21482 Federal Register / Vol. 60, No. 84 / Tuesday, May 2, 1995 / Proposed Rules

the general partners and any person

related to the general partners (within

the meaning of section 267(b) or section

707(b)(1)) own, in the aggregate, more

than 10 percent of the outstanding

interests in partnership capital or profits

at any one time during the taxable year

of the partnership, the total interests in

partnership capital or profits are

determined without reference to the

interests owned by such persons.

(B) Derivative interests. Any

partnership interests described in

paragraph (a)(2)(ii) of this section are

taken into account for purposes of

determining the total interest in

partnership capital or profits only as

and to the extent that the transfer of the

interest is taken into account under

paragraph (a)(4) of this section.

(2) Monthly determination. For

purposes of this section, except in the

case of block transfers (as defined in

paragraph (d)(2) of this section), the

percentage interests in partnership

capital or profits represented by

partnership interests that are transferred

during a taxable year of the partnership

is equal to the sum of the percentage

interests transferred for each calendar

month during the taxable year of the

partnership in which a transfer of a

partnership interest occurs (other than a

private transfer as described in

paragraph (d) of this section). The

percentage interests in capital or profits

of interests transferred during a calendar

month is determined by reference to the

partnership interests outstanding during

that month.

(3) Monthly conventions. For

purposes of paragraph (j)(2) of this

section, a partnership may use any

reasonable convention in determining

the interests outstanding for a month,

provided the convention is consistently

used by the partnership from month to

month during a taxable year and from

year to year. Reasonable conventions

include, but are not limited to, a

determination by reference to the

interests outstanding at the beginning of

the month, on the 15th day of the

month, or at the end of the month.

(4) Block transfers. For purposes of

paragraph (d)(2) of this section (defining

block transfers), the partnership must

determine the percentage interests in

capital or profits for each transfer of an

interest during the 30 calendar day

period by reference to the partnership

interests outstanding immediately prior

to such transfer.

(5) Example. The following example

illustrates the rules of this paragraph (j).

Example. Conventions. (i) ABC limited

partnership, a calendar year partnership

formed in 1995, has 1,000 units of limited

partnership interests outstanding on January

1, 1996, representing in the aggregate 95

percent of the total interests in capital and

profits of ABC. The remaining 5 percent is

held by the general partner.

(ii) The following transfers take place

during 1996—

(A) On January 15, 10 units of limited

partnership interests are sold in a transaction

that is not a private transfer;

(B) On July 10, 1,000 additional units of

limited partnership interests are issued by

the partnership (the general partner’s

percentage interest is unchanged); and

(C) On July 20, 15 units of limited

partnership interests are sold in a transaction

that is not a private transfer.

(iii) For purposes of determining the sum

of the percentage interests in partnership

capital or profits transferred, ABC chooses to

use the end of the month convention. The

percentage interests in partnership capital

and profits transferred during January is .95

percent, determined by dividing the number

of transferred units (10) by the total number

of limited partnership units (1,000) and

multiplying the result by the percentage of

total interests represented by limited

partnership units ([10/1,000]×.95). The

percentage interests in partnership capital

and profits transferred during July is .7125

percent ([15/2,000]×.95). ABC is not required

to make determinations for the other months

during the year because no transfers of

partnership interests occurred during such

months. ABC may qualify for the 2 percent

rule for its 1996 taxable year because less

than 2 percent (.95 percent+.7125

percent=1.6625 percent) of its total interests

in partnership capital and profits was

transferred during that year.

(iv) If ABC had chosen to use the beginning

of the month convention, the interests in

capital or profits sold during July would have

been 1.425 percent [(15/1,000]×.95) and ABC

would not have satisfied the 2 percent rule

for its 1996 taxable year because 2.375

percent (.95+1.425) of ABC’s interests in

partnership capital and profits was

transferred during that year.

(k) Effective date. This section applies

for taxable years of a partnership

beginning on or after the date final

regulations are published in the Federal

Register.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 95–10765 Filed 5–1–95; 8:45 am]

BILLING CODE 4830–01–U

26 CFR Part 1

[FI–21–95]

RIN 1545–AT46

Definition of Personal Property for

Purposes of the Straddle Rules

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking

and notice of public hearing.

SUMMARY: This document contains

proposed regulations relating to the

definition of personal property for

purposes of the straddle rules. This

action is necessary to reflect changes in

the law made by the Tax Reform Act of

1984. The regulations provide guidance

to persons who enter into straddle

transactions.

DATES: Written comments must be

received by July 31, 1995. Requests to

appear and outlines of topics to be

discussed at the public hearing

scheduled for August 30, 1995, must be

submitted by August 9, 1995.

ADDRESSES: Send submissions to:

CC:DOM:CORP:T:R (FI–21–95), room

5228, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. In the alternative,

submissions may be hand delivered

between the hours of 8 a.m. and 5 p.m.

to: CC:DOM:CORP:T:R (FI–21–95),

Courier’s Desk, Internal Revenue

Service, 1111 Constitution Avenue,

NW., Washington, DC. A public hearing

has been scheduled for Wednesday,

August 30, 1995, at 10 a.m. in the

Auditorium, Internal Revenue Building,

1111 Constitution Avenue, NW.,

Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Robert B.

Williams, (202) 622–3960; concerning

submissions and the hearing, Michael

Slaughter, (202) 622–7190 (not toll-free

numbers).

SUPPLEMENTARY INFORMATION:

Background

Section 1092(d) of the Internal

Revenue Code provides definitions and

special rules relating to straddles. Under

section 1092(d)(3)(B)(i)(II), an

ownership interest in stock, which

generally is not treated as personal

property subject to the straddle rules,

may be personal property if it is part of

a straddle at least one of the offsetting

positions of which is, under regulations,

a position with respect to substantially

similar or related property (other than

stock). On March 20, 1995, the IRS

published final regulations (§ 1.1092(d)–

2) under section 1092(d)(3)(B). Those

regulations generally apply the rules of

§ 1.246–5 to determine whether an

offsetting position is a position with

respect to substantially similar or

related property (other than stock)

within the meaning of section

1092(d)(3)(B)(i)(II).

Explanation of Provisions

The proposed regulations clarify the

definition of the term ‘‘personal

property’’ under section 1092(d)(1) as it

applies to stock. The proposed
Federal Register / Vol. 60, No. 84 / Tuesday, May 2, 1995 / Proposed Rules 21483

regulations provide that personal

property includes any stock of a type

that is actively traded and that is part of

a straddle at least one of the offsetting

positions of which is a position with

respect to substantially similar or

related property (other than stock). For

this purpose, a position with respect to

substantially similar or related property

(other than stock) does not include

direct ownership of stock or a short sale

of stock but includes any other position

with respect to substantially similar or

related property. These proposed

regulations thus clarify that, for

example, stock and an equity swap with

respect to property that is substantially

similar or related to that stock can

constitute a straddle for purposes of

section 1092.

The proposed regulations also address

the scope of section 1092(d)(3)(B)(i),

which provides that stock that is offset

by an option with respect to that stock

or substantially identical stock or by a

position with respect to substantially

similar or related property (other than

stock) is treated as personal property

under section 1092(d)(3)(B). Although

this provision does not contain an

explicit active trading requirement, the

legislative history of the Tax Reform Act

of 1984 indicates that Congress

contemplated that the stock would be

treated as personal property under this

test only if it is of a type that is actively

traded. H.R. Conf. Rep. No. 861, 98th

Cong., 2d Sess. 907 (1984). The

regulations, therefore, include this

requirement. In contrast, the regulations

clarify that, for purposes of section

1092(d)(3)(B)(ii), if a corporation is

formed or availed of to take positions in

personal property that offset positions

taken by any shareholder, stock of the

corporation may be treated as personal

property under section 1092(d)(3)(B)

even if it is not actively traded.

The proposed regulations generally

are effective for positions established on

or after May 1, 1995. The IRS believes,

however, that the regulations merely

clarify the rule that applied once

§ 1.1092(d)–2 was promulgated. There is

no implication that the results reached

under these proposed regulations would

not also be reached for positions

established on or after March 17, 1995,

and before May 1, 1995.

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) and the Regulatory

Flexibility Act (5 U.S.C. chapter 6) do

not apply to these regulations, and,

therefore, a Regulatory Flexibility

Analysis is not required. Pursuant to

section 7805(f) of the Internal Revenue

Code, this notice of proposed

rulemaking will be submitted to the

Chief Counsel for Advocacy of the Small

Business Administration for comment

on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations,

consideration will be given to any

written comments (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, August 30, 1995, at 10

a.m. The public hearing will be held in

the IRS Auditorium, 7th Floor, 1111

Constitution Avenue, NW., Washington

DC 20224. 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 that wish to present oral

comments at the hearing must submit

written comments by July 31, 1995 and

submit an outline of the topics to be

discussed and the time to be devoted to

each topic (signed original and eight (8)

copies) by August 9, 1995.

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 Robert B. Williams,

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 continues to read in part as

follows:

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

Par. 2. Section 1.1092(d)–2 is revised

to read as follows:

§ 1.1092(d)–2 Personal property.

(a) Special rules for stock. As defined

by section 1092(d)(1), personal property

includes—

(1) Any stock if the stock is of a type

that is actively traded and the stock is

part of a straddle at least one of the

offsetting positions of which is—

(i) An option with respect to that

stock or substantially identical stock or

securities; or

(ii) Under paragraphs (b) and (c) of

this section, a position with respect to

substantially similar or related property

(other than stock); and

(2) Any stock, whether or not of a type

that is actively traded, of a corporation

formed or availed of to take positions in

personal property as defined by section

1092(d)(1) that offset positions taken,

directly or indirectly, by any

shareholder.

(b) Substantially similar or related

property. For purposes of section

1092(d)(3)(B)(i)(II) and this section, the

term substantially similar or related

property is defined in § 1.246–5 (other

than § 1.246–5(b)(3)). The rule in

§ 1.246–5(c)(6) does not narrow the

related party rule in section 1092(d)(4).

(c) Position with respect to

substantially similar or related property

(other than stock). For purposes of

section 1092(d)(3)(B)(i)(II) and this

section, a position with respect to

substantially similar or related property

(other than stock) does not include

direct ownership of stock or a short sale

of stock but includes any other position

with respect to substantially similar or

related property.

(d) Example. The following example

illustrates the application of this section.

(1) Facts—(i) The stock. A acquired 10,000

shares of actively traded X stock during 1990.

On September 29, 1995, those shares had a

fair market value of $1,000,000.

(ii) The swap. On September 29, 1995, A

entered into an ‘‘equity swap’’ contract with

unrelated counterparty C, for a term of three

years. Under the terms of that contract, on

the last business day of each calendar

quarter, A must pay to C an amount equal to

the appreciation, if any, during the quarter on

10,000 shares of X stock. A also must pay to

C an amount equal to the dividends, if any,

that were paid during the quarter on 10,000

shares of X stock. On the last business day

of each calendar quarter, A is to receive from

C an amount equal to the depreciation, if any,

during the quarter on 10,000 shares of X

stock. A also is to receive from C an amount

equal to the 3-month London Interbank

Offered Rate (LIBOR), as determined at the

close of the prior quarter, multiplied by the

value of the X stock on that date.

(2) Holdings—(i) The two legs as offsetting

positions. Because holding the equity swap
21484 Federal Register / Vol. 60, No. 84 / Tuesday, May 2, 1995 / Proposed Rules

substantially diminishes A’s risk of loss from

holding the X stock, the X stock and the

equity swap are offsetting positions within

the meaning of section 1092(c). The

remaining question is whether these are

positions with respect to personal property.

(ii) The swap leg as a position with respect

to personal property. The equity swap

contract is a position with respect to personal

property as defined by section 1092(d)(1).

Although section 1092(d)(3)(A) generally

excludes stock from the definition of

personal property, this exclusion does not

apply to interests in stock. Therefore, stock

can be personal property when testing

whether an interest in the stock, other than

a direct interest in, or a short sale of, the

stock, is a position with respect to personal

property. Because the equity swap contract is

an interest in actively traded stock, the equity

swap contract is a position with respect to

personal property.

(iii) The stock leg as personal property. As

described below, ownership of the X stock is

also a position with respect to personal

property.

(A) The rule of section 1092(d)(3)(B)(i)(II).

Under section 1092(d)(3)(B)(i)(II) and

paragraph (a)(1)(ii) of this section, stock is

not excluded from the definition of personal

property if it is part of a straddle at least one

of the offsetting positions of which is a

position with respect to substantially similar

or related property (other than stock).

(B) The swap as a position with respect to

substantially similar or related property

(other than stock) for purposes of section

1092(d)(3)(B)(i)(II). Under paragraph (b) of

this section, the equity swap contract is a

position with respect to property that is

substantially similar or related to the X stock

because A is entitled to payments under the

equity swap contract that are attributable to

the decline in the value of the X stock. See

§ 1.246–5(c)(7). Under section

1092(d)(3)(B)(i)(II) and paragraph (c) of this

section, the equity swap contract is a position

with respect to substantially similar or

related property (other than stock) because it

is not direct ownership of stock or a short

sale of stock.

(C) The stock as part of a straddle for

purposes of the test of section

1092(d)(3)(B)(i)(II). In determining whether

the X stock is part of a straddle for purposes

of the test of section 1092(d)(3)(B)(i) and

paragraph (a)(1) of this section, section

1092(d)(3)(C) treats the X stock as personal

property. Because the stock is treated as

personal property for this purpose, because

the equity swap contract is a position with

respect to personal property (see paragraph

(d)(2)(ii) of this section), and because the X

stock and the equity swap contract are

offsetting positions (see paragraph (d)(2)(i) of

this section), the straddle test in section

1092(d)(3)(B)(i) and paragraph (a)(1) of this

section is satisfied. Accordingly, under

section 1092(d)(3)(B), the stock is personal

property for all purposes of section 1092.

(iv) The two legs as a straddle. Because

ownership of the X stock and the equity swap

contract are offsetting positions with respect

to personal property, the X stock and the

equity swap contract are a straddle to A

within the meaning of section 1092(c)(1).

(e) Effective dates—(1) In general.

Except as provided in paragraph (e)(2)

of this section, this section applies to

positions established on or after May 1,

1995.

(2) Special rules for substantially

similar or related property—(i) In

general. Paragraph (b) of this section

applies to positions established on or

after March 17, 1995.

(ii) Special rule for certain straddles.

Paragraph (b) of this section applies to

positions established after March 1,

1984, if the taxpayer substantially

diminished its risk of loss by holding

substantially similar or related property

involving the following types of

transactions—

(A) Holding offsetting positions

consisting of stock and a convertible

debenture of the same corporation

where the price movements of the two

positions are related; or

(B) Holding a short position in a stock

index regulated futures contract (or

alternatively an option on such a

regulated futures contract or an option

on the stock index) and stock in an

investment company whose principal

holdings mimic the performance of the

stocks included in the stock index (or

alternatively a portfolio of stocks whose

performance mimics the performance of

the stocks included in the stock index).

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 95–10755 Filed 5–1–95; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF THE INTERIOR

Office of Surface Mining Reclamation

and Enforcement

30 CFR Part 934

North Dakota Regulatory Program

AGENCY: Office of Surface Mining

Reclamation and Enforcement (OSM),

Interior.

ACTION: Proposed rule; public comment

period and opportunity for public

hearing on proposed amendment.

SUMMARY: OSM is announcing receipt of

a proposed amendment to the North

Dakota regulatory program (hereinafter,

the ‘‘North Dakota program’’) under the

Surface Mining Control and

Reclamation Act of 1977 (SMCRA). The

proposed amendment consists of

revisions to and additions of statutory

provisions pertaining to the North

Dakota program’s Small Operator

Assistance Program and individual civil

penalties. The amendment is intended

to revise the North Dakota program to be

consistent with the corresponding

Federal regulations and SMCRA.

DATES: Written comments must be

received by 4:00 p.m., m.d.t., June 1,

1995. If requested, a public hearing on

the proposed amendment will be held

on May 30, 1995. Requests to present

oral testimony at the hearing must be

received by 4:00 p.m., m.d.t., on May

17, 1995.

ADDRESSES: Written comments should

be mailed or hand delivered to Guy

Padgett at the address listed below.

Copies of the North Dakota program,

the proposed amendment, and all

written comments received in response

to this document will be available for

public review at the addresses listed

below during normal business hours,

Monday through Friday, excluding

holidays. Each requester may receive

one free copy of the proposed

amendment by contacting OSM’s Casper

Field Office.

Guy Padgett, Director, Casper Field

Office, Office of Surface Mining

Reclamation and Enforcement, 100 E.

‘‘B’’ Street, Room 2128, Casper, WY

82601–1918, Telephone: (307) 261–

5776

North Dakota Public Service

Commission, Reclamation Division,

Capitol Building, Bismarck, ND

58505–0165, Telephone: (701) 224–

4092

FOR FURTHER INFORMATION CONTACT: Guy

Padgett, Telephone: (307) 261–5776.

SUPPLEMENTARY INFORMATION:

I. Background on the North Dakota

Program

On December 15, 1980, the Secretary

of the Interior conditionally approved

the North Dakota program. General

background information on the North

Dakota program, including the

Secretary’s findings, the disposition of

comments, and the conditions of

approval of the North Dakota program

can be found in the December 15, 1980,

Federal Register (45 FR 82214).

Subsequent actions concerning the

North Dakota program and program

amendments can be found at 30 CFR

934.12, 934.13, 934.15, 934.16, and

934.30.

II. Proposed Amendment

By letter dated April 12, 1995, North

Dakota submitted a proposed

amendment to its program pursuant to

SMCRA (30 U.S.C. 1201 et seq.)

(Amendment number XXII,

Administrative Record No. ND–W–01).

North Dakota submitted the proposed

amendment in response to the required

program amendment at 30 CFR

934.16(y) and in response to an