Federal Register / Vol. 66, No. 121 / Friday, June 22, 2001 / Rules and Regulations 33463

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8950]

RIN 1545–AY58

Guidance on Filing an Application for

a Tentative Carryback Adjustment in a

Consolidated Return Context

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations relating to the filing of an

application for a tentative carryback

adjustment. These regulations provide

guidance as to the time for filing such

application by a consolidated group and

by certain corporations for the separate

return year created by their becoming a

member of a consolidated group. These

final regulations may affect all

consolidated groups.

DATES: Effective Date: June 22, 2001.

Applicability Date: For dates of

applicability, see § 1.1502–78(e)(2)(v) of

these regulations.

FOR FURTHER INFORMATION CONTACT:

Christopher M. Bass or Frances L. Kelly,

(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),

relating to the filing of an application

for a tentative carryback adjustment.

The amendments provide guidance as to

the time for filing an application for a

tentative carryback adjustment by a

consolidated group. The amendments

also extend the time for filing an

application for a tentative carryback

adjustment by certain corporations for

the separate return year created by their

becoming new members of a

consolidated group.

On January 4, 2001, a temporary

regulation (TD 8919, 2001–6 I.R.B. 505)

was published in the Federal Register

(66 FR 713). On this same day, a notice

of proposed rulemaking (REG–119352–

00, 2001–6 I.R.B. 525) cross-referencing

the temporary regulation and a notice of

public hearing were published in the

Federal Register (66 FR 747). No

comments or requests to speak were

received from the public in response to

the notice of proposed rulemaking.

Accordingly, the public hearing

scheduled for April 26, 2001 was

canceled in the Federal Register (66 FR

19104) on April 13, 2001. The proposed

regulation is adopted as amended by

this Treasury Decision, and the

corresponding temporary regulation is

removed.

Explanation of Provisions

The amendments adopted by this

Treasury Decision provide a general rule

for all corporations filing consolidated

returns stating that the provisions of

section 6411(a) shall apply to determine

the time for filing an application for a

tentative carryback adjustment by a

consolidated group. In addition, the

amendments provide a special rule for

applications filed by certain

corporations that become new members

of a consolidated group, extending the

period of time for filing an application

for a tentative carryback adjustment

resulting from losses or credits arising

in the new member’s last separate return

year. For these purposes, the separate

return year is treated as ending on the

same date as the end of the current

taxable year of the consolidated group.

Until Form 1139 (Application for a

Tentative Carryback Adjustment) is

modified to reflect the changes made by

this regulation, an application for a

tentative carryback adjustment filed

under the special rule must include

additional information in the form of a

statement, ‘‘Filed pursuant to Treas.

Reg. section 1.1502–78(e)(2),’’ in red, at

the top of the current Form 1139. In

addition, the Form 1139 must state, in

red, the ‘‘year end’’ of the consolidated

group that the new member joins. In

response to the changes made by this

regulation, IRS Service Centers

developed a procedure to assist in

processing applications filed under

§ 1.1502–78(e)(2). This procedure

requires that the additional information,

as set forth above, be included on the

Form 1139. This procedure supplements

existing guidelines for filing and

processing Form 1139.

The proposed regulation (66 FR 747)

was issued as § 1.1502–78T(g). This

final regulation adopts the substance of

the proposed regulation and renumbers

such provision as § 1.1502–78(e).

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. It

is hereby certified that this regulation

will not impose a significant economic

impact on a substantial number of small

entities because it affects a relatively

small number of corporations and few,

if any, of those corporations are likely

to be small businesses. Therefore, a

Regulatory Flexibility Analysis under

the Regulatory Flexibility Act (5 U.S.C.

chapter 6) is not required. Pursuant to

section 7805(f) of the Code, the notice

of proposed rulemaking that preceded

these regulations was submitted to the

Chief Counsel for Advocacy of the Small

Business Administration for comment

on its impact on small business.

Drafting Information

The principal authors of these

regulations are Christopher M. Bass and

Frances L. Kelly, Office of the Associate

Chief Counsel (Corporate). 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.

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 removing the

entries for Sections 1.1502–78(b) and

1.1502–78T and by adding an entry in

numerical order to read in part as

follows:

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

Section 1.1502–78 also issued under 26

U.S.C. 1502, 6402(k), and 6411(c). * * *

Par. 2. Section 1.1502–78 is amended

by adding paragraph (e) to read as

follows:

§ 1.1502–78 Tentative carryback

adjustments.

* * * * *

(e) Time for filing application—(1)

General rule. The provisions of section

6411(a) apply to the filing of an

application for a tentative carryback

adjustment by a consolidated group.

(2) Special rule for new members—(i)

New member. A new member is a

corporation that, in the preceding

taxable year, did not qualify as a

member, as defined in § 1.1502–1(b), of

the consolidated group that it now joins.

(ii) End of taxable year. Solely for the

purpose of complying with the twelvemonth requirement for making an

application for a tentative carryback

adjustment under section 6411(a), the

separate return year of a qualified new

member shall be treated as ending on

the same date as the end of the current

taxable year of the consolidated group

that the qualified new member joins.

(iii) Qualified new member. A new

member of a consolidated group

33464 Federal Register / Vol. 66, No. 121 / Friday, June 22, 2001 / Rules and Regulations

qualifies for purposes of the provisions

of this paragraph (e)(2) if, immediately

prior to becoming a new member,

either—

(A) It was the common parent of a

consolidated group; or

(B) It was not required to join in the

filing of a consolidated return.

(iv) Examples. The provisions of this

paragraph (e)(2) may be illustrated by

the following examples:

Example 1. Individual A owns 100 percent

of the stock of X, a corporation that is not a

member of a consolidated group and files

separate tax returns on a calendar year basis.

On January 31 of year 1, X becomes a

member of the Y consolidated group, which

also files returns on a calendar year basis. X

is a qualified new member as defined in

paragraph (e)(2)(iii)(B) of this section

because, immediately prior to becoming a

new member of the Y consolidated group, X

was not required to join in the filing of a

consolidated return. As a result of its

becoming a new member of Group Y, X’s

separate return for the short taxable year

(January 1 of year 1 through January 31 of

year 1) is due September 15 of year 2 (with

extensions). See § 1.1502–76(c). Group Y’s

consolidated return is also due September 15

of year 2 (with extensions). See § 1.1502–

76(c). Solely for the purpose of complying

with the twelve-month requirement for

making an application for a tentative

carryback adjustment under section 6411(a),

X’s taxable year for the separate return year

is treated as ending on December 31 of year

1. X’s application for a tentative carryback

adjustment is therefore due on or before

December 31 of year 2.

Example 2. Assume the same facts as in

Example 1 except that immediately prior to

becoming a new member of Group Y, X was

a member of the Z consolidated group.

Because X was required to join in the filing

of the consolidated return for Group Z, X is

not a qualified new member as defined in

paragraph (e)(2)(iii) of this section. X’s items

for the one-month period will be included in

the consolidated return for Group Z. Group

Z’s application for a tentative carryback

adjustment, if any, continues to be due

within 12 months of the end of its taxable

year, which is not affected by X’s change in

status as a new member of Group Y.

(v) Effective date. The provisions of

this paragraph (e)(2) apply for

applications by new members of

consolidated groups for tentative

carryback adjustments resulting from

net operating losses, net capital losses,

or unused business credits arising in

separate return years of new members

that begin on or after January 1, 2001.

§ 1.1502–78T [Removed]

Par. 3. Section 1.1502–78T is

removed.

Approved: June 13, 2001.

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

Mark A. Weinberger,

Assistant Secretary of the Treasury.

[FR Doc. 01–15576 Filed 6–21–01; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 8951]

RIN 1545–AV00

Withdrawal of Notice of Federal Tax

Lien in Certain Circumstances

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulation.

SUMMARY: This document contains final

regulations relating to the withdrawal of

notices of federal tax liens in certain

circumstances. The final regulations

reflect changes made to section 6323 of

the Internal Revenue Code of 1986 by

the Taxpayer Bill of Rights 2. The final

regulations affect all taxpayers seeking

withdrawals of notices of federal tax

liens.

EFFECTIVE DATE: June 22, 2001.

FOR FURTHER INFORMATION CONTACT:

Kevin B. Connelly, (202) 622–3630 (not

a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments

to the Procedure and Administration

Regulations (26 CFR part 301) relating to

the withdrawal of notices of federal tax

liens under section 6323 of the Internal

Revenue Code (Code). Section 501(a) of

the Taxpayer Bill of Rights 2 (TBOR2),

Public Law 104–168, 110 Stat. 1452

(1996), amended section 6323 to

authorize the Secretary to withdraw a

notice of federal tax lien in certain

limited circumstances. Section 501(a)

also requires the Secretary to notify

credit reporting agencies, financial

institutions and creditors of the

withdrawal upon the written request of

the taxpayer. On June 30, 1999, a notice

of proposed rulemaking reflecting these

changes was published in the Federal

Register (64 FR 35102). Several parties

commented on the notice of proposed

rulemaking and a hearing was held on

November 30, 1999. The final

regulations are adopted with minor

changes.

Explanation of Provisions

Section 501(a) of TBOR2 amended

section 6323 of the Code by authorizing

the Secretary to withdraw a notice of

federal tax lien under certain conditions

and providing that upon written request

of the taxpayer the Secretary will notify

any credit reporting agency and any

financial institution or creditor

identified by the taxpayer. These

regulations implement section 501(a).

The proposed regulations provided

that the district director had the

authority to withdraw a notice of federal

tax lien if the district director

determined that one of the four

conditions enumerated in paragraph (b)

of the regulations existed. Because of

the reorganization of the Internal

Revenue Service (IRS), which

eliminated the district director position,

the final regulations provide that the

Commissioner or his delegate

(Commissioner) may withdraw a notice

of federal tax lien under the proper

conditions.

The notice of federal tax lien is

withdrawn by filing a notice of

withdrawal in the office in which the

notice of federal tax lien is filed and

providing the taxpayer with a copy of

the notice. Following the withdrawal of

a notice of federal tax lien, chapter 64

of subtitle F, relating to collection, is

applied as if the IRS had never filed a

notice of federal tax lien. The

withdrawal of a notice of federal tax lien

does not affect the underlying tax lien.

The withdrawal simply relinquishes any

lien priority the IRS had obtained under

section 6323 of the Code when the IRS

filed the notice being withdrawn.

Paragraph (b) of the regulations

provides that the Commissioner has the

authority to withdraw a notice of federal

tax lien if one of the following

conditions exists: (1) The filing of the

notice of federal tax lien was premature

or otherwise not in accordance with the

administrative procedures of the

Secretary; (2) the taxpayer has entered

into an agreement under section 6159 to

satisfy the liability for which the lien

was imposed by means of installment

payments, unless the agreement by its

terms provides that the notice will not

be withdrawn; (3) the withdrawal of

notice will facilitate collection of the tax

liability for which the lien was imposed;

or (4) the withdrawal of notice is in the

best interests of the taxpayer and the

United States.

A new example has been added

(Example 1) that illustrates when the

Commissioner may withdraw a notice of

federal tax lien under paragraph (b)(1)

because the IRS failed to follow

administrative procedures when filing