–

234 (1963–2 C.B. 148) held that remote

continuity remained an issue for section

368(a)(1)(B) reorganizations. The

following year Congress responded by

amending section 368(a)(1)(B),

permitting P to acquire T’s stock in

exchange for stock of the corporation

controlling P (a triangular B

reorganization). Congress also amended

section 368(a)(2)(C) to provide that P

can transfer T stock acquired in a

reorganization under section

368(a)(1)(B) to S without disqualifying

the reorganization.

Similarly, when Rev. Rul. 67–326

(1967–2 C.B. 143) held that a merger of

T into S in exchange for stock of the

corporation controlling S (a forward

triangular merger) violated the

continuity of interest doctrine, Congress

responded in the following year by

enacting section 368(a)(2)(D), which

provides that a forward triangular

merger qualifies as a section

368(a)(1)(A) reorganization.

In contrast, Rev. Rul. 64–73 (1964–1

C.B. 142) held that a transaction

qualified as a section 368(a)(1)(C)

reorganization where P and P’s second

tier subsidiary acquired all the T assets

in exchange for P stock. The transaction

was viewed as an acquisition of

substantially all the T assets by P.

2. Transfers of T Assets or Stock to

Controlled Corporations

The proposed regulations curtail the

remote continuity of interest doctrine by

providing that assets can be transferred

among members of a ‘‘qualified group.’’

A qualified group consists of one or

more chains of corporations connected

through stock ownership with the

‘‘issuing corporation,’’ but only if the

issuing corporation owns directly stock

meeting the requirements of section

368(c) in at least one other corporation,

and stock meeting the requirements of

section 368(c) in each of the

corporations (except the issuing

corporation) is owned directly by one of

the other corporations. The issuing

corporation is the acquiring corporation

(as that term is used in section 368(a)),

except in transactions where use of

stock of a corporation in control of the

acquiring corporation is permitted.

Where stock of the controlling

corporation is used, the controlling

corporation is the issuing corporation.

The proposed regulations generally

permit transfers or successive transfers

of assets or stock to members of the

qualified group. Thus, continuity of

interest is not violated where there are

transfers or successive transfers of T

stock (or transfers of the T assets after

a T stock acquisition) or T assets (or

transfers of the acquiring corporation’s

stock after a T asset acquisition) among

members of the qualified group. The

Treasury Department and IRS solicit

comments on whether the qualified

group should be defined other than by

reference to section 368(c).

The proposed regulations are limited

to asset or stock transfers following

transactions that otherwise qualify as

section 368(a)(1) (A), (B), (C), or (G)

(meeting the requirements of sections

354(b)(1)(A) and (B)) reorganizations

(covered reorganizations). Section

368(a)(2)(C) by its terms does not apply

to acquisitive section 368(a)(1)(D) or

section 368(a)(1)(F) reorganizations. The

Treasury Department and IRS solicit

comments as to whether the rules in the

proposed regulations should be

extended to these other reorganization

provisions or to section 355 divisive

transactions.

3. Transfer of T Assets to a Partnership

Whether the transfer of assets to a

partnership (PRS) by the corporate

transferor partner (PTR) disqualifies an

otherwise qualifying covered

reorganization depends in part on

whether PRS is viewed as an aggregate

of its partners or as an entity separate

from the partners. The treatment of PRS

as an aggregate or entity must be

determined on the basis of the

characterization most appropriate for

the situation. H.R. Conf. Rep. No. 2543,

83d Cong., 2d Sess. 59 (1954). Cf.

§ 1.701–2(e)(1) of the Income Tax

Regulations.

The Treasury Department and IRS

believe it is appropriate to treat PRS as

an aggregate of its partners in analyzing

a transaction with respect to continuity

of interest. Thus, the proposed

regulations provide that PTR’s transfer

of T assets to PRS does not violate the

continuity of interest requirement.

The proposed regulations do not

permit the transfer of stock to PRS

where the Code imposes a control

requirement in section 368. See sections

368(a)(1)(B) and (C), sections

368(a)(2)(D) and (E), and section

368(a)(2)(C). In addition, the transfer of
Federal Register / Vol. 62, No. 2 / Friday, January 3, 1997 / Proposed Rules 363

T assets to PRS may violate the

continuity of business enterprise

(COBE) requirement.

B. Continuity of Business Enterprise

1. Overview

Section 1.368–1(b) requires that

reorganizations afford a continuity of

business enterprise under modified

corporate form. COBE requires that P

either (i) continue T’s historic business

(business continuity) or (ii) use a

significant portion of T’s historic

business assets in a business (asset

continuity). § 1.368–1(d)(2). The

proposed regulations provide a

framework for applying the existing

COBE regulations to situations where

the T assets or stock are transferred to

certain controlled corporations or assets

are transferred to partnerships.

2. Transfer of T Assets or Stock to a

Controlled Corporation

The proposed regulations provide

that, under prescribed conditions, COBE

is not violated by reason of the fact that

part or all of the T assets or stock are

transferred among members of a

qualified group. Thus, the COBE

requirement is not violated where there

are transfers or successive transfers of T

stock (or transfers of the T assets after

a T stock acquisition) or T assets (or

transfers of the acquiring corporation’s

stock after a T asset acquisition) among

members of the qualified group.

3. Transfer of T Assets to a Partnership

The proposed regulations provide

that, under prescribed conditions, COBE

is not violated by reason of the fact that

part or all of the T assets are transferred

to PRS by PTR. The proposed

regulations adopt an aggregate approach

in determining whether COBE has been

satisfied when T assets are transferred to

PRS following a T asset or T stock

acquisition. Thus, the proposed

regulations provide that for purposes of

the business continuity test, PTR will be

treated as conducting a business of PRS

if PTR has active and substantial

management functions as a partner with

regard to the business (cf. Rev. Rul. 92–

17 (1992–1 C.B. 142)) or if PTR’s

partnership interest in PRS represents a

significant interest in the PRS business.

Furthermore, in determining whether

PTR satisfies the asset continuity test (i)

PTR will be treated as owning the assets

of PRS in accordance with PTR’s

interest in PRS, and (ii) PTR will be

treated as conducting a business of PRS

under the rules applicable to business

continuity.

COBE requires a facts and

circumstances analysis. Thus, the

proposed regulations also state that the

fact that PTR meets the business

continuity requirements of § 1.368–

1(d)(2)(i) and 1(d)(3) through active and

substantial management of a PRS

business tends to establish COBE, but

the fact that PTR conducts a PRS

business is not alone sufficient.

C. Effect on Other Authorities

The proposed regulations apply only

for the purpose of determining the effect

that transfers of assets or stock following

a reorganization have on the continuity

of interest and COBE requirements.

They do not address any other issues

concerning the qualification of a

transaction as a reorganization.

Thus, the proposed regulations do not

expand the scope of triangular

reorganizations. Under current law, a T

asset or stock acquisition in exchange

for stock of a grandparent (or higher tier)

corporation does not qualify as a

reorganization. See Rev. Rul. 74–564

(1974–2 C.B. 124) and Rev. Rul. 74–565

(1974–2 C.B. 125). The proposed

regulations do not change this result.

The proposed regulations do not

provide guidance on whether the

‘‘solely for voting stock’’ requirement is

satisfied in a section 368(a)(1)(C)

reorganization when a corporation other

than the acquiring corporation assumes

target liabilities. See generally Rev. Rul.

70–107 (1970–1 C.B. 78).

Furthermore, the proposed

regulations do not modify the section

381 regulations which provide rules

concerning which entity inherits the tax

attributes of T in an asset acquisition.

The Treasury Department and IRS

solicit comments on these issues.

Proposed Effective Date

The revisions and additions in the

proposed regulations apply to

transactions occurring after these

regulations are published as final

regulations in the Federal Register,

except that they shall not apply to

transactions occurring pursuant to a

written agreement which is (subject to

customary conditions) binding on or

before these regulations are published as

final regulations in the Federal Register.

Effect on Other Documents

The Treasury Department and IRS

solicit comments on what IRS

publications should be modified or

obsoleted when the proposed

regulations are published as final

regulations.

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 has also

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 the 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, 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 (a signed original and

eight copies) that are submitted timely

to the Internal Revenue Service.

Alternatively, taxpayers may submit

comments electronically via the Internet

by selecting the ‘‘Tax Regs’’ option on

the IRS Home Page, or by submitting

comments directly to the IRS Internet

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

taxlregs/comments.html. All

comments will be available for public

inspection and copying.

A public hearing has been scheduled

for Wednesday, May 7, 1997, beginning

at 10 a.m., in the Auditorium, 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.

Persons who wish to present oral

comments at the hearing must request to

speak, and submit an outline of topics

to be discussed and the time to be

devoted to each topic by Wednesday,

April 16, 1997.

A period of 10 minutes will be

allocated 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 author of the proposed

regulations is Marlene Peake

Oppenheim of the Office of Assistant

Chief Counsel (Corporate), IRS.

However, other personnel from the

Treasury and IRS participated in their

development.
364 Federal Register / Vol. 62, No. 2 / Friday, January 3, 1997 / Proposed Rules

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

Proposed Amendments to the

Regulations

Accordingly, 26 CFR Part 1 is

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 1.368–1 as proposed to

be amended at 61 FR 67514 is amended

by:

1. Adding two sentences after the

sixth sentence of paragraph (b).

2. Redesignating paragraph (d)(5) as

paragraph (d)(6).

3. Adding a new paragraph (d)(5).

4. Adding three sentences to the end

of newly designated paragraph (d)(6)

introductory text.

5. Adding Example 6 through

Example 10 to newly designated

paragraph (d)(6).

6. Adding paragraph (f).

The additions read as follows:

§ 1.368–1 Purpose and scope of exception

of reorganization exchanges.

* * * * *

(b) * * * Rules concerning continuity

of interest as applied to section

368(a)(1)(A), (B), (C), or (G) (meeting the

requirements of sections 354(b)(1)(A)

and (B)) are in paragraph (f) of this

section. The preceding sentence applies

to transactions occurring after these

regulations are published as final

regulations in the Federal Register

except that it shall not apply to any

transactions occurring pursuant to a

written agreement which is (subject to

customary conditions) binding on or

before these regulations are published as

final regulations in the Federal Register.

* * *

* * * * *

(d) * * *

(5) Transfers of assets or stock to

controlled corporations and

partnerships—(i) Scope. The following

rules in paragraphs (d)(5) (ii) through

(vi) of this section apply in determining

whether the continuity of business

enterprise requirement of paragraph

(d)(1) of this section is satisfied with

respect to transactions otherwise

qualifying as reorganizations under

section 368(a)(1)(A), (B), (C), or (G)

(meeting the requirements of sections

354(b)(1)(A) and (B)).

(ii) Transfers to members of a

qualified group. Continuity of business

enterprise continues to be satisfied

where there are transfers or successive

transfers of target (T) stock (or transfers

of T assets after a stock acquisition) or

T assets (or transfers of the acquiring

corporation’s stock after a T asset

acquisition) among members of a

qualified group as defined in paragraph

(d)(5)(iii) of this section.

(iii) Qualified group. A qualified

group is one or more chains of

corporations connected through stock

ownership with the issuing corporation

as defined in paragraph (d)(5)(iv) of this

section, but only if the issuing

corporation owns directly stock meeting

the requirements of section 368(c) in at

least one other corporation, and stock

meeting the requirements of section

368(c) in each of the corporations

(except the issuing corporation) is

owned directly by one of the other

corporations.

(iv) Issuing corporation. The issuing

corporation is the acquiring corporation

(as that term is used in section 368(a)),

except in transactions where the use of

stock of a corporation in control of the

acquiring corporation is permitted.

Where stock of the controlling

corporation is used, the controlling

corporation is the issuing corporation.

(v) Partnerships—(A) For purposes of

the business continuity test of paragraph

(d)(3) of this section, the corporate

transferor partner (PTR) will be treated

as conducting a business of a

partnership (PRS) where—

(1) PTR has active and substantial

management functions as a partner with

respect to the PRS business; or

(2) PTR’s interest in PRS represents a

significant interest in the PRS business.

(B) For purposes of the asset

continuity test of paragraph (d)(4) of this

section—

(1) PTR will be treated as owning the

assets of PRS in accordance with PTR’s

interest in PRS; and

(2) PTR will be treated as conducting

a PRS business if PTR meets the

requirement of paragraph (d)(5)(v)(A) (1)

or (2) of this section.

(C) The fact that PTR is treated as

conducting a business of PRS under

paragraph (d)(5)(v)(A) of this section

tends to establish the requisite

continuity, but is not alone sufficient.

(vi) This paragraph (d)(5) applies to

transactions occurring after these

regulations are published as final

regulations in the Federal Register

except that it shall not apply to any

transactions occurring pursuant to a

written agreement which is (subject to

customary conditions) binding on or

before these regulations are published as

final regulations in the Federal Register.

(6) * * * All corporations have only

one class of common stock outstanding.

Example 6 through Example 10 of this

paragraph (d)(6) apply to transactions

occurring after these regulations are

published as final regulations in the

Federal Register except that they shall

not apply to any transactions occurring

pursuant to a written agreement which

is (subject to customary conditions)

binding on or before these regulations

are published as final regulations in the

Federal Register. The examples are as

follows:

* * * * *

Example 6. Qualified group and business

continuity. (a) Facts. T operates a bakery

which makes and supplies delectable pastries

and cookies to a few select locations. The

acquiring corporate group consists of

numerous corporations which produce a

variety of baked goods for distribution

around the world. Holding Company (HC)

owns 80 percent of the stock of P. Pursuant

to a plan, T transfers all of its assets to P

solely in exchange for HC voting stock,

which T distributes to its shareholders. P

owns 80 percent of the stock of S1; S1 owns

80 percent of the stock of S2, which also

makes and supplies pastries and cookies. To

amalgamate the T business into HC’s

affiliated group, P would like to operate T’s

business in S2. Pursuant to the plan, P

transfers the T assets to S1; S1 then transfers

the T assets to S2.

(b) Continuity of business enterprise. HC,

P, S1, and S2 are members of a qualified

group as defined in paragraph (d)(5)(iii) of

this section. Under paragraph (d)(5)(ii) of this

section, continuity of business enterprise

continues to be satisfied where T’s historic

business is transferred to a member of the

qualified group. The same results would

occur if T had been acquired by P for HC

voting stock in a reorganization described in

section 368(a)(1)(B) and the T stock had been

transferred from P to S1 and from S1 to S2.

Example 7. Transfers of assets to multiple

controlled corporations. (a) Facts. T operates

an auto parts distributorship. Pursuant to a

plan, T merges into P and the T shareholders

receive solely P stock. P owns 80 percent of

the stock of S1. S1 owns 80 percent of the

stock of ten subsidiaries, S2 through S11. S2

through S11 each separately operate a full

service gas station. As part of the plan, P

transfers T’s auto parts to S1, which in turn

transfers some of the parts to each of its ten

subsidiaries. No one subsidiary receives a

significant portion of T’s historic business

assets. Each of S1’s subsidiaries will use the

T assets received in the operation of its full

service gas station. No S1 subsidiary will be

an auto parts distributor.

(b) Continuity of business enterprise. P, S1,

and the respective subsidiaries are members

of a qualified group as defined in paragraph

(d)(5)(iii) of this section. Under paragraph

(d)(5)(ii) of this section, continuity of

business enterprise continues to be satisfied

where all of T’s historic business assets are

transferred among members of the qualified

group. Even though no one corporation is

using a significant portion of T’s historic
Federal Register / Vol. 62, No. 2 / Friday, January 3, 1997 / Proposed Rules 365

business assets in a business, the continuity

of business enterprise requirement is

satisfied because the qualified group is using

a significant portion of T’s historic business

assets in a business.

Example 8. Transfer of a historic T

business to PRS—active and substantial

management. (a) Facts. T manufactures

custom ski boots. T transfers all of its assets

to P solely in exchange for P voting stock,

which T then distributes to its shareholders.

P plans to continue manufacturing ski boots

and to expand this operation. As part of the

expansion, P and R (an unrelated party) form

a new partnership (PRS). As part of the plan

of reorganization, P (PTR) transfers T’s ski

boot business to PRS in exchange for a 20

percent interest in PRS. R transfers cash in

exchange for its interest in PRS. PTR

performs active and substantial management

functions for PRS including the decisionmaking regarding significant business

decisions of PRS and regular participation in

the overall supervision, direction and control

of the employees of PRS in operating the ski

boot business.

(b) Continuity of business enterprise.

Under paragraph (d)(5)(v)(A)(1) of this

section, PTR is treated as conducting T’s

historic business because the officers of PTR

perform active and substantial management

functions for the ski boot business in PRS.

Thus, the continuity of business enterprise

requirement is satisfied because PTR is

treated as continuing to conduct T’s historic

business.

(c) Continuity of interest. Under paragraph

(f)(1)(ii) of this section, the continuity of

interest requirement is satisfied even though

the assets are transferred to PRS in exchange

for an interest in PRS.

Example 9. Transfer of a historic T

business to PRS—significant interest. (a)

Facts. The facts are the same as in Example

8 except that PTR’s officers do not operate

the ski boot business, and PTR owns a 331⁄3

percent interest in PRS.

(b) Continuity of business enterprise.

Under paragraph (d)(5)(v)(A)(2) of this

section, PTR is treated as conducting T’s

historic ski boot business because PTR’s 331⁄3

percent interest in PRS represents a

significant interest in the PRS ski boot

business.

(c) Continuity of interest. Under paragraph

(f)(1)(ii) of this section, the continuity of

interest requirement is satisfied even though

the assets are transferred to PRS in exchange

for an interest in PRS.

Example 10. Transfer of T’s historic assets

to PRS. (a) Facts. T manufactures silk. T

transfers all of its assets to P solely in

exchange for P voting stock, which T then

distributes to its shareholders. P

manufactures clothing and has been buying

silk from T. P (PTR) and R (an unrelated

party) own interests in a partnership (PRS)

which owns and maintains warehouse

facilities. As part of the plan of

reorganization, PTR transfers the T assets to

PRS, increasing PTR’s percentage interest in

PRS from 20 to 331⁄3 percent. PTR decides to

buy its silk from a different manufacturer and

converts T’s plant facilities into warehouses.

(b) Continuity of business enterprise.

Under paragraph (d)(5)(v)(A)(2), PTR is

treated as being in the business of owning

and maintaining warehouse space because of

PTR’s significant interest in PRS.

Furthermore, under paragraph (d)(5)(v)(B) of

this section, PTR is treated as owning the

assets of PRS in accordance with its interest

in the partnership. Thus, the continuity of

business enterprise requirement is satisfied

because PTR continues to use a significant

portion of T’s historic assets in a business.

(c) Continuity of interest. Under paragraph

(f)(1)(ii) of this section, the continuity of

interest requirement continues to be satisfied

even though the assets are transferred to PRS

in exchange for an interest in PRS.

* * * * *

(f) Continuity of interest and asset or stock

transfers. (1) Scope. The following rules

apply to transactions otherwise qualifying as

a reorganization under section 368(a)(1)(A),

(B), (C), or (G) (meeting the requirements of

sections 354(b)(1) (A) and (B)):

(i) Transfers to members of a qualified

group. Continuity of interest is satisfied

where there are transfers or successive

transfers of target (T) stock (or transfers of T

assets after a stock acquisition) or T assets (or

transfers of the acquiring corporation’s stock

after a T asset acquisition) among members

of a qualified group as defined in paragraph

(d)(5)(iii) of this section.

(ii) Partnerships. Continuity of interest is

satisfied even where T assets (or transfers of

T assets following a T stock acquisition) are

transferred to a partnership in exchange for

a partnership interest.

(2) Example. The rules of this paragraph (f)

are illustrated by the following example. P

represents the acquiring corporation and T

represents the target corporation. Also see

Example 8 through Example 10 in paragraph

(d)(6) of this section.

The example is as follows:

Example. Transfers to corporations in the

qualified group. (a) Facts. T manufactures

playground equipment, including launch

ramps and half pipes for skateboarding, inline skating, and bicycling. The P affiliated

group is engaged in architectural design and

construction. A holding company (HC) owns

80 percent of the stock of each of P and S1.

S1 in turn, owns 80 percent of the stock of

S2, and S2 owns 80 percent of the stock of

S3. T transfers all of its assets to P in

exchange for HC voting stock, which T

distributes to its shareholders. HC transfers

all of the P stock to S1. S1 in turn transfers

all of the P stock to S2, and S2 transfers the

P stock to S3.

(b) Continuity of interest. HC, P, S1, S2 and

S3 are members of a qualified group as

defined in paragraph (d)(5)(iii) of this

section. Under paragraph (f)(1)(i) of this

section, the successive transfers of the P

stock to other members of the qualified group

do not violate the continuity of interest

requirement.

Par. 3. In § 1.368–2, paragraph (f) is

amended by removing the second

sentence and adding two new sentences

in its place to read as follows:

§ 1.368–2 Definition of terms.

* * * * *

(f) * * * A corporation remains a

party to the reorganization even though

assets are transferred among members of

a qualified group as defined in § 1.368-

1(d)(5)(iii). The preceding sentence

applies to transactions occurring after

these regulations are published as final

regulations in the Federal Register

except that it shall not apply to any

transactions occurring pursuant to a

written agreement which is (subject to

customary conditions) binding on or

before these regulations are published as

final regulations in the Federal Register.

* * *

* * * * *

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 97–83 Filed 1–2–97; 8:45 am]

BILLING CODE 4830–01–U

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 372

[OPPTS–400106B; FRL–5581–2]

RIN 2070–AD08

Addition of Community Right-to Know;

Extension of Comment Period

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Advance notice of proposed

rulemaking; extension of comment

period.

SUMMARY: In the Federal Register of

October 1, 1996, EPA issued an advance

notice of proposed rulemaking (ANPR)

to announce EPA’s intention to expand

its Community Right-to-Know

initiatives to increase the information

available to the public on chemical use,

and to solicit comments on all aspects

of chemical use data and its collection.

Based on a request for additional time

submitted by the U.S. Department of

Energy’s Office of Environmental Policy

and Assistance, EPA is extending the

comment period on the ANPR by 60

days.

DATES: Comments must be received by

February 28, 1997.

ADDRESSES: Written comments should

be submitted in triplicate to: OPPT

Docket Clerk, TSCA Document Receipt

Office (7407), Office of Pollution

Prevention and Toxics, Environmental

Protection Agency, Rm. E-G099, 401 M

St., SW., Washington, DC 20460.

Comments containing information

claimed as confidential must be clearly

marked as confidential business

information (CBI). If CBI is claimed,