Federal Register / Vol. 66, No. 118 / Tuesday, June 19, 2001 / Rules and Regulations 32901

(c) Definitions. The following

definitions apply for purposes of this

section:

(1) Applicable health benefits.

Applicable health benefits means

applicable health benefits as defined in

section 420(e)(1)(C).

(2) Cost maintenance period. Cost

maintenance period means the cost

maintenance period as defined in

section 420(c)(3)(D).

(3) Sale. A sale of all or part of an

employer’s business means a sale or

other transfer in connection with which

the employees of a trade or business of

the employer become employees of

another person. In the case of such a

transfer, the term purchaser means a

transferee of the trade or business.

(d) Examples. The following examples

illustrate the application of this section:

Example 1. (i) Employer W maintains a

defined benefit pension plan that includes a

401(h) account and permits qualified

transfers that satisfy section 420. The number

of individuals receiving coverage for

applicable health benefits as of the day before

the first day of Year 1 is 100. In Year 1,

Employer W makes a qualified transfer under

section 420. There is no change in the

number of individuals receiving health

benefits during Year 1. As of the last day of

Year 2, applicable health benefits are

provided to 99 individuals, because 2

individuals became eligible for coverage due

to retirement and 3 individuals died in Year

2. During Year 3, Employer W amends its

health plan to eliminate coverage for 5

individuals, 1 new retiree becomes eligible

for coverage and an additional 3 individuals

are no longer covered due to their own

decision to drop coverage. Thus, as of the last

day of Year 3, applicable health benefits are

provided to 92 individuals. During Year 4,

Employer W amends its health plan to

eliminate coverage under its health plan for

8 more individuals, so that as of the last day

of Year 4, applicable health benefits are

provided to 84 individuals. During Year 5,

Employer W amends its health plan to

eliminate coverage for 8 more individuals.

(ii) There is no significant reduction in

retiree health coverage in either Year 1 or

Year 2, because there is no reduction in

health coverage as a result of employer action

in those years.

(iii) There is no significant reduction in

Year 3. The number of individuals whose

health coverage ended during Year 3 by

reason of employer action (amendment of the

plan) is 5. Since the number of individuals

receiving coverage for applicable health

benefits as of the last day of Year 2 is 99, the

employer-initiated reduction percentage for

Year 3 is 5.05 percent (5/99), which is less

than the 10 percent annual limit.

(iv) There is no significant reduction in

Year 4. The number of individuals whose

health coverage ended during Year 4 by

reason of employer action is 8. Since the

number of individuals receiving coverage for

applicable health benefits as of the last day

of Year 3 is 92, the employer-initiated

reduction percentage for Year 4 is 8.70

percent (8/92), which is less than the 10

percent annual limit. The sum of the

employer-initiated reduction percentages for

Year 3 and Year 4 is 13.75 percent, which is

less than the 20 percent cumulative limit.

(v) In Year 5, there is a significant

reduction under paragraph (b)(1)(ii) of this

section. The number of individuals whose

health coverage ended during Year 5 by

reason of employer action (amendment of the

plan) is 8. Since the number of individuals

receiving coverage for applicable health

benefits as of the last day of Year 4 is 84, the

employer-initiated reduction percentage for

Year 5 is 9.52 percent (8/84), which is less

than the 10 percent annual limit. However,

the sum of the employer-initiated reduction

percentages for Year 3, Year 4, and Year 5 is

5.05 percent + 8.70 percent + 9.52 percent =

23.27 percent, which exceeds the 20 percent

cumulative limit.

Example 2. (i) Employer X, a calendar year

taxpayer, maintains a defined benefit pension

plan that includes a 401(h) account and

permits qualified transfers that satisfy section

420. X also provides lifetime health benefits

to employees who retire from Division A as

a result of a plant shutdown, no health

benefits to employees who retire from

Division B, and lifetime health benefits to all

employees who retire from Division C. In

2000, X amends its health plan to provide

coverage for employees who retire from

Division B as a result of a plant shutdown,

but only for the 2-year period coinciding

with their severance pay. Also in 2000, X

amends the health plan to provide that

employees who retire from Division A as a

result of a plant shutdown receive health

coverage only for the 2-year period

coinciding with their severance pay. A plant

shutdown that affects Division A and

Division B employees occurs in 2000. The

number of individuals receiving coverage for

applicable health benefits as of the last day

of 2001 is 200. In 2002, Employer X makes

a qualified transfer under section 420. As of

the last day of 2002, applicable health

benefits are provided to 170 individuals,

because the 2-year period of benefits ends for

10 employees who retired from Division A

and 20 employees who retired from Division

B as a result of the plant shutdown that

occurred in 2000.

(ii) There is no significant reduction in

retiree health coverage in 2002. Coverage for

the 10 retirees from Division A who lose

coverage as a result of the end of the 2-year

period is treated as having ended by reason

of employer action, because coverage for

those Division A retirees ended by reason of

a plan amendment made after December 17,

1999. However, the terms of the health plan

that limit coverage for employees who retired

from Division B as a result of the 2000 plant

shutdown (to the 2-year period) were

adopted contemporaneously with the

provision under which those employees

became eligible for retiree coverage under the

health plan. Accordingly, under the rule

provided in paragraph (b)(4)(ii) of this

section, coverage for those 20 retirees from

Division B is not treated as having ended by

reason of employer action. Thus, the number

of individuals whose health benefits ended

by reason of employer action in 2002 is 10.

Since the number of individuals receiving

coverage for applicable health benefits as of

the last day of 2001 is 200, the employerinitiated reduction percentage for 2002 is 5

percent (10/200), which is less than the 10

percent annual limit.

(e) Regulatory effective date. This

section is applicable to transfers of

excess pension assets occurring on or

after December 18, 1999.

David A. Mader,

Acting Deputy Commissioner of Internal

Revenue.

Approved: June 12, 2001.

Mark A. Weinberger,

Assistant Secretary of the Treasury (Tax

Policy).

[FR Doc. 01–15255 Filed 6–14–01; 2:45 pm]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8949]

RIN 1545–AY80

Special Aggregate Stock Ownership

Rules

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations relating to the aggregation of

stock ownership in a corporation of

members of a consolidated group. These

regulations reflect a technical correction

enacted in section 311(c) of the

Community Renewal Tax Relief Act of

2000, that, in substance, provides that

the special aggregate stock ownership

rules shall apply for purposes of section

732(f) of the Code. These final

regulations may affect all consolidated

groups.

DATES: Effective Date: June 19, 2001.

FOR FURTHER INFORMATION CONTACT:

Frances L. Kelly or David H. Kessler,

(202) 622–7770 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments

to the Income Tax Regulations (26 CFR

part 1) under section 1502 of the

Internal Revenue Code of 1986 (Code).

Section 1.1502–34 generally provides

that, for purposes of the consolidated

return regulations, the stock ownership

of all members of a consolidated group

in another corporation is aggregated in

determining the application of certain

32902 Federal Register / Vol. 66, No. 118 / Tuesday, June 19, 2001 / Rules and Regulations

Code provisions, including section

332(b)(1), in a consolidated return year.

Section 538 of the Ticket to Work and

Work Incentives Improvement Act of

1999 (Public Law 106–170, 113 Stat.

1939) (the 1999 Act) enacted section

732(f) on December 17, 1999. With

certain exceptions, section 732(f)

generally provides that if (1) a corporate

partner of a partnership receives a

distribution from that partnership of

stock in another corporation, (2) the

corporate partner has control of the

distributed corporation immediately

after the distribution or at any time

thereafter, and (3) the partnership’s

adjusted basis in such stock

immediately before the distribution

exceeded the corporate partner’s

adjusted basis in such stock

immediately after the distribution, then

an amount equal to such excess shall

reduce the basis of the property held by

the distributed corporation at such time.

On December 21, 2000, Congress

enacted section 311(c) of the

Community Renewal Tax Relief Act of

2000 (Public Law 106–554, 114 Stat.

2763) (the 2000 Act), a technical

correction to section 538 of the 1999

Act. Section 311(c) of the 2000 Act

states ‘‘[t]he reference to section

332(b)(1) of the Internal Revenue Code

of 1986 in Treasury Regulation section

1.1502–34 shall be deemed to include a

reference to section 732(f) of such

Code.’’ The Conference Report states

that the rule in the consolidated return

regulations (§ 1.1502–34) aggregating

stock ownership for purposes of section

332 (relating to a complete liquidation

of a subsidiary that is a controlled

corporation) also applies for purposes of

section 732(f) (relating to basis

adjustments to assets of a controlled

corporation received in a partnership

distribution). H.R. Conf. Rep. No. 1033,

106th Cong., 2d Sess. 1022 (2000).

Section 311(d) of the 2000 Act

provides that section 311(c) of the 2000

Act takes effect as if included in the

provisions of the 1999 Act to which it

relates. Thus, the effective date of

section 311(c) of the 2000 Act is the

same as that for section 538(a) of the

1999 Act, which is contained in section

538(b) of the 1999 Act.

Explanation of Provisions

These final regulations conform

§ 1.1502–34 to a technical correction

enacted in section 311(c) of the 2000

Act and add a regulation under section

732 reflecting that correction. These

regulations reflect this statutory

provision clarifying that the stock

aggregation rules under § 1.1502–34

apply for purposes of section 732(f).

Because section 311(d) of the 2000

Act provides that section 311(c) of the

2000 Act shall take effect as if it had

been included in the provisions of the

1999 Act, the effective date provisions

of section 538(b) of the 1999 Act apply

to these regulations. Section 538(b)

generally provides that the amendments

made by section 538(a) of the 1999 Act

apply to distributions made after July

14, 1999. In the case of a corporation

that was a partner in a partnership as of

July 14, 1999, the amendments made by

section 538(a) of the 1999 Act apply to

distributions made (or treated as made)

to that partner from that partnership

after June 30, 2001. In the case of any

such distribution made after December

17, 1999, and before July 1, 2001, the

rule of the preceding sentence does not

apply unless that partner makes an

election to have the rule apply to the

distribution on the partner’s income tax

return for the year in which the

distribution occurs.

Special Analyses

It has been determined that this

Treasury Decision is not a significant

regulatory action as defined in

Executive Order 12866. Therefore, a

regulatory assessment is not required.

Because no notice of proposed

rulemaking is required for this final

regulation, the provisions of the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) do not apply.

This final rule merely conforms

§ 1.1502–34 to the statutory amendment

made by section 311(c) of the 2000 Act.

Pursuant to 5 U.S.C. 553, it is

determined that prior notice and

comment are unnecessary and contrary

to the public interest. For the same

reason, good cause exists for not

delaying the effective date of this final

rule.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is

amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by adding entries

in numerical order to read in part as

follows:

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

Section 1.732–3 also issued under 26

U.S.C. 732(f). * * *

Section 1.1502–34 also issued under 26

U.S.C. 1502. * * *

Par. 2. Section 1.732–3 is added to

read as follows:

§ 1.732–3 Corresponding adjustment to

basis of assets of a distributed corporation

controlled by a corporate partner.

The determination of whether a

corporate partner has control of a

distributed corporation for purposes of

section 732(f) shall be made by applying

the special aggregate stock ownership

rules of § 1.1502–34.

§ 1.1502–34 [Amended]

Par. 3. In § 1.1502–34, the first

sentence is amended by adding

‘‘732(f),’’ immediately after ‘‘351(a),’’.

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

Approved: June 8, 2001.

Mark A. Weinberger,

Assistant Secretary of the Treasury.

[FR Doc. 01–15353 Filed 6–18–01; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE INTERIOR

Minerals Management Service

30 CFR Part 256

RIN: 1010–AC74

Leasing of Sulphur or Oil and Gas in

the Outer Continental Shelf—Definition

of Affected State

AGENCY: Minerals Management Service

(MMS), Interior.

ACTION: Final rule.

SUMMARY: This final rule eliminates the

definition of ‘‘Affected State’’ in Subpart

B, Oil and Gas Leasing Program. The

definition of ‘‘Affected State’’ in Subpart

A will apply to the entire Part 256,

eliminating the need for unaffected

coastal States to participate in the

preparation of a 5-year program, unless

they so choose.

EFFECTIVE DATE: The rule is effective

June 19, 2001.

FOR FURTHER INFORMATION CONTACT:

Ralph Ainger or Jane Roberts at (703)

787–1215.

SUPPLEMENTARY INFORMATION: On

December 15, 2000, we published a

Notice of Proposed Rulemaking (NPR)

(65 FR 78432), titled ‘‘Leasing of

Sulphur or Oil and Gas in the Outer

Continental Shelf—Definition of

Affected State,’’ which proposed to

remove 30 CFR 256.14. The comment

period closed February 13, 2001. We

received one comment from a coastal

State. This final rule removes the

regulation at 30 CFR 256.14. This rule