4754 Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Proposed Rules

Section 1.1092(c)–2 also issued under 26

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

Section 1.1092(c)–3 also issued under 26

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

Par. 2. Section 1.1092(c)–1 is

amended as follows:

1. Paragraphs (b) and (d)(1)(ii)

introductory text are revised.

2. Paragraphs (c) and (d)(3) are added.

3. Paragraph (e) is revised.

The revisions and addition read as

follows:

§ 1.1092(c)–1 Equity options with flexible

terms.

* * * * *

(b) No effect on lowest qualified bench

mark for standardized options. The

availability of strike prices for 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 an equity

option with standardized terms.

(c) Qualified covered call option

status—(1) Requirements. An equity

option with flexible terms is a qualified

covered call option only if—

(i) The option meets the requirements

of section 1092(c)(4)(B) (taking into

account paragraph (c)(2) of this section);

(ii) The only payments permitted with

respect to the option are a single fixed

premium paid not later than 5 business

days after the day on which the option

is granted, and a single fixed strike price

stated as a dollar amount that is payable

entirely at (or within 5 business days of)

exercise;

(iii) The option is granted not more

than 1 year before the day on which the

option expires; and

(iv) An equity option with

standardized terms is outstanding for

the underlying equity.

(2) Lowest qualified bench mark—(i)

In general. For purposes of determining

whether an equity option with flexible

terms is deep in the money within the

meaning of section 1092(c)(4)(C), the

lowest qualified bench mark under

section 1092(c)(4)(D) is the same for an

equity option with flexible terms as the

lowest qualified bench mark for an

equity option with standardized terms

on the same stock having the same

applicable stock price.

(ii) Example. The following example

illustrates the rules set out in paragraph

(c)(2)(i) of this section:

Example. Taxpayer owns stock in

Corporation X. Taxpayer writes an equity call

option with flexible terms on Corporation X

stock through a national securities exchange.

The applicable stock price for Corporation X

stock is $73.75. Using the bench marks for an

equity option with standardized terms with

an applicable stock price of $73.75, the

highest available bench mark less than the

applicable stock price is $70, and the second

highest bench mark is $65. Therefore, an

equity call option with flexible terms on

Corporation X with a term of 90 days or less

will not be deep in the money if the strike

price is not less than $70. If the term is

greater than 90 days, an equity call option

with flexible terms on Corporation X will not

be deep in the money if the strike price is not

less than $65.

(d) * * *

(1) * * *

(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 (d)(1)(i) of this section) and

is—

* * * * *

(3) Equity option with standardized

terms means an equity option that is

traded on a national securities exchange

registered with the Securities and

Exchange Commission and that is not an

equity option with flexible terms.

(e) Effective date—(1) In general.

Except as provided in paragraph (e)(2)

of this section, this section applies to

equity options with flexible terms

entered into on or after January 25,

2000.

(2) Special effective date for

paragraph (c). Paragraph (c) of this

section applies to equity options with

flexible terms entered into on or after 30

days after the date that the Treasury

decision adopting these regulations is

published in the Federal Register.

Par. 3. Section 1.1092(c)–2 is added to

read as follows:

§ 1.1092(c)–2 Equity options with

standardized terms.

(a) One-year limitation. An equity

option with standardized terms (as

defined in § 1.1092(c)–1(d)(3)) is a

qualified covered call only if—

(1) The option meets the requirements

of section 1092(c)(4)(B); and

(2) The option is granted not more

than 1 year before the day on which the

option expires.

(b) Effective date. This section applies

to equity options with standardized

terms entered into on or after 90 days

after the date that the Treasury decision

adopting these regulations is published

in the Federal Register.

Par. 4. Section 1.1092(c)–3 is added.

§ 1.1092(c)–3 Qualifying over-the-counter

options.

(a) In general. Under section

1092(c)(4)(B)(i), an equity option is not

a qualified covered call option unless it

is traded on a national securities

exchange which is registered with the

Securities and Exchange Commission or

other market which the Secretary

determines has rules adequate to carry

out the purposes of section 1092(c)(4).

In accordance with section

1092(c)(4)(H), this requirement is

modified as provided in paragraph (b) of

this section.

(b) Qualified covered call option

status. A qualifying over-the-counter

option is a qualified covered call option

if it meets the requirements of

§ 1.1092(c)–1(c) after substituting

‘‘qualifying over-the-counter option’’ for

‘‘equity option with flexible terms’’. For

the purposes of this paragraph (b), a

qualifying over the counter option is

deemed to satisfy the requirements of

section 1092(c)(4)(B)(i).

(c) Qualifying over-the-counter option.

For the purposes of this section,

qualifying over-the-counter option

means an equity option that—

(1) Is not traded on a national

securities exchange registered with the

Securities and Exchange Commission;

and

(2) Is entered into with a person

registered with the Securities and

Exchange Commission as—

(i) A broker-dealer under section 15 of

the Securities Act of 1934 and the

regulations thereunder; or

(ii) An alternative trading system

under 17 CFR 242.300 et seq.

(d) Effective date. This section applies

to qualifying over-the-counter options

entered into on or after 30 days after the

date that the Treasury decision adopting

these regulations is published in the

Federal Register.

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

[FR Doc. 01–1294 Filed 1–17–01; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG–114998–99]

RIN 1545–AY71

Obligations of States and Political

Subdivisions

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Partial withdrawal of notice of

proposed rulemaking; notice of

proposed rulemaking by cross-reference

to temporary regulations; and notice of

public hearing.

SUMMARY: This document withdraws

portions of the notice of proposed

rulemaking published in the Federal

Register on January 22, 1998. In the

Federal Register / Vol. 66, No. 12 / Thursday, January 18, 2001 / Proposed Rules 4755

Rules and Regulations section of this

issue of the Federal Register, the IRS is

issuing temporary regulations that

provide guidance to state and local

governments that issue bonds for output

facilities. The text of those temporary

regulations also serves as the text of

these proposed regulations. This

document provides a notice of public

hearing on these proposed regulations.

DATES: Written comments must be

received by July 18, 2001. Outlines of

topics to be discussed at the public

hearing scheduled for July 24, 2001, at

10 a.m. must be received by July 3,

2001.

ADDRESSES: Send submissions to:

CC:M&SP:RU (REG–114998–99), 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–

114998–99), 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. The public hearing will be

held in the Auditorium, Internal

Revenue Building, 1111 Constitution

Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT:

Concerning the regulations, Rose M.

Weber, (202) 622–3980; concerning

submissions and the hearing, Treena

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

numbers).

SUPPLEMENTARY INFORMATION:

Background

Proposed regulations (REG–110965–

97) §§ 1.141–7, 1.141–8 and 1.141–15(f)

through (i), published on January 22,

1998 (63 FR 3296), addressed the

application of the private activity bond

tests of section 141(b) (1) and (2) to

output contracts for output facilities and

the application of the $15 million

limitation under section 141(b)(4) to

output facility financings. These

proposed sections are withdrawn.

Sections 1.141–7T, 1.141–8T and

1.141–15T published in the Rules and

Regulations portion of this issue of the

Federal Register are issued to provide

guidance on certain aspects of the

private activity bond restrictions under

section 141 of the Internal Revenue

Code.

The text of the temporary regulations

also serves as the text of these proposed

regulations. The preamble to the

temporary regulations explains the

temporary regulations.

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

has also been determined that section

553(b) of the Administrative Procedure

Act (5 U.S.C. chapter 5) does not apply

to these regulations, and because the

regulations do not impose a collection

of information on small entities, the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) does not apply. Pursuant to

section 7805(f) of the Internal Revenue

Code, this notice of proposed

rulemaking will be submitted to the

Chief Counsel for Advocacy of the Small

Business Administration for comment

on its impact on small business.

Comments and Public Hearing

Before these proposed regulations are

adopted as final regulations,

consideration will be given to any

written comments that are submitted

timely (preferably a signed original and

eight copies) to the IRS. All comments

will be available for public inspection

and copying.

A public hearing has been scheduled

for July 24, 2001, at 10 a.m. in the

Auditorium, Internal Revenue Building,

1111 Constitution Avenue, NW.,

Washington, DC. Because of access

restrictions, visitors will not be

admitted beyond the 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 July 18, 2001 and

submit an outline of the topics to be

discussed and the time to be devoted to

each topic by July 3, 2001.

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 authors of these

regulations are Bruce M. Serchuk, and

Rose M. Weber, Office of Chief Counsel

(Tax-exempt and Government Entities),

Internal Revenue Service, and Stephen

J. Watson, Office of Tax Legislative

Counsel, Department of the Treasury.

However, other personnel from the IRS

and Treasury Department participated

in their development.

Partial Withdrawal of Notice of

Proposed Rulemaking

Under the authority of 26 U.S.C. 7805,

§§ 1.141–7, 1.141–8 and 1.141–15(f)

through (i) in the notice of proposed

rulemaking that was published on

January 22, 1998 (63 FR 3256) are

withdrawn.

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. Sections 1.141–7 and 1.141–8

are added to read as follows:

§ 1.141–7 Special rules for output

facilities.

[The text of this proposed section is

the same as the text of § 1.141–7T

published elsewhere in this issue of the

Federal Register.]

§ 1.141–8 $15 million limitation for output

facilities.

[The text of this proposed section is

the same as the text of § 1.141–8T

published elsewhere in this issue of the

Federal Register.]

Par. 3. Section 1.141–15 is amended

by adding paragraphs (f) through (i) to

read as follows:

§ 1.141–15 Effective dates.

* * * * *

(f) through (i) [The text of proposed

paragraphs (f) through (i) is the same as

the text of § 1.141–15T(f) through (i)

published elsewhere in this issue of the

Federal Register.]

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

[FR Doc. 01–1413 Filed 1–17–01; 8:45 am]

BILLING CODE 4830–01–P