2364 Federal Register / Vol. 60, No. 5 / Monday, January 9, 1995 / Proposed Rules

basis. The $1,000 basis increase is allocated

between Properties A1 and A2 based on the

unrealized appreciation in each asset before

such basis adjustment. As a result, the

adjusted tax basis of Property A1 is increased

by $167 ($1,000×$500/$3,000) and the

adjusted tax basis of Property A2 is increased

by $833 ($1,000×$2,500/3,000).

§ 1.737–4 Anti-abuse rule.

(a) In general. The rules of section 737

and §§ 1.737–1, 1.737–2, and 1.737–3

must be applied in a manner consistent

with the purpose of section 737.

Accordingly, if a principal purpose of a

transaction is to achieve a tax result that

is inconsistent with the purpose of

section 737, the Commissioner can

recast the transaction for federal tax

purposes as appropriate to achieve tax

results that are consistent with the

purpose of section 737. Whether a tax

result is inconsistent with the purpose

of section 737 must be determined

based on all the facts and

circumstances. See § 1.704–4(f) for an

anti-abuse rule and examples in the

context of section 704(c)(1)(B). The antiabuse rule and examples under section

704(c)(1)(B) and § 1.704–4(f) are relevant

to section 737 and §§ 1.737–1, 1.737–2,

and 1.737–3 to the extent that the net

precontribution gain for purposes of

section 737 is determined by reference

to section 704(c)(1)(B).

(b) Examples. The following examples

illustrate the rules of this section. The

examples set forth below do not

delineate the boundaries of either

permissible or impermissible types of

transactions. Further, the addition of

any facts or circumstances that are not

specifically set forth in an example (or

the deletion of any facts or

circumstances) may alter the outcome of

the transaction described in the

example. Unless otherwise specified,

partnership income equals partnership

expenses (other than depreciation

deductions for contributed property) for

each year of the partnership, the fair

market value of partnership property

does not change, all distributions by the

partnership are subject to section 737,

and all partners are unrelated.

Example 1. Increase in distributee

partner’s basis by temporary contribution;

results inconsistent with the purpose of

section 737. (i) On January 1, 1995, A, B, and

C form partnership ABC as equal partners. A

contributes Property A1, nondepreciable real

property with a fair market value of $10,000

and an adjusted tax basis of $1,000. B

contributes Property B, nondepreciable real

property with a fair market value of $10,000

and an adjusted tax basis of $10,000. C

contributes $10,000 cash.

(ii) On January 1, 1999, pursuant to a plan

a principal purpose of which is to avoid gain

under section 737, A contributes to the

partnership Property A2, nondepreciable real

property with a fair market value and

adjusted tax basis of $9,000. A, therefore,

increased the adjusted tax basis of A’s

partnership interest from $1,000 to $10,000.

The partnership agreement is amended and

all other necessary steps are taken so that

substantially all of the economic risks and

benefits of Property A2 are retained by A. On

February 1, 1999, Property B is distributed to

A in partial liquidation of A’s interest in the

partnership. If the contribution of Property

A2 is taken into account for purposes of

section 737, there is no excess distribution

because the fair market value of distributed

Property B ($10,000) does not exceed the

adjusted tax basis of A’s interest in the

partnership ($10,000), and therefore section

737 does not apply. A’s adjusted tax basis in

distributed Property B is $10,000 under

section 732(a)(1) and the adjusted tax basis

of A’s partnership interest is reduced to zero

under section 733.

(iii) On March 1, 2000, A receives Property

A2 from the partnership in complete

liquidation of A’s interest in the partnership.

A recognizes no gain on the distribution of

Property A2 because the property was

previously contributed property. See § 1.737–

2(d).

(iv) Although the contribution of Property

A2 increases the adjusted tax basis of A’s

interest in the partnership (assuming it was

a valid contribution to the partnership under

section 721), it would be inconsistent with

the purpose of section 737 to recognize the

contribution of Property A2 to the

partnership as in substance a bona fide

contribution of an asset used in the conduct

of joint business activity. Section 737

requires recognition of gain when the value

of distributed property exceeds the

distributee partner’s adjusted tax basis in the

partnership interest. Section 737 assumes

that any contribution or other transaction

that affects a partner’s adjusted tax basis in

the partnership interest is not a transitory

contribution or transaction engaged in with

a principal purpose of avoiding recognition

of gain under section 737. Because the

contribution of Property A2 was a transitory

contribution made with a principal purpose

of avoiding recognition of gain under section

737, the Commissioner can disregard the

contribution of Property A2 for this purpose.

As a result, A recognizes gain of $9,000

under section 737 on the receipt of Property

B, an amount equal to the lesser of the excess

distribution of $9,000 ($10,000 fair market

value of distributed Property B less the

$1,000 adjusted tax basis of A’s partnership

interest, determined without regard to the

transitory contribution of Property A2) or A’s

net precontribution gain of $9,000 on

Property A1.

Example 2. Increase in distributee

partner’s basis; section 752 liability shift;

results consistent with the purpose of section

737. (i) On January 1, 1995, A and B form

general partnership AB as equal partners. A

contributes Property A, nondepreciable real

property with a fair market value of $10,000

and an adjusted tax basis of $1,000. B

contributes Property B, nondepreciable real

property with a fair market value and

adjusted tax basis of $10,000. The

partnership also borrows $10,000 on a

recourse basis and purchases Property C. The

$10,000 liability is allocated equally between

A and B under section 752, thereby

increasing the adjusted tax basis in A’s

partnership interest to $6,000.

(ii) On December 31, 1998, the partners

agree that A is to receive Property B in partial

liquidation of A’s interest in the partnership.

If A were to receive Property B at that time,

A would recognize $4,000 of gain under

section 737, an amount equal to the lesser of

the excess distribution of $4,000 ($10,000 fair

market value of Property B less $6,000

adjusted tax basis in A’s partnership interest)

or A’s net precontribution gain of $9,000

($10,000 fair market value of Property A less

$1,000 adjusted tax basis of Property A).

(iii) With a principal purpose of avoiding

such gain, A and B agree that A will be solely

liable for the repayment of the $10,000

partnership liability and take the steps

necessary so that the entire amount of the

liability is allocated to A under section 752.

The adjusted tax basis in A’s partnership

interest is thereby increased from $6,000 to

$11,000 to reflect A’s share of the $5,000 of

liability previously allocated to B. As a result

of this increase in A’s adjusted tax basis,

there is no excess distribution because the

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 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.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 95–171 Filed 1–6–95; 8:45 am]

BILLING CODE 4830–01–U

DEPARTMENT OF TRANSPORTATION

Coast Guard

33 CFR Part 110

[CGD 86–079]

RIN 2115–AC96]

Anchorage Regulations; Regulated

Navigation Areas and Limited Access

Areas (CGD 86–079)

AGENCY: Coast Guard, DOT.
Federal Register / Vol. 60, No. 5 / Monday, January 9, 1995 / Proposed Rules 2365

ACTION: Notice of termination.

SUMMARY: This rulemaking project was

initiated to make various administrative

changes to clarify the statutory authority

and purposes of special anchorage areas

and anchorage grounds; remove

references to specific state and local

ordinances governing special anchorage

areas; relocate anchorage grounds

(Subpart B) from Part 110 to a new Part

111; adopt a standardized anchorage

description format using latitudes and

longitudes; and establish a

geographically oriented national

numbering system for anchorages.

Because Coast Guard resources have

been devoted to higher priority issues,

staff to complete this editorial effort has

not been and will not be available in the

foreseeable future to complete this

initiative. Therefore, the Coast Guard is

terminating further rulemaking under

docket number 86–079.

FOR FURTHER INFORMATION CONTACT:

Margie G. Hegy, Project Manager, Short

Range Aids to Navigation Division, U.S.

Coast Guard Headquarters, (202) 267–

0415.

SUPPLEMENTARY INFORMATION:

Responsibility for the administration

and enforcement of anchorage

regulations was transferred from the

U.S. Army Corps of Engineers to the

U.S. Coast Guard in 1967. Many of the

regulations have remained basically

unchanged since that time. In 1979, the

authority to designate special anchorage

areas and anchorage grounds and to

issue regulations pertaining to

anchorage grounds was delegated to

Coast Guard district commanders. State

and local governments have also

promulgated ordinances which apply in

some of these designated anchorages.

On March 11, 1988 (53 FR 7949) the

Coast Guard proposed a number of

editorial changes and a partial

reorganization of the anchorage

regulations in 33 CFR Part 110. After

reviewing the comments received as a

result of the NPRM, the Coast Guard

published a Supplemental Notice of

Proposed Rulemaking on December 5,

1988 (53 FR 48935) proposing to expand

the editorial revision of Part 110 to

include creating a new Part 111 and

standardizing the format for anchorage

descriptions by using latitudes and

longitudes.

Because Coast Guard resources have

been devoted to higher priority issues,

staff to complete this extensive editorial

effort has not been and will not be

available in the foreseeable future to

complete this initiative. Therefore, due

to the time that has lapsed since the last

section (1988) and the lack of resources

to complete this rulemaking, the Coast

Guard is terminating further rulemaking

under docket number 86–079. This

subject may be further reviewed and, as

resources permit, future rulemaking

projects initiated as needed.

Dated: December 30, 1994.

G.A. Penington,

Rear Admiral, U.S. Coast Guard Chief, Office

of Navigation Safety and Waterway Services.

[FR Doc. 95–435 Filed 1–6–95; 8:45 am]

BILLING CODE 4910–14–M

LIBRARY OF CONGRESS

Copyright Office

37 CFR Part 201

[Docket No. RM 89–2A]

Cable Compulsory License: Notice of

Inquiry Regarding Merger of Cable

Systems and Individual Pricing of

Broadcast Signals

AGENCY: Copyright Office, Library of

Congress.

ACTION: Extension of comment period.

SUMMARY: The Copyright Office is

reopening the comment period in

Docket RM 89–2 (Merger of Cable

Systems) to broaden the scope of this

proceeding. Specifically, the Office

seeks comment as to the copyright

royalty implications of a la carte

offerings of broadcast signals by cable

operators and the permissibility of

allocating gross receipts among

subscriber groups for a la carte signals

in computing royalties due under the

cable compulsory license of the

Copyright Act.

DATES: Initial comments should be

received by February 23, 1995. Reply

comments should be received by

February 8, 1995.

ADDRESSES: Interested persons should

submit fifteen copies of their written

comments, if delivered by mail, to:

Copyright GC/I&R, P. O. Box 70400,

Southwest Station, Washington, D.C.

20024. If delivered by hand, fifteen

copies should be brought to: Office of

the General Counsel, James Madison

Memorial Building, Room LM–407, 101

Independence Avenue, S.E.,

Washington, D.C. 20540.

FOR FURTHER INFORMATION CONTACT:

Marilyn J. Kretsinger, Acting General

Counsel, Copyright GC/I&R, P. O. Box

70400, Southwest Station, Washington,

D.C. 20024. Telephone (202) 707–8380.

Telefax: (202) 707–8366.

SUPPLEMENTARY INFORMATION:

I. Background

On September 18, 1989, the Copyright

Office published a Notice of Inquiry

(NOI) in Docket No. RM 89–2 to inform

the public that it was examining the

issues of merger and acquisition of cable

systems and their impact on the

computation and reporting of royalties

under the cable compulsory license, 17

U.S.C. 111. 54 FR 38390 (1989). At the

heart of the 1989 NOI were the royalty

filing questions raised by the

application of the ‘‘contiguous

communities’’ provision of the section

111(f) definition of a cable system. That

provision provides that two or more

cable facilities are considered as one

cable system if the facilities are either in

contiguous communities under common

ownership or control or operating from

one headend. See also 37 CFR

201.17(b)(2).

The Office highlighted some of the

difficulties created by cable systems in

contiguous communities becoming a

single system through either merger or

acquisition by a common owner:

For example, assume a situation where

there are two completely independent but

contiguous cable systems. System A carries

two non-permitted (3.75% rate) independent

station signals and System B, assigned a

different television market, carries the same

two independent station signals but on a

permitted (base rate) basis, plus a

superstation signal on a non-permitted

(3.75% rate) basis. Systems A and B are

purchased by the same parent company and

apparently become a single cable system for

purposes of the compulsory license. The

purchase raises several problematic issues as

to the calculation of the proper royalty fee.

Should the independent stations be paid for

at the 3.75% rate or the non-3.75% rate

system-wide, or should the rates be allocated

among subscribers within the system and, if

so, on what basis? Furthermore, if allocation

is the answer, what rate can be attributed to

new subscribers to the merged system?

Finally, there is the question of the

superstation signal which is only carried by

former cable System B. At the time of

acquisition, should the superstation be

attributed throughout the entire system, even

though many subscribers do not receive the

signal (a so-called ‘phantom’ signal)? And

which system’s market quota (A’s or B’s)

should be used for the entire statement?

54 FR at 38391

Based on the above scenario, the

Office also formally posed a set of

further questions—many of which

addressed the creation of subscriber

groups for attributing signals and

royalty rates. Among these questions

were whether cable operators should be

allowed to attribute distant signals

among their subscribers in accordance

with the conditions that existed prior to