Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Rules and Regulations 66739

fair market value of distributed Property B

($10,000) is less than the adjusted tax basis

of A’s partnership interest. Recognizing A’s

increased adjusted tax basis as a result of the

shift in liabilities is consistent with the

purpose of section 737 and this section.

Section 737 requires recognition of gain only

when the value of the distributed property

exceeds the distributee partner’s adjusted tax

basis in the partnership interest. The $10,000

recourse liability is a bona fide liability of the

partnership that was undertaken for a

substantial business purpose and A’s and B’s

agreement that A will assume responsibility

for repayment of that debt has substance.

Therefore, the increase in A’s adjusted tax

basis in A’s interest in the partnership due

to the shift in partnership liabilities under

section 752 is respected, and A recognizes no

gain under section 737.

§ 1.737–5 Effective date.

Sections 1.737–1, 1.737–2, 1.737–3,

and 1.737–4 apply to distributions by a

partnership to a partner on or after

January 9, 1995.

Dated: December 13, 1995.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved:

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 95–30870 Filed 12–22–95; 8:45 am]

BILLING CODE 4830–01–U

26 CFR Parts 1 and 602

[TD 8638]

RIN 1545–AT44

Certain Transfers of Domestic Stock or

Securities by U.S. Persons to Foreign

Corporations

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Temporary regulations.

SUMMARY: These temporary regulations

provide the public with guidance

necessary to comply with the Tax

Reform Act of 1984. These regulations

amend the Income Tax Regulations with

respect to certain transfers of stock or

securities of domestic corporations by

United States persons to foreign

corporations pursuant to the corporate

organization, reorganization, or

liquidation provisions of the Internal

Revenue Code. This Treasury decision

also removes certain of the existing

temporary regulations regarding

transfers by U.S. persons of stock or

securities of both domestic and foreign

corporations. This action is necessary to

update the existing temporary

regulations and to reflect certain of the

changes announced by Notice 87–85

(1987–2 C.B. 395) (with respect to

transfers of both domestic and foreign

stock or securities) and by Notice 94–46

(1994–1 C.B. 356) (with respect to

transfers of stock or securities of a

domestic corporation). The text of these

temporary regulations also serves as the

text of the proposed regulations set forth

in the notice of proposed rulemaking on

this subject in the Proposed Rules

section of this issue of the Federal

Register. When finalized, the

regulations under section 367(a) relating

to the transfer of stock or securities will

integrate the regulations herein with the

1991 proposed regulations relating to

transfers of stock or securities (see

Proposed Rule §§ 1.367(a)–3 and

1.367(a)–8, published at 56 FR 41993,

August 26, 1991).

EFFECTIVE DATE: April 17, 1994. For

further information, see the

Applicability and Effective Dates

section under SUPPLEMENTARY

INFORMATION.

FOR FURTHER INFORMATION CONTACT:

Philip L. Tretiak at (202) 622–3860 (not

a toll-free number).

SUPPLEMENTARY INFORMATION:

Applicability and Effective Dates

These regulations are generally

applicable to transfers occurring after

April 17, 1994, the effective date of

Notice 94–46. However, the active trade

or business requirement (described in

§ 1.367(a)–3T(c)(1)(iii) of the temporary

regulations herein), which was not

contained in Notice 94–46, is effective

for transfers occurring January 25, 1996.

Moreover, these regulations remove as

‘‘deadwood’’ paragraphs (c)(1) through

(c)(4), (d), (e), (f), (g)(1)(iii) and (h)(1) of

§ 1.367(a)–3T of the existing temporary

regulations with respect to transfers

occurring after December 16, 1987, the

effective date of Notice 87–85.

Paperwork Reduction Act

These regulations are being issued

without prior notice and public

procedure pursuant to the

Administrative Procedure Act (5 U.S.C.

553). For this reason, the collection of

information contained in these

regulations has been reviewed and,

pending receipt and evaluation of

public comments, approved by the

Office of Management and Budget under

control number 1545–1478. Responses

to this collection of information are

required in order for U.S. shareholders

that transfer stock or securities in

section 367(a) exchanges to qualify for

an exception to the general rule of

taxation under section 367(a)(1).

An agency may not conduct or

sponsor, and a person is not required to

respond to, a collection of information

unless the collection of information

displays a valid control number.

For further information concerning

this collection of information, and

where to submit comments on the

collection of information and the

accuracy of the estimated burden, and

suggestions for reducing this burden,

please refer to the preamble to the crossreferencing notice of proposed

rulemaking published in the Proposed

Rules section of this issue of the Federal

Register. 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

On May 16, 1986, temporary and

proposed regulations under sections 367

(a) and (d) and section 6038B were

published in the Federal Register (51

FR 17936). These regulations were

published to provide the public with

guidance necessary to comply with

changes made to the Internal Revenue

Code by the Tax Reform Act of 1984.

Included in the 1986 temporary

regulations was § 1.367(a)–3T,

concerning transfers of stock or

securities of domestic or foreign

corporations by U.S. persons to foreign

corporations. Subsequently, the IRS and

the Treasury Department issued Notice

87–85 (1987–2 C.B. 395), which set forth

substantial changes to be made to

§ 1.367(a)–3T, effective with respect to

transfers occurring after December 16,

1987. A further notice of proposed

rulemaking, containing rules under

section 367(a), as well as under section

367(b), was published in the Federal

Register on August 26, 1991 (56 FR

41993). The 1991 proposed section

367(a) regulations were generally based

upon the positions announced in Notice

87–85, but the regulations made certain

modifications to Notice 87–85,

particularly with respect to transfers of

stock or securities of foreign

corporations.

Most recently, the IRS and the

Treasury Department issued Notice 94–

46 (1994–1 C.B. 356), announcing

modifications to the positions set forth

in Notice 87–85 (and the 1991 proposed

regulations) with respect to transfers of

stock or securities of domestic

corporations occurring after April 17,

1994. The temporary regulations set

forth herein generally incorporate the

modifications announced in Notice 94–

46. The notice of proposed rulemaking

on this subject in the Proposed Rules

section of this issue of the Federal
66740 Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Rules and Regulations

Register supplements and, where

inconsistent with, supersedes, the 1991

proposed regulations with respect to

transfers of domestic stock or securities

occurring after April 17, 1994.

Notice 94–46 announced that the

regulations under section 367(a) would

be amended to deny nonrecognition

treatment to the transfer of stock or

securities of a domestic corporation by

a U.S. person to a foreign corporation if

all U.S. transferors owned in the

aggregate 50 percent or more of either

the total voting power or the total value

of the stock of the transferee foreign

corporation immediately after the

exchange. (Under the approach taken in

Notice 87–85, transfers of domestic

stock or securities occurring prior to

April 18, 1994 (and after December 16,

1987) were generally denied

nonrecognition treatment only in the

case of a single U.S. transferor that

owned more than 50 percent of the total

voting power or the total value of the

stock of the transferee foreign

corporation immediately after the

transfer or of a U.S. transferor that held

at least 5 percent (but no more than 50

percent) of the total voting power or the

total value of the stock of the transferee

foreign corporation immediately after

the transfer and that failed to enter into

a gain recognition agreement.)

In Notice 94–46, the IRS and the

Treasury Department invited comments

on possible exceptions to the general

rule set forth in the Notice, specifically

with respect to cases where (i) a

domestic corporation is acquired by a

foreign corporation that is engaged in an

active trade or business and that, prior

to the transaction, is unrelated to the

acquired corporation or its shareholders,

or (ii) the transferee foreign corporation

is a controlled foreign corporation

(within the meaning of section 957) after

the transfer. After consideration of the

comments received, the IRS and the

Treasury Department have concluded

that no exceptions to the general rule

are warranted.

In the Notice, the IRS and the

Treasury Department also invited

specific comment on whether special

rules should be provided to determine

the ownership of the transferee foreign

corporation in cases where the

corporation is publicly traded. As

described below, in response to

comments received, the ‘‘crossownership’’ rules of Notice 94-46 have

been modified in a way that will

ameliorate the burdens of identifying

shareholders of publicly traded (or

widely-held) corporations and that

should reduce the impact of the general

rule on business combinations involving

unrelated U.S. and foreign corporations

that are engaged in the active conduct

of a trade or business.

Need for Temporary Regulations

The rules contained in this Treasury

decision provide taxpayers with

guidance necessary to comply with

Notice 94-46, which was effective with

respect to transfers of stock or securities

of domestic corporations to foreign

corporations occurring after April 17,

1994. The provisions of Notice 94–46

were made immediately effective to

forestall certain tax-avoidance transfers

by U.S. persons of the stock of U.S.-

based multinationals to foreign

corporations. Because of the Notice’s

immediate effective date, there is a need

for implementing regulations on which

both taxpayers and the Service may rely

with respect to current transfers.

Based on these considerations, it is

determined that immediate regulatory

guidance will ensure the efficient

administration of the tax laws and that

it would be impracticable and contrary

to the public interest to issue this

Treasury decision with prior notice

under section 553(b) or subject to the

effective date limitation of section

553(d) of title 5 of the United States

Code.

Explanation of Provisions

Section 367(a)(1) generally treats a

transfer of property (including stock or

securities) by a U.S. person to a foreign

corporation in connection with an

exchange described in section 332, 351,

354, 356 or 361 as a taxable exchange

unless the transfer qualifies for an

exception to this general rule.

Temporary regulations published on

May, 16, 1986 (TD 8087) provided

exceptions in the case of certain

transfers of stock or securities of

domestic and foreign corporations (see

§ 1.367(a)-3T). Notice 87–85 announced

modifications to those exceptions for

transfers of domestic or foreign stock or

securities occurring after December 16,

1987. Proposed regulations issued on

August 26, 1991 largely incorporated

the positions set forth in Notice 87–85,

and expanded the application of section

367(a) with respect to certain transfers

of stock or securities of foreign

corporations. Notice 94–46 announced

modifications to the exceptions

originally announced in Notice 87–85,

effective with respect to certain transfers

of stock or securities of domestic

corporations occurring after April 17,

1994.

Both the temporary regulations herein

and the notice of proposed rulemaking

on this subject in the Proposed Rules

section of this issue of the Federal

Register generally incorporate the

positions taken in Notice 94–46, with

modifications as described below. As

indicated previously, Notice 94–46 did

not modify the positions taken in Notice

87–85 governing the transfer of stock or

securities of a foreign corporation. Until

the 1991 proposed regulations are

finalized, the positions originally

announced in Notice 87–85 will

continue to govern the availability of

section 367(a) exceptions for transfers of

stock or securities of foreign

corporations.

In addition to implementing the

positions announced in Notice 94–46,

this Treasury decision removes those

portions of § 1.367(a)–3T of the 1986

temporary regulations that Notice 87–85

announced would no longer be

applicable with respect to stock

transfers occurring after December 16,

1987. This includes removal of the

exceptions in paragraphs (c) (1) through

(4) (providing exceptions for certain

transfers of domestic stock or

securities); of paragraph (d) (providing

exceptions for certain transfers of

foreign stock or securities, including an

exception for transfers to a foreign

corporation organized in the same

foreign country as the corporation the

stock of which is being transferred); of

paragraph (e) (involving exceptions

where stock is an operating asset or

where there is a consolidation of an

integrated business); and of paragraph

(f) (exceptions where U.S. transferors

obtain a limited interest in the

transferee foreign corporation).

The temporary regulations herein also

incorporate (in paragraph (a)) the 1991

proposed regulations’ restatement of the

general rule applicable to outbound

stock transfers (see Prop. Reg.

§ 1.367(a)–3(a)). This restatement revises

the general rule contained in the 1986

temporary regulations to reflect changes

to section 367 made by Congress after

promulgation of those regulations. For

example, the 1986 temporary

regulations’ statement of the general

rule included transfers of stock or

securities in section 332 liquidations as

one of the transactions covered by

section 367(a) (see § 1.367(a)–3T(a)).

The restatement of the general rule in

the temporary regulations herein

removes the reference to section 332

because an outbound transfer of stock or

securities pursuant to a section 332

liquidation is now covered by section

367(e)(2) and the regulations under

§ 1.367(e)–2T. Even though the

temporary regulations under § 1.367(e)–

2T have sunset (because they were

promulgated as temporary regulations

on January 12, 1990 (TD 8280) and were

not finalized within three years of that

date), the Service announced its
Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Rules and Regulations 66741

intention to follow the principles of

those regulations in the preamble to the

final regulations under section 367(e)(1)

(see the preamble to the final section

367(e)(1) regulations in TD 8472,

adopted January 15, 1993).

The revised statement of the general

rule herein refers explicitly to transfers

that may be indirect or constructive.

Thus, transactions that are

recharacterized as indirect or

constructive stock transfers will be

subject to the section 367(a) stock

transfer regulations and will be taxable

unless an exception applies.

The restatement of the general rule

herein is not intended to change the

1986 temporary regulations’ treatment

of a case in which stock or securities of

a foreign corporation are transferred

pursuant to a reorganization described

in section 368(a)(1)(B), including a

transaction that is described in both

section 368(a)(1)(B) and section 351. It

is anticipated, however, that the final

regulations issued with respect to an

outbound transfer of foreign stock or

securities will incorporate the

principles of the 1991 proposed

regulations, and thus, for example, a

transaction described in both section

368(a)(1)(B) and section 351 will be

subject to section 367(a).

Notice 87–85 and the 1991 Proposed

Regulations

Under Notice 87–85 and the 1991

proposed regulations, a U.S. transferor

of stock or securities that owns five

percent or more of either the total voting

power or the total value of the transferee

foreign corporation immediately after

the transfer generally is not subject to

current taxation under section 367(a)(1)

if that transferor enters into a gain

recognition agreement (GRA). The term

of the GRA is five years if all U.S.

transferors, in the aggregate, own less

than 50 percent of both the total voting

power and the total value of the stock

of the transferee foreign corporation

immediately after the transfer, or ten

years if the U.S. transferors, in the

aggregate, own 50 percent or more of

either the total voting power or the total

value of the stock of the transferee

foreign corporation immediately after

the transfer. U.S. transferors that own an

interest of less than 5 percent in the

transferee foreign corporation

immediately after the transfer are not

taxable under section 367(a)(1) and are

not required to enter into a GRA. If a

single U.S. transferor transfers stock or

securities of a domestic corporation and

owns directly or by attribution more

than 50 percent of either the total voting

power or the total value of the stock of

the transferee foreign corporation

immediately after the transfer, gain is

recognized on the exchange.

The determination whether (i) a U.S.

transferor owns five percent or more of

the transferee foreign corporation

immediately after the transfer, (ii) U.S.

transferors own in the aggregate 50

percent or more of the transferee foreign

corporation (and, thus, whether a 10-

year GRA is required), or (iii) a single

U.S. transferor owns more than 50

percent of the transferee foreign

corporation (and, thus, whether gain is

recognized) takes into account both

stock of the transferee foreign

corporation received by the U.S.

transferor(s) in the exchange and stock

in the transferee foreign corporation

owned by the U.S. transferor(s)

independent of the exchange (referred to

as cross-ownership).

Notice 87–85 and the 1991 proposed

regulations presume that U.S.

transferors own in the aggregate 50

percent or more of the total voting

power or the total value of the transferee

foreign corporation immediately after

the transfer (and thus a ten-year GRA is

required), unless U.S. transferors can

demonstrate otherwise (referred to as

the ownership presumption). The

ownership presumption contained in

both the Notice and the 1991 proposed

regulations actually consists of two

rebuttable presumptions, one relating to

ownership of stock in the U.S.

corporation the stock or securities of

which are transferred (referred to as the

U.S. target company) and the other

relating to ownership of stock in the

transferee foreign corporation.

Under the first presumption, all

persons that exchange U.S. target

company stock (or other property) for

stock of the transferee foreign

corporation in the exchange are

presumed to be U.S. persons. Thus, if

shareholders of the U.S. target company

receive 50 percent or more of the stock

of the transferee foreign corporation in

the exchange, U.S. transferors are

presumed to own 50 percent or more of

the stock of the transferee foreign

corporation immediately after the

transfer. Even if application of this first

presumption does not result in U.S.

transferors being deemed to own at least

50 percent of the total voting power or

the total value of the transferee foreign

corporation immediately after the

transfer, the second presumption may

do so. The second presumption is that

U.S. transferors also own stock of the

transferee foreign corporation

independent of the exchange in an

amount sufficient to bring their total

ownership immediately after the

exchange up to 50 percent. This second

component of the ownership

presumption is referred to as the crossownership presumption.

Notice 94–46

Notice 94–46 modified the exceptions

set forth in Notice 87–85 with respect to

post-April 17, 1994 transfers of stock or

securities of domestic corporations. The

purpose of Notice 94–46 was to forestall

outbound transfers that are structured to

avoid or that lay a foundation for future

avoidance of the Internal Revenue Code

anti-deferral regimes by imposing a

shareholder-level tax on such transfers.

Notice 94–46 stated that regulations

would provide that the transfer of stock

or securities of a domestic corporation

by a U.S. person to a foreign corporation

described in section 367(a) would be

taxable if all U.S. transferors owned, in

the aggregate, 50 percent or more of

either the total voting power or the total

value of the stock of the transferee

corporation immediately after the

exchange. All U.S. transferors,

regardless of their level of ownership,

would be subject to tax in such a case.

The rules of Notice 94–46

incorporated the ownership

presumption of Notice 87–85. As a

result of the cross- ownership aspect of

that presumption, even if U.S.

shareholders receive significantly less

than 50 percent of the stock of a

transferee foreign corporation in an

exchange described in section 367(a),

the transaction could still be taxable. If,

for example, U.S. shareholders of a U.S.

target company received 30 percent of

the stock of a transferee foreign

corporation in an exchange described in

section 367(a)(1), those shareholders

would be presumed to own

independently at least an additional 20

percent of the stock of the transferee

foreign corporation immediately after

the transfer, with the result that the

exchange would be taxable (unless the

cross-ownership presumption were

rebutted). Commentators argued that

where a U.S. target company and a

foreign acquirer were publicly traded or

widely-held, taxpayers’ ability to rebut

the cross-ownership aspect of the

ownership presumption was limited. As

a result, Notice 94–46 potentially had

the effect of forestalling acquisitions of

U.S. public companies by larger foreign

corporations in cases where they were

unrelated and both engaged in the active

conduct of a trade or business.

In response to comments received

from taxpayers, and in particular with

respect to the difficulties of rebutting

the cross-ownership presumption, these

temporary regulations modify positions

taken in Notice 94–46 in two significant

ways. First, the regulations shift the

ownership threshold from ‘‘50 percent
66742 Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Rules and Regulations

or more’’ to ‘‘more than 50 percent’’ so

that a U.S. transferor may qualify for an

exception to section 367(a) in cases

where U.S. transferors, in the aggregate,

receive exactly 50 percent of the stock

of the transferee foreign corporation in

the exchange. The relaxation of the

ownership threshold was intended to

give 50–50 joint ventures involving

unrelated U.S. and foreign corporations

that are engaged in active businesses the

option of using a foreign transferee

corporation. Where a foreign

corporation is smaller than a U.S.

corporation that it acquires, the

transaction will still generally be

taxable; it would not be taxable if the

U.S. participant were the acquiring

corporation in the transaction (or if

another U.S. holding company were the

acquiring corporation). Second,

although the regulation retains the

presumption that shareholders of the

U.S. target company are U.S. persons, it

does not, in general, retain the crossownership presumption and no longer,

as a general matter, takes crossownership into account. The regulation

counts cross-ownership only in the

limited circumstance where U.S.

officers, directors, and 5-percent or

greater shareholders of the U.S. target

company own, in the aggregate, more

than 50 percent of the total voting

power or the total value of the transferee

foreign corporation immediately after

the transfer (a control group case). In

such a case, the exchange is taxable to

all U.S. transferors. The regulation

allows taxpayers to rely on Schedule

13–D or 13–G filings made under the

Securities Exchange Act of 1934 (15

U.S.C. 78m) to identify 5-percent

shareholders of public companies for

this purpose.

Although cross-ownership does not

count toward the 50 percent ownership

threshold (unless the control group case

applies), it is still relevant in

determining whether a U.S. transferor

owns five percent or more of the

transferee foreign corporation under the

rules originally announced in Notice

87–85. Moreover, cross-ownership

continues to be relevant for determining

whether a 5-year or 10-year GRA is

required under the rules originally

announced in 87–85, and, for these

purposes, there continues to be a

rebuttable presumption.

In addition to the two modifications

described above that were made in

response to comments received with

respect to Notice 94–46, these

regulations contain a new active trade or

business requirement not contained in

Notice 94–46, which taxpayers must

meet in order to qualify for an exception

to the general rule of taxation under

section 367(a). The IRS and the Treasury

Department added the active trade or

business requirement to address abuse

potential, in particular, in a case in

which a U.S. target company is smaller

than a foreign acquirer that was formed

and capitalized with a view to enabling

the smaller U.S. company to move

offshore. The IRS and the Treasury

Department believe that this type of

transaction presents an inappropriate

opportunity for avoiding the antideferral regime without payment of the

tax envisioned by Notice 94–46. The IRS

and the Treasury Department believe

that an exception to taxation is proper

only in cases where a combination of

two active businesses is contemplated

and that the opportunity for tax

avoidance is ameliorated when such

businesses have been conducted for a

period of at least 36 months prior to the

exchange. Under the requirement

contained in the regulations, no

exception to taxation is available unless

either the transferee foreign corporation

or an affiliate of that corporation was

engaged in the active conduct of a trade

or business for the entire 36-month

period prior to the exchange, and unless

such business is substantial in relation

to the business conducted by the U.S.

target company. For this purpose, an

affiliate is generally defined by

reference to the rules in section 1504(a)

(without the exclusion of foreign

corporations), and generally includes a

parent, subsidiary or brother-sister

corporation of the transferee foreign

corporation.

To summarize, under the temporary

regulations, a U.S. person that

exchanges stock or securities in a U.S.

corporation for stock of a foreign

corporation in an exchange described in

section 367(a) will be taxable in cases

where:

(i) The 50 percent ownership

threshold is exceeded;

(ii) The control group case applies;

(iii) The active trade or business

requirement is not met; or

(iv) The exchanging U.S. shareholder

owns five percent or more of the stock

of the transferee foreign corporation and

fails to enter into a GRA and/or satisfy

the requirements of section 6038B.

The duration of the GRA in case (iv)

is 5 years if the transferor can

demonstrate that all U.S. transferors in

the aggregate own less than 50 percent

of the total voting power or the total

value of the stock of the transferee

foreign corporation immediately after

the transfer or 10 years if U.S.

transferors own exactly 50 percent (or

more than 50 percent as a result of

cross-ownership) of the transferee

foreign corporation immediately after

the transfer. In all cases other than those

enumerated in (i) through (iv) above, a

U.S. person that transfers stock or

securities of a domestic corporation in

exchange for stock of a transferee

foreign corporation will not be taxable

under section 367(a) if certain reporting

requirements described in the

regulations are met.

Final regulations under section 367(a)

are expected to address the transfer of

stock or securities of foreign

corporations and other matters

contained in the 1991 proposed

regulations that are not addressed

herein.

Special Analyses

It has been determined that this

temporary regulation is not a significant

regulatory action as defined in

Executive Order 12866. Therefore, a

regulatory assessment is not required. It

also has been determined that this

regulation does not have a significant

impact on a substantial number of small

entities. Thus, the Regulatory Flexibility

Act (5 U.S.C. chapter 6) does not apply

to these regulations, and therefore, a

Regulatory Flexibility Analysis is not

required. Pursuant to section 7805(f) of

the Internal Revenue Code, a copy of

these temporary regulations will be

submitted to the Chief Counsel for

Advocacy of the Small Business

Administration for comment on their

impact on small business.

Drafting Information

The principal author of these

regulations is Philip L. Tretiak of the

Office of Associate Chief Counsel

(International), within the Office of

Chief Counsel, Internal Revenue

Service. However, other personnel from

the IRS and Treasury Department

participated in their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and

Recordkeeping requirements.

26 CFR Part 602

Reporting and recordkeeping

requirements.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 1 and 602

are 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 * * *
Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Rules and Regulations 66743

Par. 2. Section 1.367(a)-3T is

amended by revising paragraphs (a), (c),

(d), (e), (f), (g)(1) and (h)(1) to read as

follows:

§ 1.367(a)-3T Treatment of transfers of

stock or securities to foreign corporations

(temporary).

(a) In general. This section provides

rules concerning the transfer of stock or

securities by a U.S. person to a foreign

corporation in an exchange described in

section 367(a). In general, a transfer of

stock or securities by a U.S. person

(directly, indirectly or constructively) to

a foreign corporation that is described in

section 351, 354 (pursuant to a

reorganization described in section

368(a)(1)(B)) or section 361(a) or (b) is

subject to section 367(a)(1) and,

therefore, is treated as a taxable

exchange, unless one of the exceptions

set forth in paragraph (b), (c) or (d) of

this section applies. For additional rules

relating to an exchange involving a

foreign corporation in connection with

which there is a transfer of stock, see

section 367(b) and the regulations under

that section. For additional rules

regarding a transfer of stock or securities

in an exchange described in section

361(a) or (b), see section 367(a)(5) and

any regulations under that section.

* * * * *

(c) Transfers by U.S. persons of stock

or securities of domestic corporations to

foreign corporations—(1) In general.

Except as provided in section 367(a)(5),

a transfer of stock or securities of a

domestic corporation by a U.S. person

to a foreign corporation that would

otherwise be subject to section 367(a)(1)

under paragraph (a) of this section shall

not be subject to section 367(a)(1) if the

domestic corporation the stock or

securities of which are transferred

(referred to as the U.S. target company)

complies with the reporting

requirements in paragraph (c)(4) of this

section and if each of the following four

conditions is met:

(i) Fifty percent or less of both the

total voting power and the total value of

the stock of the transferee foreign

corporation is received in the

transaction, in the aggregate, by U.S.

transferors (i.e., the amount of stock

received does not exceed the 50 percent

threshold).

(ii) No more than 50 percent of each

of the total voting power and the total

value of the stock of the transferee

foreign corporation is owned, in the

aggregate, immediately after the transfer

by U.S. persons who are either officers

or directors of the U.S. target company

or who are five-percent target

shareholders (as defined in paragraph

(c)(6)(iii) of this section) (i.e., there is no

control group). For purposes of this

paragraph (c)(1)(ii), any stock of the

transferee foreign corporation owned by

U.S. persons immediately after the

transfer will be taken into account,

whether or not it was received in the

exchange for stock or securities of the

U.S. target company.

(iii) In the case of a transfer occurring

after January 25, 1996, the transferee

foreign corporation or an affiliate of the

transferee foreign corporation has been

engaged in the active conduct of a trade

or business, within the meaning of

§ 1.367(a)-2T(b)(2) and (3), that is

substantial in comparison to the trade or

business of the U.S. target company, for

the entire 36-month period immediately

preceding the date of the transfer.

(iv) Either—

(A) The U.S. person is not a fivepercent transferee shareholder (as

defined in paragraph (c)(6)(ii) of this

section); or

(B) The U.S. person is a five-percent

transferee shareholder and enters into

an agreement to recognize gain with

respect to the U.S. target company stock

or securities it exchanged in the form

provided in paragraph (g) of this

section, as modified by paragraph (c)(3)

of this section (setting the duration of

the gain recognition agreement).

(2) Ownership Presumption. For

purposes of paragraph (c)(1) of this

section, persons who transfer stock or

securities of the U.S. target company or

other property in exchange for stock of

the transferee foreign corporation are

presumed to be U.S. persons. This

presumption may be rebutted in

accordance with paragraph (c)(4)(ii) of

this section.

(3) Term of the gain recognition

agreement. If, immediately after the

transfer described in section 367(a)(1),

all U.S. transferors own in the aggregate

less than fifty percent of both the total

voting power and the total value of the

stock of the transferee foreign

corporation (counting both stock of the

transferee foreign corporation owned as

a result of the exchange as well as stock

of the transferee foreign corporation

owned independently by such U.S.

transferors), the agreement to recognize

gain shall be in the form specified in

paragraph (g)(3) of this section. The

term of the agreement shall be ten years,

rather than the five years specified in

paragraph (g)(3) of this section, the

waiver described in paragraph (g)(4) of

this section shall extend the period for

assessment of tax for an additional five

years, and the certification and waiver

described in paragraph (g)(5) of this

section must be filed for an additional

five years if—

(i) The five-percent transferee

shareholder cannot determine whether

the condition in the preceding sentence

is satisfied; or

(ii) Immediately after the transfer, all

U.S. transferors own in the aggregate

fifty percent or more of either the total

voting power or the total value of the

stock of the transferee foreign

corporation (counting both stock of the

transferee foreign corporation owned as

a result of the exchange, as well as stock

of the transferee foreign corporation

owned independently by such U.S.

transferors).

(4) Reporting requirements of U.S.

target company. (i) In order for a U.S.

person that transfers stock or securities

of a domestic corporation to qualify for

the exception to the general rule under

section 367(a)(1) provided by this

paragraph (c), the U.S. target company

must comply with the reporting

requirements contained in this

paragraph (c)(4). The U.S. target

company must attach to its timely filed

U.S. income tax return (or a subsequent,

timely filed amended return) for the

taxable year in which the transfer occurs

a statement titled ‘‘Section 367(a)—

Reporting of Cross-Border Transfer

Under Reg. § 1.367(a)–3T(c)(4),’’ signed

under penalties of perjury by an officer

of the corporation, disclosing the

following information—

(A) A description of the transaction in

which a U.S. person or persons

transferred stock or securities in the

U.S. target company to the transferee

foreign corporation in a transfer

otherwise subject to section 367(a)(1);

(B) The amount (specified as to the

percentage of the total voting power and

the total value) of stock of the transferee

foreign corporation received in the

transaction, in the aggregate, by persons

who transferred stock or securities of

the U.S. target company or other

property. For additional information

that may be required to rebut the

ownership presumption of paragraph

(c)(2) of this section in cases where

more than 50 percent of either the total

voting power or the total value of the

stock of the transferee foreign

corporation is received in the

transaction, in the aggregate, by persons

who transferred stock or securities of

the U.S. target company or other

property, see paragraph (c)(4)(ii) of this

section;

(C) The amount (if any) of transferee

foreign corporation stock owned

directly or indirectly (applying the

attribution rules of sections 267(c)(1)

and (5)) immediately after the exchange

by the U.S. target company;
66744 Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Rules and Regulations

(D) A statement that there is no

control group within the meaning of

paragraph (c)(1)(ii) of this section;

(E) A list of U.S. persons who are

officers, directors or five-percent target

shareholders and the percentage of the

total voting power and the total value of

the stock of the transferee foreign

corporation owned by such persons

both immediately before and

immediately after the transaction; and

(F) A statement that the active trade

or business test described in paragraph

(c)(1)(iii) of this section is satisfied by

the transferee foreign corporation or an

affiliate and a description of such

business.

(ii) To rebut the ownership

presumption of paragraph (c)(2) of this

section, the U.S. target company must

obtain ownership statements (described

in paragraph (c)(6)(i) of this section)

from a sufficient number of persons that

transfer U.S. target company stock or

securities (or other property) in the

transaction that are not U.S. persons to

demonstrate that the 50 percent

threshold is not exceeded. In addition,

the U.S. target company must attach to

its timely filed U.S. income tax return

(or a subsequent, timely filed amended

return) for the taxable year in which the

transfer occurs a statement, titled

‘‘Section 367(a)—Compilation of

Ownership Statements under Reg.

§ 1.367(a)– 3T(c),’’ signed under

penalties of perjury by an officer of the

corporation, disclosing the following

information:

(A) The amount (specified as to the

percentage of the total voting power and

the total value) of stock of the transferee

foreign corporation received, in the

aggregate, by U.S. transferors;

(B) The amount (specified as to the

percentage of total voting power and

total value) of stock of the transferee

foreign corporation received, in the

aggregate, by foreign persons that filed

ownership statements;

(C) A summary of the information

tabulated from the ownership

statements, including—

(1) The names of the persons that filed

ownership statements stating that they

are not U.S. persons;

(2) The countries of residence and

citizenship of such persons; and

(3) The ownership of such persons (by

voting power and by value) in the U.S.

target company prior to the exchange

and the amount of stock of the

transferee foreign corporation (by voting

power and value) received by such

persons in the exchange.

(iii) For purposes of paragraph (c)(4),

an income tax return (including an

amended return) will be considered

timely filed if it is filed prior to the time

that the Internal Revenue Service

discovers that the reporting

requirements of this paragraph have not

been satisfied.

(5) Special Rules—(i) Treatment of

partnerships. For purposes of paragraph

(c), if a partnership (whether domestic

or foreign) owns or transfers stock or

securities or other property in an

exchange described in section 367(a),

each partner in the partnership, and not

the partnership itself, is treated as

owning and as having transferred a

proportionate share of the stock or

securities or other property. See

§ 1.367(a)–1T(c)(3).

(ii) Treatment of options. For

purposes of paragraph (c) of this section,

one or more options (or an interest

similar to an option) will be treated as

exercised and thus will be counted as

stock for purposes of determining

whether the 50 percent threshold is

exceeded or whether a control group

exists if a principal purpose of the

issuance or the acquisition of the option

(or other interest) was the avoidance of

the general rule contained in section

367(a).

(iii) U.S. target has a vestigial

ownership interest in transferee foreign

corporation. In cases where,

immediately after the transfer, the U.S.

target company owns, directly or

indirectly (applying the attribution rules

of sections 267(c) (1) and (5)) stock of

the transferee foreign corporation, that

stock will not in any way be taken into

account (and, thus, will not be treated

as outstanding) in determining whether

the 50 percent threshold under

paragraph (c)(1)(i) of this section is

exceeded or whether a control group

under paragraph (c)(1)(ii) of this section

exists.

(iv) Attribution rule. The rules of

section 958 shall apply for purposes of

determining the ownership of stock,

securities or other property under this

paragraph (c).

(6) Definitions—(i) Ownership

statement. An ownership statement is a

statement, signed under penalties of

perjury, stating—

(A) The identity and taxpayer

identification number, if any, of the

person making the statement;

(B) That the person making the

statement is not a U.S. person (as

defined in paragraph (c)(6)(iv) of this

section);

(C) That the person making the

statement is not related to any U.S.

person to whom the stock or securities

owned by the person making the

statement are attributable under the

rules of section 958, or, if stock or

securities are so attributable, the

identity and taxpayer identification

number of the relevant U.S. person;

(D) The citizenship, permanent

residence, home address, and U.S.

address, if any, of the person making the

statement; and

(E) The ownership such person has

(by voting power and by value) in the

U.S. target company prior to the

exchange and the amount of stock of the

transferee foreign corporation (by voting

power and value) received by such

person in the exchange.

(ii) Five-percent transferee

shareholder. A five-percent transferee

shareholder is a person that owns at

least five percent of either the total

voting power or the total value of the

stock of the transferee foreign

corporation immediately after the

transfer described in section 367(a)(1).

For special rules involving cases in

which stock is held by a partnership,

see paragraph (c)(5)(i) of this section.

(iii) Five-percent target shareholder. A

five-percent target shareholder is a

person that owns at least five percent of

either the total voting power or the total

value of the stock of the U.S. target

company immediately prior to the

transfer described in section 367(a)(1). If

the stock of the U.S. target company is

described in Rule 13d–1(d) of

Regulation 13D (17 CFR 240.13d–1(d))

(or any rule or regulation to generally

the same effect), promulgated by the

Securities and Exchange Commission

under the Securities Exchange Act of

1934 (15 USC 78m), the existence or

absence of filings of Schedule 13–D or

13–G (or any similar schedules) may be

relied upon for purposes of identifying

five-percent target shareholders. For

special rules involving cases in which

U.S. target company stock is held by a

partnership, see paragraph (c)(5)(i) of

this section.

(iv) U.S. Person. For purposes of this

section, a U.S. person is defined by

reference to § 1.367(a)–1T(d)(1). For

application of the rules of this section

to stock or securities owned or

transferred by a partnership that is a

U.S. person, however, see paragraph

(c)(5)(i) of this section.

(v) U.S. Transferor. A U.S. transferor

is a U.S. person (as defined in paragraph

(c)(6)(iv) of this section) who transfers

directly, indirectly or constructively

stock or securities of the U.S. target

company or other property in exchange

for stock of the transferee foreign

corporation in an exchange described in

section 367.

(vi) Transferee foreign corporation. A

transferee foreign corporation is the

foreign corporation whose stock is

received in the exchange by U.S.

persons.
Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Rules and Regulations 66745

(vii) Affiliate. An affiliate is a

corporation that is a member of the

same affiliated group (as defined in

section 1504(a), without regard to

section 1504(b)(3)) as the transferee

foreign corporation.

(7) Certain transfers in connection

with performance of services. Section

367(a)(1) shall not apply to a domestic

corporation’s transfer of its own stock or

securities in connection with the

performance of services, if the transfer

is considered to be to a foreign

corporation solely by reason of § 1.83–

6(d)(1).

(8) Examples. This paragraph (c) may

be illustrated by the following

examples:

Example 1. Ownership presumption. (i) FC,

a foreign corporation, issues 51 percent of its

stock to the shareholders of S, a domestic

corporation, in exchange for their S stock, in

a transaction described in section 367(a)(1).

(ii) Under paragraph (c)(2) of this

section, all shareholders of S who

receive stock of FC in the exchange are

presumed to be U.S. persons. Unless

this ownership presumption is rebutted,

the condition set forth in paragraph

(c)(1)(i) of this section will not be

satisfied, and the exception in

paragraph (c)(1) of this section will not

be available. As a result, all U.S. persons

that transferred S stock will recognize

gain on the exchange. To rebut the

ownership presumption, S must comply

with the reporting requirements

contained in paragraph (c)(4)(ii) of this

section, obtaining ownership statements

(described in paragraph (c)(6)(i) of this

section) from a sufficient number of

non-U.S. persons who received FC stock

in the exchange to demonstrate that the

amount of FC stock received by U.S.

persons in the exchange does not exceed

50 percent.

Example 2. Filing of Gain Recognition

Agreement. (i) The facts are the same as

in Example 1, except that FC issues only

40 percent of its stock to the

shareholders of S in the exchange. FC

satisfies the active trade or business test

(described in paragraph (c)(1)(iii) of this

section). A, a U.S. person, owns 10

percent of S’s stock immediately before

the transfer. All other shareholders of S

own less than five percent of its stock.

None of S’s officers or directors owns

any stock in FC immediately after the

transfer. A will own 15 percent of the

stock of FC immediately after the

transfer, 4 percent received in the

exchange, and the balance being stock

in FC that A owned prior to and

independent of the transaction. No S

shareholder besides A owns five percent

or more of FC immediately after the

transfer. The reporting requirements

under paragraph (c)(4)(i) of this section

are satisfied.

(ii) The condition set forth in paragraph

(c)(1)(i) of this section is satisfied because,

even after application of the presumption in

paragraph (c)(2) of this section, U.S.

transferors could not receive more than 50

percent of FC’s stock in the transaction.

There is no control group because fivepercent target shareholders and officers and

directors of S do not, in the aggregate, own

more than 50 percent of the stock of FC

immediately after the transfer (A, the sole

five-percent target shareholder, owns 15

percent of the stock of FC immediately after

the transfer, and no officers or directors of S

own any stock of FC immediately after the

transfer). Therefore, the condition set forth in

paragraph (c)(1)(ii) of this section is satisfied

(and A’s cross-ownership of FC stock is not

taken into account). The facts assume that the

condition set forth in paragraph (c)(1)(iii) of

this section is satisfied. Thus, U.S. persons

that are not five-percent transferee

shareholders will not recognize gain on the

exchange of S shares for FC shares. A, a fivepercent transferee shareholder, will not be

required to include in income any gain

realized on the exchange in the year of the

transfer if he files a gain recognition

agreement (GRA) and complies with section

6038B. The duration of the GRA is five years

if all U.S. transferors own in the aggregate

less than 50 percent of the total voting power

and the total value of FC immediately after

the transfer, and ten years if this condition

is not satisfied. If A lacks the information to

determine whether he is eligible to file a fiveyear GRA (because the determination

includes a cross-ownership inquiry for all

U.S. transferors), he is required to file a tenyear GRA.

Example 3. Control Group. (i) The

facts are the same as in Example 2,

except that B, another U.S. person, is a

5- percent target shareholder, owning 25

percent of S’s stock immediately before

the transfer. B owns 40 percent of the

stock of FC immediately after the

transfer, 10 percent received in the

exchange, and the balance being stock

in FC that B owned prior to and

independent of the transaction.

(ii) A control group exists because A

and B, each a five-percent target

shareholder within the meaning of

paragraph (c)(6)(iii) of this section,

together own more than 50 percent of

FC immediately after the transfer

(counting both stock received in the

exchange and stock owned prior to and

independent of the exchange). As a

result, the condition set forth in

paragraph (c)(1)(ii) of this section is not

satisfied, and all U.S. persons (not

merely A and B) who transferred S stock

will recognize gain on the exchange.

Example 4. Partnerships. (i) The facts are

the same as in Example 3, except that B is

a partnership (domestic or foreign) that has

five equal partners, only two of whom, X and

Y, are U.S. persons. X and Y are treated as

the owners and transferors of 5 percent each

of the S stock owned and transferred by B

and as owners of 8 percent each of the FC

stock owned by B immediately after the

transfer. Five-percent target shareholders

thus own a total of 31 percent of the stock

of FC immediately after the transfer (A’s 15

percent, plus X’s 8 percent, plus Y’s 8

percent).

(ii) Because no control group exists,

the condition in paragraph (c)(1)(ii) of

this section is satisfied. The conditions

in paragraphs (c)(1) (i) and (iii) of this

section also are satisfied. Thus, U.S.

persons that are not five- percent

transferee shareholders will not

recognize gain on the exchange of S

shares for FC shares. A, X, and Y, each

a five-percent transferee shareholder,

will not be required to include in

income in the year of the transfer any

gain realized on the exchange if they file

GRAs and comply with section 6038B.

The duration of the GRA is five years if

all U.S. transferors own in the aggregate

less than 50 percent of the total voting

power and the total value of FC

immediately after the transfer, and ten

years if this condition is not satisfied. If

A, X, and Y lack the information to

determine whether they are eligible to

file five-year GRAs (because the

determination includes a crossownership inquiry for all U.S.

transferors), they are required to file tenyear GRAs.

(9) Effective date. This paragraph (c)

applies to transfers occurring after April

17, 1994. However, paragraph (c)(1)(iii)

of this section applies only to transfers

occurring after January 25, 1996. For

transfers occurring before December 17,

1987, see § 1.367(a)–3T(c) (1) through

(4) as contained in 26 CFR Part 1 revised

April 1, 1995.

(d) Transfers of stock or securities of

foreign corporations. For guidance, see

Notice 87–85 (1987–2 C.B. 395). See

§ 601.601(d)(2) of this chapter.

(e) [Reserved.] For transfers occurring

before December 17, 1987, see

§ 1.367(a)–3T(e) as contained in 26 CFR

Part 1 revised April 1, 1995.

(f) [Reserved.] For transfers occurring

before December 17, 1987, see

§ 1.367(a)–3T(f) as contained in 26 CFR

Part 1 revised April 1, 1995.

(g) Transferor’s agreement to

recognize gain upon later disposition by

transferee—(1) In general. A transfer of

stock or securities shall not be subject

to section 367(a)(1) if—

(i) The transferor complies with the

reporting requirements of section 6038B

and any regulations thereunder; and

(ii) The transferor files a binding

agreement to recognize gain upon the

transferee corporation’s later disposition

of the transferred stock or securities, in
66746 Federal Register / Vol. 60, No. 247 / Tuesday, December 26, 1995 / Rules and Regulations

accordance with the rules of this

section.

* * * * *

(h) Anti-abuse rules.

(1) [Reserved.] For transfers occurring

before December 17, 1987, see

§ 1.367(a)–3T(h)(1) as contained in 26

CFR Part 1 revised April 1, 1995.

* * * * *

PART 602—OMB CONTROL NUMBERS

UNDER THE PAPERWORK

REDUCTION ACT

Par. 3. The authority for citation for

part 602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 4. In § 602.101, paragraph (c) is

amended by revising the entry in the

table for ‘‘1.367(a)–3T’’ to read as

follows:

‘‘1.367(a)–3T ................................ 0026

1478’’.

Dated: December 13, 1995.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved:

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 95–30829 Filed 12–22–95; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF TRANSPORTATION

Coast Guard

33 CFR Part 117

[CGD07–94–85]

RIN 2115–AE47

Drawbridge Operation Regulations;

Okeechobee Waterway, FL

AGENCY: Coast Guard, DOT.

ACTION: Final rule.

SUMMARY: The Coast Guard is changing

regulations governing the operation of

the Florida East Coast railroad bridge, at

mile 38.0, at Port Mayaca, Florida, by

removing the authorization for

automatic operation and returning the

draw to manual operation. This action

should accommodate the needs of

railroad traffic, while still providing for

the reasonable needs of navigation.

EFFECTIVE DATE: January 25, 1996.

ADDRESSES: Documents in this preamble

are available for inspection and copying

at 909 SE 1st Ave, room 406 between 7

am and 4 pm Monday through Friday,

except federal holidays. The telephone

number is (305) 536–4103.

FOR FURTHER INFORMATION CONTACT:

Walter Paskowsky, Project Manager,

Bridge Section at (305) 536–4103.

SUPPLEMENTARY INFORMATION:

Drafting Information

The principal persons involved in

drafting this document are Walter

Paskowsky, Project Manager, and LCDR

Robert Wilkins, Project Counsel.

Regulatory History

On August 17, 1995 the Coast Guard

published a notice of proposed

rulemaking entitled Drawbridge

Operations Regulations, Okeechobee

Waterway, Florida in the Federal

Register (FR 60 42827). No adverse

comments were received. A public

hearing was not requested and was not

held.

Background and Purpose

The bridge is normally in the fully

open position displaying flashing green

lights to indicate that vessels may pass.

When a train approaches the bridge, the

lights go to flashing red and a horn

sounds four blasts, and then repeats four

blasts. After an eight minute delay, the

draw lowers and locks, providing the

scanning equipment reveals nothing

under the draw. The draw remains

down for a period of eight minutes or

while all circuits are occupied. After the

train has cleared, the draw opens and

the lights return to flashing green.

Because of declining usage of the rail

line, the bridgeowner, Florida East Coast

Railroad, has requested permission to

operate the span manually.

Discussion of Comments and Changes

Three comments were received in

response to the Notice of Proposed

Rulemaking. The US Army Corps of

Engineers stated the proposed rule

change would not impact navigational

interests using the waterway and,

therefore, had no objection to the

proposed change. The Florida State

Historic Preservation Office indicated

the proposed change would have no

effect on any sites listed or eligible for

listing in the National Register. The US

National Marine Fisheries Service

anticipates the change will have no

impact to resources for which they have

stewardship responsibility. No

objections were received, therefore the

final rule is unchanged from the Notice

of Proposed Rulemaking.

Regulatory Evaluation

This rule is not a significant

regulatory action under section 3(f) of

Executive Order 12866 and does not

require an assessment of potential costs

and benefits under section 6(a)(3) of that

order. It has not been reviewed by the

Office of Management and Budget under

that order. It is not significant under the

regulatory policies and procedures of

the Department of Transportation (DOT)

(44FR 11040; February 26, 1979). The

Coast Guard expects the economic

impact of this proposal to be so minimal

that a full regulatory Evaluation under

paragraph 10e of the regulatory policies

and procedures of DOT (44 FR 11040;

February 26, 1979 is unnecessary. We

conclude this because only a few trains

cross the bridge weekly.

Small Entities

Under the Regulatory Flexibility Act

(5 U.S.C. 601 et seq.), the Coast Guard

must consider whether this rule will

have a significant economic impact on

a substantial number of small entities.

‘‘Small entities’’ include independently

owned and operated small businesses

that are not dominant in their field and

that otherwise qualify as ‘‘small

business concerns’’ under section 3 of

the Small Business Act (15 U.S.C. 632).

Because only a few trains cross the

bridge weekly, the Coast Guard certifies

under 5 U.S.C. 605(b) that this final rule

will not have a significant impact on a

substantial number of small entities.

Collection of Information

This proposal contains no collection

of information requirements under the

Paperwork Reduction Act (44 U.S.C.

3501 et seq.).

Federalism

The Coast Guard has analyzed this

proposal under the principles and

criteria contained in Executive Order

12612, and has determined that this

proposal does not have sufficient

federalism implications to warrant the

preparation of a Federalism Assessment.

Environment

The Coast Guard considered the

environmental impact of this proposal

and concluded that, under section

2.B.2.e.(32)(e) of Commandant

Instruction M16475.1B, promulgation of

operating requirements or procedures

for drawbridges is categorically

excluded from further environmental

documentation. A Categorical Exclusion

Determination is available in the docket.

List of Subjects in 33 CFR Part 117

Bridges.

For the reasons set out in the

preamble, the Coast Guard amends 33

CFR Part 117 as follows:

PART 117—DRAWBRIDGE

OPERATION REGULATIONS

1. The authority citation for Part 117

continues to read as follows: