3916 Federal Register / Vol. 66, No. 11 / Wednesday, January 17, 2001 / Proposed Rules

purchases capacity from TC to transmit

telephone calls. T sells prepaid telephone

calling cards, giving customers access to TC’s

lines, for a certain number of minutes.

(ii) Analysis. T derives income from

communications activity, under paragraph

(d)(2) of this section, because T makes

capacity to transmit available to its

customers. In this case, T cannot establish

the points between which communications

are transmitted. Therefore, the source of its

income must be determined under paragraph

(b)(6) of this section as U.S. source income.

Example 10. Income derived from

communications and non-communications

activity. (i) Facts. B, a U.S. company,

transmits television programs using its

satellite transponder, from the United States

to downlink facilities in foreign country Y,

owned by D, a cable system operator in

Country Y. D receives the transmission,

unscrambles the signals, and distributes the

broadcast to customers in Country Y.

(ii) Analysis. B derives income both from

communications activity as defined under

paragraph (d)(1)(i) of this section, and from

non-communications activity. Gross income

must be allocated to the communications

activity as required in paragraph (d)(1)(ii) of

this section. Income derived by B for

transmission to D is international

communications income within paragraph

(d)(3)(ii) of this section, because B is paid to

transmit communications from the United

States to a foreign country.

Example 11. Income derived from

communications activity. (i) Facts. TC is paid

for Internet access. TC replicates frequently

requested sites on its servers, solely to speed

up response time.

(ii) Analysis. On these facts, the replication

service would be treated as de minimis under

paragraph (d)(1)(i) of this section, so that TC

derives income from communications

activity. The type and source of TC’s

communications income depends on

demonstrating the points between which TC

is paid by its customer to transmit the

communications, under paragraph (d)(3)(i) of

this section.

Example 12. Income derived from foreign

communications activity. (i) Facts. S leases

capacity to B, a broadcaster located in

Australia. B beams programming to the

satellite, and S’s satellite picks the

communications up in space, and beams the

programming over Southeast Asia.

(ii) Analysis. S derives income from

communications activity under paragraph

(d)(2) of this section. S’s income is

characterized as income derived from foreign

communications activity under paragraph

(d)(3)(iv) of this section, because S picks up

the communication in space, and beams it to

a footprint entirely covering a foreign area.

The source of S’s income is determined

under paragraph (b)(4) of this section as from

sources without the United States. If S were

beaming the programming over a satellite

footprint that covered area both in the United

States and outside the United States, S would

be required to allocate the income derived

from the different types of communications

activity.

(g) Reporting rules and disclosure on

tax return. When a taxpayer allocates

gross income to the satisfaction of the

Commissioner under paragraph

(b)(2)(ii)(D) or (d)(1)(ii) of this section, it

does so by making the allocation on a

timely filed original return (including

extensions). An amended return does

not qualify for this purpose, nor shall

the provisions of § 301.9100–1 of this

chapter and any guidance promulgated

thereunder apply. In all cases, a

taxpayer must maintain

contemporaneous documentation in

existence when such return is filed

regarding the allocation of gross income,

and allocation and apportionment of

expenses, losses, and other deductions,

the methodology used, and the

circumstances justifying use of that

methodology. The taxpayer must

produce such documentation within 30

days of a request.

(h) Effective date. This section applies

to taxable years beginning on or after the

date that is 30 days after the date of

publication of final regulations in the

Federal Register.

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

[FR Doc. 01–7 Filed 1–16–01; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG–109481–99]

RIN 1545–AX34

Special Rules Under Section 417(a)(7)

for Written Explanations Provided by

Qualified Retirement Plans After

Annuity Starting Dates

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains

proposed regulations relating to the

special rule added by the Small

Business Job Protection Act of 1996

which permits the required written

explanations of certain annuity benefits

to be provided by qualified retirement

plans to plan participants after the

annuity starting date. These regulations

affect administrators of, participants in,

and beneficiaries of qualified retirement

plans.

DATES: Written and electronic comments

and requests for a public hearing must

be received by April 17, 2001.

ADDRESSES: Send submissions to:

CC:M&SP:RU (REG–109481–99), room

5226, Internal Revenue Service, POB

7604, Ben Franklin Station, Washington,

DC 20044. Submissions may be handdelivered Monday through Friday

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

to: CC:M&SP:RU (REG–109481–99),

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.gov/taxlregs/

regslist.html.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Robert M.

Walsh, (202) 622–6090; concerning

submissions and delivery of comments,

Sonya Cruse (202) 622–7180 (not tollfree numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information

contained in this notice of proposed

rulemaking has been submitted to the

Office of Management and Budget for

review in accordance with the

Paperwork Reduction Act of 1995 (44

U.S.C. 3507(d)). Comments on the

collection of information should be sent

to the Office of Management and

Budget, Attn: Desk Officer for the

Department of the Treasury, Office of

Information and Regulatory Affairs,

Washington, DC 20503, with copies to

the Internal Revenue Service, Attn: IRS

Reports Clearance Officer,

W:CAR:MP:FP:S:O, Washington, DC

20224. Comments on the collection of

information should be received by

March 19, 2001. Comments are

specifically requested concerning:

Whether the proposed collection of

information is necessary for the proper

performance of the functions of the IRS,

including whether the information will

have practical utility;

The accuracy of the estimated burden

associated with the proposed collection

of information (see below);

How the quality, utility, and clarity of

the information to be collected may be

enhanced;

How the burden of complying with

the proposed collection of information

may be minimized, including through

the application of automated collection

techniques or other forms of information

technology; and

Estimates of capital or start-up costs

and costs of operation, maintenance,

and purchase of services to provide

information.

The collection of information in this

proposed regulation is in § 1.417(e)–

1(b)(3)(iv)(B) and § 1.417(e)–

Federal Register / Vol. 66, No. 11 / Wednesday, January 17, 2001 / Proposed Rules 3917

1(b)(3)(v)(A). This collection of

information is required by the IRS to

ensure that the participant and the

participant’s spouse consent to a form of

distribution from a qualified retirement

plan that may result in reduced periodic

payments. This information will be used

by the plan administrator to verify that

the required consent has been given.

The collection of information is

required to obtain a benefit. The

respondents are individuals who are

entitled to receive certain types of

distributions from a qualified retirement

plan or who are married to individuals

entitled to receive certain types of

distributions from a qualified retirement

plan.

Taxpayers provide the information to

administrators of qualified retirement

plans when a distribution with a

retroactive annuity starting date is

elected.

Estimated total annual reporting

burden: 12,500 hours.

Estimated average annual burden

hours per respondent: 0.25 hours.

Estimated number of respondents:

50,000.

The estimated annual frequency of

responses is on occasion.

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 control

number assigned by the Office of

Management and Budget.

Books or records relating to a

collection of information must be

retained as long as their contents may

become material in the administration

of any internal revenue law. Generally,

tax returns and tax return information

are confidential, as required by 26

U.S.C. 6103.

Background

This document contains proposed

amendments to 26 CFR Part 1 under

section 417(a)(7) of the Internal Revenue

Code (Code). Section 401(a)(11)

provides that, subject to certain

exceptions, all distributions from a

qualified plan must be made in the form

of a qualified joint and survivor annuity

(QJSA). One such exception is provided

in section 417, which allows a

participant to elect to waive the QJSA in

favor of another form of distribution.

Section 417(a)(2) provides that, for the

waiver to be valid, the participant’s

spouse must consent to the waiver.

Section 417(a)(3)(A) requires a qualified

plan to provide to each participant,

within a reasonable period of time

before the annuity starting date, a

written explanation (QJSA explanation)

that describes the QJSA, the right to

waive the QJSA and the rights of the

participant’s spouse. Under section

417(d), a participant’s spouse who has

not been married to the participant

throughout the 1-year period preceding

the annuity starting date is not required

to be treated as the spouse for purposes

of entitlement to the QJSA. Section

417(a)(2)(B) provides that spousal

consent is not required to waive the

QJSA if it is established to the

satisfaction of a plan representative that

such consent may not be obtained

because there is no spouse, because the

spouse cannot be located, or because of

such other circumstances as the

Secretary may by regulations prescribe.

Section 417(a)(7), which was added to

the Code by section 1451(a) of the Small

Business Job Protection Act of 1996,

Public Law 104–188 (110 Stat. 1755)

(SBJPA), creates an exception to the

rules of section 417(a)(3)(A), effective

for plan years beginning after December

31, 1996. Section 417(a)(7)(A) provides

that, notwithstanding any other

provision of section 417(a), a plan may

furnish the QJSA explanation after the

annuity stating date, as long as the

applicable election period is extended

for at least 30 days after the date on

which the explanation is furnished.

Thus, section 417(a)(7)(A) allows the

annuity starting date to be a date that is

earlier than the date the QJSA

explanation is provided, thereby

allowing the retroactive payment of

benefits that are attributable to the

period before the QJSA explanation is

provided. Section 417(a)(7)(A)(ii)

provides that the Secretary may limit

the application of the provision

permitting the selection of a retroactive

annuity starting date by regulations,

except that the regulations may not limit

the period of time by which the annuity

starting date precedes the furnishing of

the written explanation other than by

providing that the retroactive annuity

starting date may not be earlier than

termination of employment.

Section 205(c)(8) of the Employee

Retirement Income Security Act of 1974,

Public Law 93–406 (88 Stat. 829)

(ERISA), provides a parallel rule to

section 417(a)(7) of the Code that

applies under Title I of ERISA, and

authorizes the Secretary of the Treasury

to issue regulations limiting the

application of the general rule. Thus,

Treasury regulations issued under

section 417(a)(7) of the Code apply as

well for purposes of section 205(c)(8) of

ERISA.

On December 18, 1998, final

regulations were published in the

Federal Register (63 FR 70009) which

amended § 1.417(e)–1(b)(3)(ii) of the

Income Tax Regulations, relating to the

timing for the QJSA explanation and the

participant waiver of a QJSA form of

distribution. The regulations finalized

an earlier set of proposed regulations

that were issued in 1995. The

regulations specified that the QJSA

explanation must be provided before the

annuity starting date, except as

otherwise provided by section 417(a)(7)

for plan years beginning after December

31, 1996, but the regulations did not

further address section 417(a)(7).

Explanation of Provisions

In accordance with section

417(a)(7)(A), these proposed regulations

would provide that the QJSA

explanation may be furnished on or

after the annuity starting date under

certain circumstances. The proposed

regulations refer to the annuity starting

date in such cases as the ‘‘retroactive

annuity starting date’’, define how

payments are made in the case of a

retroactive annuity starting date, and set

conditions for the use of retroactive

annuity starting dates.

Under the proposed regulations, a

retroactive annuity starting date could

be used only if the plan provides for it

and the participant elects to use the

retroactive annuity starting date. The

election under the proposed regulations

would place the participant in

approximately the same situation he or

she would have been in had benefit

payments actually commenced on the

retroactive annuity starting date.

Accordingly, the proposed regulations

would provide that future periodic

payments for a participant who elects a

retroactive annuity starting date must be

the same as the periodic payments that

would have been paid to the participant

had payments actually commenced on

the retroactive annuity starting date and

that the participant must also receive a

make-up amount to reflect the missed

payments (with an appropriate

adjustment for interest from the date the

payments would have been made to the

date of actual payment).

In addition, because the purpose of a

retroactive annuity starting date is to

place the participant in approximately

the same situation that he or she would

have been in had benefits commenced

on the retroactive date, the retroactive

benefit payments would be required to

be based upon the terms of the plan in

effect as of the retroactive annuity

starting date (taking into account plan

amendments executed after the

retroactive annuity starting date, but

made effective on or before that date).

Accordingly, the retroactive annuity

starting date could not be earlier than

the date the participant could have

started receiving benefits if the

payments had commenced at the

3918 Federal Register / Vol. 66, No. 11 / Wednesday, January 17, 2001 / Proposed Rules

1For example, section 417(a)(1) provides that a

participant may elect to waive the QJSA within the

‘‘applicable election period’’ which is defined by

section 417(a)(6) as the 90-day period ending on the

annuity starting date. Similarly, § 1.417(e)–1(b)(3)(i)

provides that the written consent of the plan

participant and the participant’s spouse must be

made no more than 90 days before the annuity

staring date. Also, § 1.417(e)–1(b)(3)(ii) provides

that the QJSA explanation must generally be

provided no less than 30 days and no more than

90 days before the annuity starting date.

earliest date permitted under the terms

of the plan (e.g., the retroactive annuity

starting date could not be before the

earlier of the date of the participant’s

termination of employment or

attainment of normal retirement age),

and the amount of the benefit must

satisfy sections 415 and 417 as of the

retroactive annuity starting date.

These proposed regulations would not

require plans to provide for a retroactive

annuity starting date. Instead, plans

could continue to provide that the QJSA

explanation is to be provided before the

annuity starting date under the rules of

section 417(a) without regard to section

417(a)(7)(A). Moreover, if a plan is

amended to provide for a retroactive

annuity starting date, the plan could

impose additional restrictions on

availability not imposed under these

proposed regulations, provided that the

additional restrictions did not violate

any of the rules applicable to qualified

plans. For example, plans that generally

provide benefit options that include

annuities and lump sum payments

could provide that retroactive annuity

starting dates are available only for

participants who elect annuities.

These proposed regulations make it

clear that the notice, consent, and

election rules of section 417(a)(1), (2),

and (3), and the regulations thereunder,

would apply to the retroactive payment

of benefits but with several

modifications. These modifications

generally reflect the fact that the

existing timing rules relating to notice

and consent are generally tied to an

annuity starting date that is after the

furnishing of the QJSA explanation.1

Section 417(a)(7)(A) specifically

permits the QJSA explanation to be

made after the annuity starting date and

modifies the participant election period

in these situations. These regulations

would make a comparable adjustment

for the timing rules applicable to

spousal consent by providing generally

that, for retroactive payments under

section 417(a)(7), the first date of actual

payment is substituted for the annuity

starting date in applying the timing

rules for notice and consent. These

modifications are intended to ensure

that the notice and election are

generally contemporaneous with the

commencement of benefits, but the

modifications recognize the need for

flexibility in the timing to take into

account administrative delays. In

furtherance of that goal, these proposed

regulations would modify the general

timing rule applicable to the furnishing

of notices, and to participant elections

and spousal consent. The proposed

regulations would provide that the

participant’s election to waive the QJSA

under section 417(a)(1)(A)(i) and the

spouse’s consent under section 417(a)(2)

must generally be made before the

annuity starting date, but permits a later

election if the distribution commences

no more than 90 days after the QJSA

explanation required by section

417(a)(3)(A) is furnished to the

participant. This modification would

apply without regard to the retroactivity

of annuity starting dates, but would

include an exception for reasonable

administrative delay in the distribution

of benefits.

Pursuant to the regulatory authority

provided in section 417(a)(7)(A)(ii),

these proposed regulations include a

special spousal consent rule in addition

to those rules applicable under section

417(a). Under this special rule, if the

spouse’s survivor annuity under a QJSA

with an annuity starting date after the

date the QJSA explanation was provided

would be greater than the spouse’s

survivor annuity pursuant to the

participant’s election of a retroactive

annuity starting date, the participant

could not elect a retroactive annuity

starting date unless the participant’s

spouse (determined at the time

distributions actually commence)

consents to the distribution. This

special rule applies even if the form of

benefit that the participant elects as of

the retroactive annuity starting date is a

QJSA. Thus, for example, where a QJSA

that begins after the QJSA explanation is

furnished would provide $1,000

monthly to the participant with a

survivor annuity of $500 monthly to the

spouse, and a QJSA with a retroactive

annuity starting date would provide

$900 monthly to the participant with a

survivor annuity of $450 monthly to the

spouse, together with a $20,000 makeup payment to the participant, the

spouse would be required to consent in

order for the participant to elect the

retroactive annuity starting date.

Spousal consent under this special rule

would not be required in this example

if the spouse’s survivor annuity under

the retroactive annuity starting date

election is at least $500 per month.

These proposed regulations would

also provide that, pursuant to section

417(a)(2)(B), the consent of the

participant’s spouse as of the retroactive

annuity starting would not be required

if that spouse is not the participant’s

spouse as of the date distributions

commence, unless otherwise provided

in a qualified domestic relations order

(as defined in section 414(p)).

The proposed regulations would

impose an additional condition on the

availability of a retroactive annuity

starting date, regarding the permissible

amount of the distribution under

sections 417(e)(3) (if applicable) and

415. To satisfy this condition, the

distribution would be required to be

adjusted, if necessary, to satisfy the

requirements of sections 417(e)(3) (if

applicable) and 415 if the date the

distribution commences is substituted

for the annuity starting date.

Proposed Effective Date

These regulations are proposed to be

applicable for plan years beginning on

or after January 1, 2002.

Special Analyses

It has been determined that this notice

of proposed rulemaking is not a

significant regulatory action as defined

in Executive Order 12866. Therefore, a

regulatory assessment is not required. It

is hereby certified that these regulations

will not have a significant economic

impact on a substantial number of small

entities. This certification is based on

the fact that the regulations require the

collection of plan participants’ written

elections requesting qualified retirement

plan distributions, and written spousal

consent to these distributions, under

limited circumstances. It is anticipated

that most small businesses affected by

these regulations will be sponsors of

qualified retirement plans. Since these

written participant elections and written

spousal consents are required to be

collected only for certain distributions,

and since, in the case of a small plan,

there will be relatively few distributions

per year (and even fewer that are subject

to these requirements), small plans that

provide distributions for which this

collection of information is required

will only have to collect a small number

of participant elections and spousal

consents as a result of these regulations.

Accordingly, a Regulatory Flexibility

Analysis is not required. Pursuant to

section 7805(f) of the 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 Requests for a Public

Hearing

Before these proposed regulations are

adopted as final regulations,

Federal Register / Vol. 66, No. 11 / Wednesday, January 17, 2001 / Proposed Rules 3919

consideration will be given to any

written comments (a signed original and

8 copies) or electronic comments that

are submitted timely to the IRS. The IRS

and Treasury request comments on the

clarity of the proposed rules and how

they can be made easier to understand.

All comments will be available for

public inspection and copying. A public

hearing may be scheduled if requested

in writing by any person that timely

submits written comments. If a public

hearing is scheduled, notice of the date,

time, and place for the public hearing

will be published in the Federal

Register.

Drafting Information

The principal authors of these

regulations are Robert M. Walsh and

Linda S. F. Marshall, Office of Division

Counsel/Associate Chief Counsel (Tax

Exempt and Government Entities).

However, other personnel from the IRS

and Treasury 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 1.417(e)–1 is amended

by:

1. Revising paragraph (b)(3)(i).

2. Revising paragraph (b)(3)(ii)

introductory text.

3. Revising paragraph (b)(3)(ii)(C).

4. Redesignating paragraphs (b)(3)(iii)

and (b)(3)(iv) as paragraphs (b)(3)(viii)

and (b)(3)(ix), respectively.

5. Adding new paragraphs (b)(3)(iii)

through (b)(3)(vii).

The additions and revisions read as

follows:

§ 1.417(e)–1 Restrictions and valuations of

distributions from plans subject to sections

401(a)(11) and 417.

* * * * *

(b)* * *

(3)* * *

(i) Written consent of the participant

and the participant’s spouse to the

distribution must be made not more

than 90 days before the annuity starting

date, and, except as otherwise provided

in paragraphs (b)(3)(iii) and (b)(3)(iv) of

this section, no later than the annuity

starting date.

(ii) A plan must provide participants

with the written explanation of the

QJSA required by section 417(a)(3) no

less than 30 days and no more than 90

days before the annuity starting date,

except as provided in paragraph

(b)(3)(iv) of this section regarding

retroactive annuity starting dates.

However, if the participant, after having

received the written explanation of the

QJSA, affirmatively elects a form of

distribution and the spouse consents to

that form of distribution (if necessary),

a plan will not fail to satisfy the

requirements of section 417(a) merely

because the written explanation was

provided to the participant less than 30

days before the annuity starting date,

provided that the following conditions

are met:

* * * * *

(C) The annuity starting date is after

the date that the explanation of the

QJSA is provided to the participant.

* * * * *

(iii) The plan may permit the annuity

starting date to be before the date that

any affirmative distribution election is

made by the participant (and before the

date that distribution is permitted to

commence under paragraph (b)(3)(ii)(D)

of this section), provided that, except as

otherwise provided in paragraph

(b)(3)(vii) of this section regarding

administrative delay, distributions

commence not more than 90 days after

the explanation of the QJSA is provided.

(iv) Retroactive annuity starting dates.

(A) Notwithstanding the requirements of

paragraphs (b)(3)(i) and (ii) of this

section, pursuant to section 417(a)(7), a

defined benefit plan is permitted to

provide benefits based on a retroactive

annuity starting date if the requirements

described in paragraph (b)(3)(v) of this

section are satisfied. A defined benefit

plan is not required to provide for

retroactive annuity starting dates. If a

plan does provide for a retroactive

annuity starting date, it may impose

conditions on the availability of a

retroactive annuity starting date in

addition to those imposed by paragraph

(b)(3)(v) of this section, provided that

imposition of those additional

conditions does not violate any of the

rules applicable to qualified plans. For

example, a plan that includes a single

sum payment as a benefit option may

limit the election of a retroactive

annuity starting date to those

participants who do not elect the single

sum payment. A defined contribution

plan is not permitted to have a

retroactive annuity starting date.

(B) For purposes of this section, a

‘‘retroactive annuity starting date’’ is an

annuity starting date affirmatively

elected by a participant that occurs on

or before the date the written

explanation required by section

417(a)(3) is provided to the participant.

In order for a plan to treat a participant

as having elected a retroactive annuity

starting date, future periodic payments

with respect to a participant who elects

a retroactive annuity starting date must

be the same as the future periodic

payments, if any, that would have been

paid with respect to the participant had

payments actually commenced on the

retroactive annuity starting date. The

participant must receive a make-up

payment to reflect any missed payment

or payments for the period from the

retroactive annuity starting date to the

date of the actual make-up payment

(with an appropriate adjustment for

interest from the date the missed

payment or payments would have been

made to the date of the actual make-up

payment). Thus, the benefit determined

as of the retroactive annuity starting

date must satisfy the requirements of

sections 417(e)(3), if applicable, and

section 415 with the applicable interest

rate and applicable mortality table

determined as of that date. Similarly, a

participant is not permitted to elect a

retroactive annuity starting date that

precedes the date upon which the

participant could have otherwise started

receiving benefits (e.g., the earlier of the

participant’s termination of employment

or the participant’s normal retirement

age) under the terms of the plan in effect

as of the retroactive annuity starting

date. A plan does not fail to treat a

participant as having elected a

retroactive annuity starting date as

described in this paragraph (b)(3)(iv)(B)

merely because the distributions are

adjusted to the extent necessary to

satisfy the requirements of paragraph

(b)(3)(v)(B) of this section relating to

sections 415 and 417(e)(3).

(C) If the participant’s spouse as of the

retroactive annuity starting date would

not be the participant’s spouse

determined as if the date distributions

commence were the participant’s

annuity starting date, consent of that

former spouse is not needed to waive

the QJSA with respect to the retroactive

annuity starting date, unless otherwise

provided under a qualified domestic

relations order (as defined in section

414(p)).

(D) A distribution payable pursuant to

a retroactive annuity starting date

election is treated as excepted from the

present value requirements of paragraph

(d) of this section under paragraph (d)(6)

of this section if the distribution form

would have been described in paragraph

(d)(6) of this section had the distribution

3920 Federal Register / Vol. 66, No. 11 / Wednesday, January 17, 2001 / Proposed Rules

actually commenced on the retroactive

annuity starting date.

(v) Requirements applicable to

retroactive annuity starting dates. A

distribution is permitted to have a

retroactive annuity starting date with

respect to a participant’s benefit only if

the following requirements are met:

(A) The participant’s spouse

(including an alternate payee who is

treated as the spouse under a qualified

domestic relations order (QDRO), as

defined in section 414(p)), determined

as if the date distributions commence

were the participant’s annuity starting

date, consents to the distribution in a

manner that would satisfy the

requirements of section 417(a)(2). The

spousal consent requirement of this

paragraph (b)(3)(v)(A) is satisfied if such

spouse consents to the distribution

under paragraph (b)(2)(i) of this section.

The spousal consent requirement of this

paragraph (b)(3)(v)(A) does not apply if

the amount of such spouse’s survivor

annuity payments under the retroactive

annuity starting date election is no less

than the amount that the payments to

such spouse would have been under a

QJSA with an annuity starting date after

the date that the explanation was

provided.

(B) The distribution (including

appropriate interest adjustments)

provided based on the retroactive

annuity starting date would satisfy the

requirements of sections 417(e)(3), if

applicable, and section 415 if the date

the distribution commences is

substituted for the annuity starting date

for all purposes, including for purposes

of determining the applicable interest

rate and the applicable mortality table.

(vi) Timing of notice and consent

requirements in the case of retroactive

annuity starting dates. In the case of a

retroactive annuity starting date, the

date of the first actual payment of

benefits based on the retroactive annuity

starting date is substituted for the

annuity starting date for purposes of

satisfying the timing requirements for

giving consent and providing an

explanation of the QJSA provided in

paragraphs (b)(3)(i) and (ii) of this

section, except that the substitution

does not apply for purposes of

paragraph (b)(3)(iii) of this section.

Thus, the written explanation required

by section 417(a)(3)(A) must generally

be provided no less than 30 days and no

more than 90 days before the date of the

first payment of benefits and the

election to receive the distribution must

be made after the written explanation is

provided and on or before the date of

the first payment. Similarly, the written

explanation may also be provided less

than 30 days prior to the first payment

of benefits if the requirements of

paragraph (b)(3)(ii) of this section would

be satisfied if the date of the first

payment is substituted for the annuity

starting date.

(vii) Administrative delay. A plan will

not fail to satisfy the 90-day timing

requirements of paragraphs (b)(3)(iii)

and (vi) of this section merely because,

due solely to administrative delay, a

distribution commences more than 90

days after the written explanation of the

QJSA is provided to the participant.

* * * * *

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

[FR Doc. 01–132 Filed 1–16–01; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG–104876–00]

RIN 1545–AY66

Taxable Years of Partner and

Partnership; Foreign Partners

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Notice of proposed rulemaking

and notice of public hearing.

SUMMARY: This document contains

proposed regulations on the taxable year

of a partnership with foreign partners.

The proposed regulations affect

partnerships and their partners. This

document also contains a notice of

public hearing on these proposed

regulations.

DATES: Written comments must be

received by April 17, 2001. Requests to

speak (with outlines of oral comments)

at the public hearing scheduled for June

6, 2001, at 10 a.m., must be submitted

by May 16, 2001.

ADDRESSES: Send submissions to:

CC:M&SP:RU (REG–104876–00), room

5226, 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:M&SP:RU (REG–

104876–00), 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 of

the IRS Home Page or by submitting

comments directly to the IRS Internet

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

taxlregs/regslist.html. The public

hearing will be held in room 4718,

Internal Revenue Building, 1111

Constitution Avenue, NW., Washington,

DC.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Dan

Carmody, (202) 622–3080; concerning

specific international issues, Ronald M.

Gootzeit, (202) 622–3860; concerning

submissions of comments, the hearing,

and/or to be placed on the building

access list to attend the hearing, LaNita

VanDyke, (202) 622–7180 (not toll-free

numbers).

SUPPLEMENTARY INFORMATION: This

document proposes to amend section

706 of the Income Tax Regulations (26

CFR part 1) regarding partnership

taxable years.

Background

Section 706 governs the taxable years

for a partnership and its partners. The

partners and the partnership each have

their own taxable years, which may or

may not coincide. Under section 706(a),

for a partner’s taxable year, the partner

must include in taxable income the

partner’s share of any income, gain, loss,

deduction, or credit of the partnership

for the partnership’s taxable year that

ends within or with the partner’s

taxable year. Section 706(b) provides

rules for determining a partnership’s

taxable year.

Prior to the Tax Reform Act of 1986,

it was possible for partners to create

income deferral opportunities through

arranging divergent taxable years for a

partnership and its partners. For

example, under certain circumstances, a

partnership could elect a June 30

taxable year while its partners were

calendar year taxpayers. Under such an

arrangement, the partners would

include partnership income earned from

July 1, Year 1, to June 30, Year 2, in Year

2, when the partnership’s taxable year

ended, even though six months of

income was generated during Year 1. To

prevent this potential for income

deferral, Congress amended section

706(b). See generally Staff of the Joint

Committee on Taxation, General

Explanation of the Tax Reform Act of

1986, 533–39 (1986).

Section 706(b) provides that, unless

the partnership establishes a business

purpose for a different taxable year, a

partnership cannot have a taxable year

other than: (i) the majority interest

taxable year; (ii) if there is no majority

interest taxable year, the taxable year of

all the principal partners of the

partnership; or (iii) if there is no taxable

year described in (i) or (ii), the calendar

year unless the Secretary by regulation

prescribes another period. Section