34616 Federal Register / Vol. 63, No. 122 /Thursday, June 25, 1998 / Proposed Rules

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

(in the manner described in the

ADDRESSES portion of this preamble) to

the IRS. All comments will be available

for public inspection and copying.

A public hearing has been scheduled

for Wednesday, October 21, 1998, at 10

a.m., in room 2615, Internal Revenue

Building, 1111 Constitution Avenue,

NW., Washington, DC. Because of access

restrictions, visitors will not be

admitted beyond the building lobby

more than 15 minutes before the hearing

starts.

The rules of § 601.601(a)(3) apply to

the hearing.

Persons that have submitted written

comments by September 23, 1998, and

want to present oral comments at the

hearing must submit, not later than

September 30, 1998, an outline of the

topics to be discussed and the time to

be devoted to each topic. A period of 10

minutes will be allotted to each person

for making comments.

An agenda showing the scheduling of

the speakers will be prepared after the

deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

Drafting Information

The principal author of these

proposed regulations is Karin Loverud,

Office of the Associate Chief Counsel

(Employee Benefits and Exempt

Organizations), IRS. However, other

personnel from the IRS and the Treasury

Department participated in their

development.

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 1.32–3 is added to read

as follows:

§ 1.32–3 Eligibility requirements.

[The text of this proposed section is

the same as the text of § 1.32–3T

published elsewhere in this issue of the

Federal Register].

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

[FR Doc. 98–16853 Filed 6–24–98; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG–104641–97]

RIN 1545–AV48

Equity Options Without Standard

Terms; Special Rules and Definitions

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking

and notice of public hearing.

SUMMARY: This document contains

proposed regulations providing

guidance on the application of the rules

governing qualified covered calls. The

new rules address concerns that were

created by the introduction of new

financial instruments after the

enactment of the qualified covered call

rules. The proposed regulations will

provide guidance to taxpayers holding

qualified covered calls. This document

also provides notice of public hearing

on these proposed regulations.

DATES: Written comments must be

received by September 23, 1998.

Requests to speak (with outlines of oral

comments) at the public hearing

scheduled for November 4, 1998, must

be submitted by October 14, 1998.

ADDRESSES: Send submissions to:

CC:DOM:CORP:R (REG–104641–97),

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–104641–97),

Courier’s Desk, Internal Revenue

Service, 1111 Constitution Avenue NW.,

Washington, DC. Alternatively,

taxpayers may submit comments

electronically via the Internet by

selecting the ‘‘Tax Regs’’ option 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 room 2615,

Internal Revenue Building, 1111

Constitution Avenue, NW., Washington,

DC.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Pamela

Lew, (202) 622–3950; concerning

submissions and the hearing, Michael L.

Slaughter, Jr., (202) 622–7190, (not tollfree numbers).

SUPPLEMENTARY INFORMATION:

Background

Section 1092(c) defines a straddle as

offsetting positions with respect to

personal property. Under section

1092(d)(3), stock is personal property if

the stock is part of a straddle that

involves an option on that stock or

substantially identical stock or

securities. Under section 1092(c)(4),

however, writing a qualified covered

call option and owning the optioned

stock is not treated as a straddle for

purposes of section 1092.

The special treatment for qualified

covered calls was created because

Congress believed that, in certain

limited circumstances, a taxpayer who

grants a call option does not

substantially reduce his or her risk of

loss with respect to the optioned stock.

Congress established a mechanical test

to determine whether a written call

option could substantially reduce a

taxpayer s risk of loss and, therefore,

should be subject to treatment as one leg

of a straddle. In order to be classified as

a qualified covered call under this test,

a call option must, among other things,

be exchange-traded and not be deep in

the money.

Section 1092(c)(4)(C) defines a deepin-the-money option as an option whose

strike price is lower than an allowed

bench mark. Under section

1092(c)(4)(D), this bench mark is

generally the highest available strike

price for an option that is less than the

applicable stock price, as defined in

section 1092(c)(4)(G). The Internal

Revenue Code provides other bench

marks under specified circumstances.

At the time the qualified covered call

definition was written, listed options

were available only at standardized

maturity dates and strike price intervals.

This fixed-interval system was a basic

assumption of the Congressional plan

for qualified covered calls and, more

specifically, was the foundation for the

definition of a deep-in-the-money

option.

Certain options exchanges have begun

to trade put and call equity options with

flexible terms. The terms that are

flexible include strike price, expiration

date, and exercise style (that is,

American, European, or capped). Except
Federal Register / Vol. 63, No. 122 /Thursday, June 25, 1998 / Proposed Rules 34617

as noted below, the strike price is

denominated in the smallest interval

available on the options exchanges,

which is currently 1⁄8 of one dollar. To

minimize the market impact of options

contract expirations, equity options

with flexible terms may not expire

within 2 business days of equity options

with standardized terms. Equity options

with flexible terms are generally

intended for institutional and other

large investors.

Questions have been raised as to

whether the strike prices established by

equity options with flexible terms might

establish the lowest qualified

benchmark under section 1092(c)(4)(D)

for all equity options, including those

with standardized terms. The following

example illustrates this concern. If a

stock is currently selling for $62, equity

options with flexible terms and option

periods of not more than 90 days could

have a strike price of $61 7⁄8. If the strike

prices from equity options with flexible

terms were taken into account in

determining if a 90-day equity option

with standardized terms is deep in the

money, any option being sold for less

than $61 7⁄8 would be deep in the

money. Because the strike prices for an

equity option with standardized terms

are set in $5 intervals, the highest strike

price less than the current selling price

for an equity option with standardized

terms would be $60. Thus, any in-themoney equity option on the stock that

had standardized terms would be deep

in the money (for purposes of section

1092(c)(4)).

Explanation of Provisions

The proposed regulations provide that

the strike prices established by equity

options with flexible terms are not taken

into account in determining whether

equity options that are not equity

options with flexible terms are deep in

the money. Thus, the existence of strike

prices established for equity options

with flexible terms does not affect the

lowest qualified bench mark, as

determined under section 1092(c)(4)(D),

for an equity option with standardized

terms. The proposed regulations define

equity options with flexible terms as

those equity options described in

certain specified SEC releases, including

any changes approved by the SEC to

these releases.

The regulations will allow some

taxpayers, primarily institutional and

other large investors, to engage in

certain exchange-based transactions that

are currently unavailable to them and

will permit other investors to continue

doing business under section 1092

without regard to the existence of the

institutional product.

The proposed regulations do not

address whether an equity option with

flexible terms is eligible for qualified

covered call treatment under section

1092(c)(4). Comments are requested on

the following issues: (1) whether equity

options with flexible terms should be

eligible for qualified covered call

treatment under section 1092(c)(4); (2)

whether there should be uniform rules

governing the bench marks for equity

options with flexible terms and

standardized options; and (3) if uniform

rules are not appropriate, what bench

marks should apply to equity options

with flexible terms.

Proposed Effective Date

These regulations apply to equity

options with flexible terms entered into

on or after the date that the Treasury

Decision adopting these rules as final

regulations is published in the Federal

Register.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a

significant regulatory action as defined

in EO 12866. Therefore, a regulatory

assessment is not required. It also has

been determined that section 553(b) of

the Administrative Procedure Act (5

U.S.C. chapter 5) does not apply to these

regulations, and because 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 (preferably a signed

original and eight (8) copies) that are

submitted timely to the IRS. All

comments will be available for public

inspection and copying.

A public hearing has been scheduled

for Wednesday, November 4, 1998,

beginning at 10:00 a.m. The hearing will

be held in Room 2615, Internal Revenue

Building, 1111 Constitution Avenue

NW., Washington DC. Because of access

restrictions, visitors will not be

admitted beyond the Internal Revenue

Building lobby more than 15 minutes

before the hearing starts.

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

apply to the hearing.

Persons who wish to present oral

comments at the hearing must submit

written comments by September 23,

1998 and submit an outline of topics to

be discussed and the time to be devoted

to each topic (signed original and eight

(8) copies) by October 14, 1998.

A period of 10 minutes will be

allotted to each person for making

comments.

An agenda showing the scheduling of

the speakers will be prepared after the

deadline for receiving outlines has

passed. Copies of the agenda will be

available free of charge at the hearing.

Drafting Information

The principal author of these

regulations is Pamela Lew, Office of

Assistant Chief Counsel (Financial

Institutions and Products). However,

other personnel from the IRS and

Treasury Department participated in

their development.

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 is amended by adding an entry

in numerical order to read as follows:

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

Section 1.1092(c)–1 also issued under 26

U.S.C. 1092(c)(4)(H). * * *

Par. 2. Section 1.1092(c)–1 is added to

read as follows:

§ 1.1092(c)–1 Equity options with flexible

terms.

(a) Effect on lowest qualified bench

mark for other options.

The existence of strike prices

established by equity options with

flexible terms does not affect the

determination of the lowest qualified

bench mark, as defined in section

1092(c)(4)(D), for any option that is not

an equity option with flexible terms.

(b) Definitions. For purposes of this

section:

(1) Equity option with flexible terms

means an equity option—

(i) That is described in the following

Securities Exchange Act Releases—

(A) Self-Regulatory Organizations;

Order Approving Proposed Rule

Changes and Notice of Filing and Order

Granting Accelerated Approval of

Amendments by the Chicago Board

Options Exchange, Inc. and the Pacific

Stock Exchange, Inc., Relating to the

Listing of Flexible Equity Options on

Specified Equity Securities, Securities
34618 Federal Register / Vol. 63, No. 122 /Thursday, June 25, 1998 / Proposed Rules

Exchange Act Release No. 34–36841

(Feb. 21, 1996); or

(B) Self-Regulatory Organizations;

Order Approving Proposed Rule

Changes and Notice of Filing and Order

Granting Accelerated Approval of

Amendment Nos. 2 and 3 to the

Proposed Rule Change by the American

Stock Exchange, Inc., Relating to the

Listing of Flexible Equity Options on

Specified Equity Securities, Securities

Exchange Act Release No. 34–37336

(June 27, 1996); or

(C) Self-Regulatory Organizations;

Order Approving Proposed Rule Change

and Notice of Filing and Order Granting

Accelerated Approval of Amendment

Nos. 2, 4 and 5 to the Proposed Rule

Change by the Philadelphia Stock

Exchange, Inc., Relating to the Listing of

Flexible Exchange Traded Equity and

Index Options, Securities Exchange Act

Release No. 34–39549 (Jan. 23, 1998); or

(D) Any changes to the SEC releases

described in paragraphs (b)(1)(i)(A)

through (C) of this section that are

approved by the Securities and

Exchange Commission; or

(ii) That is traded on any national

securities exchange which is registered

with the Securities and Exchange

Commission (other than those described

in the SEC Releases set forth in

paragraph (b)(1)(i) of this section) or

other market which the Secretary

determines has rules adequate to carry

out the purposes of section 1092 and

is—

(A) Substantially identical to the

equity options described in paragraph

(b)(1)(i) of this section; and

(B) Approved by the Securities and

Exchange Commission in a Securities

Exchange Act Release.

(2) Securities Exchange Act Release

means a release issued by the Securities

and Exchange Commission. To

determine identifying information for

releases referenced in paragraph (b)(1)

of this section, including release titles,

identification numbers, and issue dates,

contact the Office of the Secretary,

Securities and Exchange Commission,

450 5th Street, NW., Washington, DC

20549. To obtain a copy of a Securities

Exchange Act Release, submit a written

request, including the specific release

identification number, title, and issue

date, to Securities and Exchange

Commission, Attention Public

Reference, 450 5th Street, NW.,

Washington, DC 20549.

(c) Effective date. These regulations

apply to equity options with flexible

terms entered into on or after the date

that the Treasury Decision adopting

these regulations is published in the

Federal Register.

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

[FR Doc. 98–16848 Filed 6–24–98; 8:45 am]

BILLING CODE 4830–01–U

ENVIRONMENTAL PROTECTION

AGENCY

40 CFR Part 52

[IA 048–1048b; FRL–6113–2]

Approval and Promulgation of

Implementation Plans and Approval

Under Section 112(l); State of Iowa

AGENCY: Environmental Protection

Agency (EPA).

ACTION: Proposed rule.

SUMMARY: The EPA proposes to approve

the State Implementation Plan (SIP)

revisions submitted by the state of Iowa.

These revisions are necessary to meet

the requirements of the Clean Air Act

(Act) and the Code of Federal

Regulations and to improve the state’s

permitting program. These revisions

will strengthen the SIP with respect to

attainment and maintenance of

established air quality standards and

with respect to control of hazardous air

pollutants.

In the final rules section of the

Federal Register, the EPA is approving

the state’s SIP revisions as a direct final

rule without prior proposal because the

Agency views this as a noncontroversial

revision amendment and anticipates no

relevant adverse comments. A detailed

rationale for the approval is set forth in

the direct final rule. If no relevant

adverse comments are received in

response to this proposed rule, no

further activity is contemplated in

relation to this rule. If the EPA receives

relevant adverse comments, the direct

final rule will be withdrawn and all

public comments received will be

addressed in a subsequent final rule

based on this proposed rule. The EPA

will not institute a second comment

period on this document. Any parties

interested in commenting on this

document should do so at this time.

DATES: Comments on this proposed rule

must be received in writing by July 27,

1998.

ADDRESSES: Comments may be mailed to

Wayne Kaiser, Environmental

Protection Agency, Air Planning and

Development Branch, 726 Minnesota

Avenue, Kansas City, Kansas 66101.

FOR FURTHER INFORMATION CONTACT:

Wayne Kaiser at (913) 551–7603.

SUPPLEMENTARY INFORMATION: See the

information provided in the direct final

rule which is located in the rules

section of the Federal Register.

Authority: 42 U.S.C. 7401 et seq.

Dated: May 26, 1998.

William Rice,

Acting Regional Administrator, Region VII.

[FR Doc. 98–16796 Filed 6–24–98; 8:45 am]

BILLING CODE 6560–50–P

FEDERAL COMMUNICATIONS

COMMISSION

47 CFR Parts 15 and 18

[ET Docket 98–80; FCC 98–102]

Conducted Emission Limits

AGENCY: Federal Communications

Commission.

ACTION: Notice of Inquiry.

SUMMARY: By this Notice of Inquiry, the

Commission is reviewing the conducted

emission limits. This action is taken by

the Commission, on its own motion, as

part of an ongoing program of regulatory

review. It is intended to examine

whether these regulations continue to be

necessary, and if so, whether any

changes to the limits may be

appropriate.

DATES: Comments are due July 27, 1998.

Reply comments are due August 10,

1998.

FOR FURTHER INFORMATION CONTACT:

Office of Engineering and Technology,

Anthony Serafini at (202) 418–2456.

SUPPLEMENTARY INFORMATION: This is a

summary of the Commission’s Notice of

Inquiry, ET Docket No. 98–80, adopted

May 29, 1998 and released June 8, 1998.

The full text of this decision is available

for inspection and copying during

regular business hours in the FCC

Reference Center, Room 239, 1919 M

Street, NW, Washington, DC. The

complete text of this decision also may

be purchased from the Commission’s

duplication contractor, International

Transcription Service, Inc., (202) 857-

3800, 1231 20th Street, NW,

Washington, DC 20036.

Summary of Notice of Inquiry

1. Many radio frequency devices

obtain their electrical energy from the

AC power line (i.e., 110 volt household

electrical line). Such devices include

personal computers, personal computer

peripherals, TV and FM receivers, video

cassette recorders, cordless telephone

base stations, wireless security alarm

systems, RF lighting devices, microwave

ovens, induction cooking ranges and

ultrasonic equipment. The radio