Federal Register / Vol. 63, No. 18 /Wednesday, January 28, 1998 /Rules and Regulations 4185

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 1.368–1T is added to

read as follows:

§ 1.368–1T Purpose and scope of

exception of reorganization exchanges

(temporary).

(a) through (e)(1)(i) [Reserved] For

further guidance see § 1.368–1(a)

through (e)(1)(i).

(e)(1)(ii)(A) General rule. A

proprietary interest in the target

corporation (other than one held by the

acquiring corporation) is not preserved

if, prior to and in connection with a

potential reorganization, it is redeemed

or to the extent that, prior to and in

connection with a potential

reorganization, an extraordinary

distribution is made with respect to it.

The determination of whether a

distribution with respect to stock of the

target corporation is an extraordinary

distribution for purposes of this

paragraph (e)(1)(ii) will be made on the

basis of all of the facts and

circumstances, but the treatment of the

distribution under section 1059 (relating

to extraordinary dividends) will not be

taken into account.

(B) Exception. Paragraph (e)(1)(ii)(A)

of this section does not apply to a

distribution of stock by the target

corporation to which section 355(a) (or

so much of section 356 as relates to

section 355) applies, except to the

extent that—

(1) The target corporation

shareholders receive other property or

money to which section 356(a) applies;

or

(2) The distribution is extraordinary

in amount and is a distribution of

property or money to which section

356(b) applies.

(2)(i) [Reserved] For further guidance,

see § 1.368–1(e)(2)(i).

(ii) A proprietary interest in the target

corporation is not preserved if, prior to

and in connection with a potential

reorganization, a person related (as

defined in § 1.368–1(e)(3) determined

without regard to § 1.368–1(e)(3)(i)(A))

to the target corporation acquires stock

of the target corporation, with

consideration other than stock of either

the target corporation or the issuing

corporation.

(e)(3) through (e)(6) Example 9.

[Reserved] For further guidance, see

§ 1.368–1(e)(3) through (e)(6) Example

9.

(e)(6) Example 10. Acquisition of target

corporation stock before merger. (i)

Redemption by target corporation. A owns 85

percent and B owns 15 percent of the stock

of T. The fair market value of T is $100x.

Neither A nor B own stock of P. Prior to and

in connection with the merger of T into P,

T redeems A’s T stock for $85x and issues

to A its promissory note in exchange for the

stock. At the time of the merger T has a value

of $15x, after giving effect to the redemption

of its stock. In the merger, B receives solely

P stock. The continuity of interest

requirement is not satisfied because T

redeemed A’s stock, and a substantial part of

the value of the proprietary interest in T is

not preserved. See paragraph (e)(1)(ii)(A) of

this section.

(ii) Purchase by person related to target

corporation. The facts are the same as

paragraph (i) of this Example 10, except that

X, T’s wholly owned subsidiary, acquires A’s

T stock prior to and in connection with the

merger for cash of $85x. Under paragraph

(e)(2)(ii) of this section and § 1.368–

1(e)(3)(i)(B), X’s acquisition of A’s T stock is

an acquisition by a related person. The

continuity of interest requirement is not

satisfied, because X acquired T stock, for

consideration other than P stock, and a

substantial part of the value of the

proprietary interest in T is not preserved. See

paragraph (e)(2)(ii) of this section.

Example 11. Extraordinary distribution

before merger. A owns all of the stock of T.

The fair market value of T is $100x. Prior to

and in connection with the merger of T into

P, T pays A an extraordinary distribution of

an $85x note. T merges into P, and A receives

solely P stock. P assumes T’s obligation on

the note. The continuity of interest

requirement is not satisfied, because T paid

A an extraordinary distribution, and a

substantial part of the value of the

proprietary interest in T is not preserved. See

paragraph (e)(1)(ii)(A) of this section.

(f) Effective date. This section applies

to transactions occurring after January

28, 1998, except that it does not apply

to any transaction occurring pursuant to

a written agreement which is (subject to

customary conditions) binding on

January 28, 1998, and at all times

thereafter.

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

Approved: January 12, 1998.

Donald C. Lubick,

Acting Assistant Secretary of the Treasury.

[FR Doc. 98–1818 Filed 1–23–98; 12:15 pm]

BILLING CODE 4830–01–U

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 356

Sale and Issue of Marketable BookEntry Treasury Bills, Notes, and Bonds

(Department of the Treasury Circular,

Public Debt Series No. 1–93)

AGENCY: Bureau of the Public Debt,

Fiscal Service, Department of the

Treasury.

ACTION: Final rule.

SUMMARY: The Department of the

Treasury (‘‘Treasury’’ or ‘‘Department’’)

is issuing in final form an amendment

to 31 CFR Part 356 (Uniform Offering

Circular for the Sale and Issue of

Marketable Book-Entry Treasury Bills,

Notes, and Bonds). This final rule

incorporates a change in the timeframe

for certain restrictions pertaining to

bidders that bid noncompetitively in

Treasury auctions. The amendment

states that between the date of the

offering announcement and the time of

the official announcement by the

Department of the auction results, a

noncompetitive bidder may not hold, at

any time, a position for its own account

in when-issued trading or in futures or

forward contracts in the security being

auctioned or enter into any agreement to

purchase or sell or otherwise dispose of

the securities it is acquiring in the

auction.

EFFECTIVE DATE: January 28, 1998.

ADDRESSES: This final rule is available

for downloading from the Bureau of the

Public Debt’s Internet site at the

following address:

www.publicdebt.treas.gov. It is also

available for public inspection and

copying at the Treasury Department

Library, FOIA Collection, Room 5030,

Main Treasury Building, 1500

Pennsylvania Avenue, N.W.,

Washington, D.C., 20220. Persons

wishing to visit the library should call

(202) 622–0990 for an appointment.

FOR FURTHER INFORMATION CONTACT:

Kerry Lanham (Acting Director) or Lee

Grandy (Government Securities

Specialist), Bureau of the Public Debt,

Government Securities Regulations

Staff, (202) 219–3632.

SUPPLEMENTARY INFORMATION: 31 CFR

Part 356, also referred to as the uniform

offering circular, sets out the terms and

conditions for the sale and issuance by

the Department of the Treasury to the

public of marketable Treasury bills,

notes, and bonds. The uniform offering

circular, in conjunction with offering

announcements, represents a

comprehensive statement of those terms
4186 Federal Register / Vol. 63, No. 18 /Wednesday, January 28, 1998 /Rules and Regulations

1The uniform offering circular was published as

a final rule on January 5, 1993 (58 FR 412). The

circular, as amended, is codified at 31 CFR Part 356.

2 Department of the Treasury, Securities and

Exchange Commission, and Board of Governors of

the Federal Reserve System, Joint Report on the

Government Securities Market, (January 1992), p.

A–2.

3See supra note 2, at p. B–50.

and conditions. 1 This final rule amends

paragraph 356.12(b)(2), ‘‘Additional

restrictions,’’ and is applicable to

bidders bidding noncompetitively for

their own account in Treasury security

auctions.

The current rule under paragraph

356.12(b)(2) provides that a bidder may

not bid noncompetitively for its own

account if, in the security being

auctioned, it holds or has held a

position in when-issued trading or in

futures or forward contracts at any time

between the date of the offering

announcement and the designated

closing time for the receipt of

competitive tenders in the auction.

Further, the paragraph provides that

prior to the designated closing time for

receipt of competitive bids a

noncompetitive bidder may not enter

into any agreement to purchase or sell

or otherwise dispose of the securities it

is acquiring in the auction.

The noncompetitive bidding option’s

objective is to achieve a broader

distribution of Treasury securities by

allowing relatively small investors, who

may not have current market

information, to participate successfully

in Treasury auctions by providing

assurance that they can obtain a limited

amount of securities without

competition. As stated in the January

1992 Joint Report on the Government

Securities Market (‘‘Joint Report’’),

noncompetitive bidding allows the

small investor to purchase securities at

a current market yield by eliminating

the risk that a prospective investor

might bid a yield that is too high and

not obtain the securities desired or

might bid a yield that is too low and pay

too much for the securities. 2 The

restriction on noncompetitive bidders

under current paragraph 356.12(b)(2),

which is discussed above, is directed at

limiting the noncompetitive bidding

option to small, less sophisticated

bidders.

The noncompetitive bidding option is

not intended to be used as a substitute

for competitive bidding, which is

available to all investors. The Joint

Report referenced several instances of

investors using noncompetitive awards

for what appeared to be arbitrage

purposes that went against the spirit of

the noncompetitive award system. 3

The Department has reexamined the

situation where bidders bid

noncompetitively for their own

accounts in an auction and also enter

into positions in the security being

auctioned in the when-issued, futures,

or forward markets, and has determined

that further tightening of the

noncompetitive bidding restriction is

necessary. The Department views a

bidder in an auction who enters into a

position in the when-issued or futures

or forward markets in the same security

being auctioned, prior to the time of

Treasury’s announcement of the auction

results as a sophisticated bidder who

should be bidding competitively, not

noncompetitively.

Accordingly, paragraph 356.12(b)(2)

of the uniform offering circular is

amended to state that between the date

of the offering announcement and the

time of the official announcement by the

Department of the auction results, a

noncompetitive bidder may not hold, at

any time, a position for its own account

in when-issued trading or in futures or

forward contracts in the security being

auctioned or enter into any agreement to

purchase or sell or otherwise dispose of

the securities it is acquiring in the

auction. The amended paragraph now

also states that, for purposes of this

paragraph, futures contracts include

those: (i) that require delivery of the

specific security being auctioned; (ii) for

which the security being auctioned is

one of several securities that may be

delivered; or (iii) that are cash-settled.

The Department notes that for the

purposes of amended paragraph

356.12(b)(2), the meaning of ‘‘futures

contracts’’ is different, and significantly

broader, than it is for the net long

position calculation purposes pursuant

to paragraph 356.13(b) of this part. For

net long position reporting purposes,

‘‘futures contracts’’ encompass only

those contracts that require delivery of

the specific security being auctioned.

The different meanings of ‘‘futures

contracts’’ in paragraphs 356.12(b) and

356.13(b) reflect the different objectives

of the two provisions. The net long

position reporting requirement in

section 356.13 is used to enforce

Treasury’s policy that no bidder in an

auction of a particular security will have

acquired more than 35 percent of the

amount awarded to the public and,

accordingly, the focus is on control of

the specific security being auctioned.

This results in a narrower approach by

excluding futures contracts that are

cash-settled and those requiring

delivery of securities other than the

specific security being auctioned, since

these two types of contracts do not

constitute control of the specific

security being auctioned. In contrast,

the restrictions on noncompetitive

bidders at paragraph 356.12(b)(2) are

intended to limit the noncompetitive

bidding option to small, less

sophisticated bidders, and therefore, the

restrictions encompass a broader range

of positions in futures contracts.

The modifications to paragraph

356.12(b)(2) extend the applicable

deadline for this noncompetitive

bidding restriction to the time of the

announcement of the auction results,

which is later than the designated

closing time for receipt of competitive

tenders in an auction. After the

conclusion of an auction, the

Department makes an official

announcement of the auction results

through a press release. Once Treasury

announces the auction results, the

various electronic financial wire

services (e.g., Dow Jones, Reuters,

Bloomberg, Bridge News, Associated

Press) quickly disseminate this

information, as do other major news and

financial publications. Thus, a

noncompetitive bidder that wants to

know if the auction results have been

announced can check for the results

over various electronic wire services.

Once the official announcement by the

Department of the auction results is

released, noncompetitive bidders in that

particular auction may enter into

positions in when-issued trading or in

futures or forward contracts for the

security just auctioned or may enter into

agreements to purchase or sell or

otherwise dispose of the securities

acquired in the auction.

The Department also notes that

paragraph 356.15(b) of the uniform

offering circular, which sets out the

terms of bidding through investment

advisers, provides that regardless of

whether the bid for a controlled account

is in the name of the investment adviser

or in the name of the controlled

account, the account is subject to the

noncompetitive bidding restrictions

contained in paragraph 356.12(b). This

means that the changes contained in

this amendment to the uniform offering

circular apply to bidders in an auction

that are bidding noncompetitively

through an investment adviser, as well

as all other noncompetitive bidders in

the auction.

Procedural Requirements

This final rule does not meet the

criteria for a ‘‘significant regulatory

action’’ pursuant to Executive Order

12866.

Because this rule relates to public

contracts and procedures for United

States securities, the notice, public

comment, and delayed effective date
Federal Register / Vol. 63, No. 18 /Wednesday, January 28, 1998 /Rules and Regulations 4187

provisions of the Administrative

Procedure Act are inapplicable,

pursuant to 5 U.S.C. 553(a)(2).

As no notice of proposed rulemaking

is required, the provisions of the

Regulatory Flexibility Act (5 U.S.C. 601,

et seq.) do not apply.

There is no new collection of

information contained in this final rule,

and, therefore, the Paperwork Reduction

Act does not apply. The collections of

information of 31 CFR Part 356 have

been previously approved by the Office

of Management and Budget under

section 3507(d) of the Paperwork

Reduction Act of 1995 (44 U.S.C.

Chapter 35) under control number

1535–0112. Under this Act, an agency

may not conduct or sponsor, and a

person is not required to respond to, a

collection of information unless it

displays a valid OMB control number.

List of Subjects in 31 CFR Part 356

Bonds, Federal Reserve System,

Government securities, Securities.

For the reasons set forth in the

preamble, 31 CFR chapter II, subchapter

B, part 356, is amended as follows:

PART 356—SALE AND ISSUE OF

MARKETABLE BOOK-ENTRY

TREASURY BILLS, NOTES, AND

BONDS (DEPARTMENT OF THE

TREASURY CIRCULAR, PUBLIC DEBT

SERIES NO. 1–93)

1. The authority citation for part 356

continues to read as follows:

Authority: 5 U.S.C. 301; 31 U.S.C. 3102, et

seq.; 12 U.S.C. 391.

2. Section 356.12 is amended by

revising paragraph (b)(2) to read as

follows:

§ 356.12 Noncompetitive and competitive

bidding.

* * * * *

(b) * * *

(2) Additional restrictions. Between

the date of the offering announcement

and the time of the official

announcement by the Department of the

auction results, a noncompetitive bidder

may not hold, at any time, a position for

its own account in when-issued trading

or in futures or forward contracts in the

security being auctioned or enter into

any agreement to purchase or sell or

otherwise dispose of the securities it is

acquiring in the auction. For purposes

of this paragraph, futures contracts

include those:

(i) That require delivery of the

specific security being auctioned;

(ii) For which the security being

auctioned is one of several securities

that may be delivered; or

(iii) That are cash-settled.

* * * * *

Dated: January 21, 1998.

Donald V. Hammond,

Acting Fiscal Assistant Secretary.

[FR Doc. 98–1958 Filed 1–27–98; 8:45 am]

BILLING CODE 4810–39–P

DEPARTMENT OF AGRICULTURE

Forest Service

36 CFR Part 215

Notice, Comment, and Appeal

Procedures for National Forest System

Projects and Activities

AGENCY: Forest Service, USDA.

ACTION: Interim final rule; request for

comment.

SUMMARY: The Department is amending

the rules governing who can participate

in administrative appeals of decisions

authorizing National Forest System

projects and activities, by removing a

prohibition on appeals by Forest Service

employees. This regulatory change

results from a reassessment of this

provision in response to a recent legal

challenge. Public comment is invited on

this interim rule and will be considered

in promulgating a final rule.

DATES: This interim rule is effective

January 28, 1998. Comments on this

rulemaking must be received by March

30, 1998.

ADDRESSES: Written comments on this

rule must be sent to Susan YontsShepard, Appeals Coordinator, National

Forest Systems Deputy Area, MAIL

STOP 1106, Forest Service, USDA P.O.

Box 96090, Washington, DC 20090–

9060. All comments, including names

and addresses, when provided, will be

placed in the record and are made

available for public inspection and

copying.

FOR FURTHER INFORMATION CONTACT:

Susan Yonts-Shepard, Forest Service,

telephone, (202) 202–1519.

SUPPLEMENTARY INFORMATION:

Background

Section 322 of the 1993 Interior and

Related Agencies Appropriations Act

directed the Department to establish a

process by which persons or

organizations receive notice and the

opportunity to comment on proposed

actions affecting the National Forest

System. The Act also required the

establishment of procedures by which

persons or organizations may appeal

decisions subsequently made on

proposed actions. Following the

publication of a proposed rule with a

request for public comment (58 FR

19369), the Forest Service received over

9,000 comments on certain aspects of

this rulemaking. However, no comment

was submitted on the proposed

provision prohibiting agency employees

from participating in the appeal process

as appellants or as interested parties at

§ 215.11(c). Having concluded that there

was no concern with this provision, the

Department adopted paragraph (c) in

§ 215.11, without change from the

proposed rule, November 4, 1993 (58 FR

58904).

A recent lawsuit brought by a Forest

Service employee challenging this

regulation (Dalton v. Forest Service,

Civil Act Number 97–0774, U.S.D.C.,

D.D.C.) has led to a reassessment of the

employee appeal limitation in 36 CFR

215.11(c) and has raised issues not

considered at the time of the earlier

rulemaking. Moreover, the rulemaking

record does not speak directly to the

§ 215.11(c) provision. Therefore, the

Deputy Under Secretary, in a

declaration to the court, indicated that

the Department would cease

immediately to enforce the employee

appeal prohibition and would repeal the

employee prohibition provision at

§ 215.11(c). The declaration also

indicated that, at a later date, after

additional consideration of relevant

factors, the Forest Service may decide to

publish a new proposed rule to address

the matter of appeals by employees. If

so, public comment would be requested

at that time.

Employees appealing a National

Forest System project may violate 18

U.S.C. 208 if their appeal is based upon

an imputed financial interest and their

official duties involve the appeal. Also,

representation of others in the appeal

process may be prohibited under 18

U.S.C. 203 and 205. Assuming that an

employee appealing a National Forest

System project would file the appeal as

a private citizen, in accordance with

Office of Government Ethics regulations

at 5 CFR part 2635, subpart G, Misuse

of position, the employee may not be on

official duty or use government property

or equipment in the preparation or

transmittal of an appeal. Also, in

preparing the appeal, the employee

must not use official information not yet

released to the public. A new paragraph

(d) has been added to § 215.11 to

address the standards of ethical conduct

for employees filing an appeal.

Agencies are not required by the

Administrative Procedure Act to give

notice and opportunity to comment

prior to adoption of this interim final

rule because the decision to repeal

§ 215.11(c) involves a matter relating to