32654 Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Rules and Regulations

even though no amount has been

charged off within the taxable year. The

purpose of these temporary regulations

is to preserve the portion of a taxpayer’s

bad debt deduction with respect to a

partially worthless debt that

corresponds to the amount the taxpayer

would have been entitled to deduct for

partial worthlessness with respect to the

modified debt if the book basis of the

modified debt were increased to the

same extent as the tax basis of that debt.

Thus, these temporary regulations apply

only if all of the following conditions

are satisfied. First, a significant

modification of a debt instrument

(within the meaning of § 1.1001–3) must

result in a taxpayer’s recognition of gain

under § 1.1001–1(a). In addition, the

debt must have been previously charged

off and deducted by the taxpayer, and

the prior charge-off and deduction must

have satisfied the requirements of

§ 1.166–3(a)(1) and (2). If these

conditions are satisfied, then a modified

debt is deemed to have been charged off

in the year in which gain is recognized.

The amount of the charge-off, however,

is limited to the difference between the

tax basis of the debt and the greater of

the book basis or the fair market value

of the debt.

Both the proposed and the final

regulations under § 1.1001–3 deal only

with modifications of debt instruments.

In response to comments on the

proposed regulations, however, the

temporary regulations contained in this

document provide a limited rule dealing

with a dealer’s assignment of its

position in an interest rate or

commodity swap, or other notional

principal contract to another dealer. If

the assignment is permitted by the terms

of the contract, the assignment will not

be treated as a deemed exchange by the

nonassigning party of the original

contract for a new contract that differs

materially either in kind or in extent.

Thus, an assignment to which the rule

applies does not trigger gain or loss to

the dealer’s counterparty. No inference

is intended with respect to whether an

assignment of rights by one party to

other types of bilateral contracts results

in an exchange or other disposition

under section 1001 by the nonassigning

party.

Effective Dates

The temporary regulations apply to

significant modifications of debt

instruments and assignments of interest

rate swaps, commodity swaps, and other

notional principal contracts occurring

on or after September 23, 1996.

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory

assessment is not required. It also has

been determined that section 553(b) of

the Administrative Procedure Act (5

U.S.C. chapter 5) and the Regulatory

Flexibility Act (5 U.S.C. chapter 6) do

not apply to these regulations, and,

therefore, a Regulatory Flexibility

Analysis is not required. Pursuant to

section 7805(f) of the Internal Revenue

Code, 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 the

regulations concerning the modification

of bad debts is Craig R. Wojay, Office of

the Assistant Chief Counsel (Financial

Institutions and Products), IRS. The

principal author of the regulations

concerning the dealer assignments of

certain notional principal contracts is

Thomas J. Kelly, Office of the Assistant

Chief Counsel (Financial Institutions

and Products), IRS. 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 continues to read in part as

follows:

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

Par. 2. Section 1.166–3T is added to

read as follows:

§ 1.166–3T Partial or total worthlessness

(temporary).

(a)(1) and (2) [Reserved]. For

guidance, see § 1.166– 3(a)(1) and (2).

(3) Significantly modified debt—(i)

Deemed charge-off. If a significant

modification of a debt instrument

(within the meaning of § 1.1001–3)

during a taxable year results in the

recognition of gain by a taxpayer under

§ 1.1001–1(a), and if the requirements of

paragraph (a)(3)(ii) of this section are

met, there is a deemed charge-off of the

debt during that taxable year in the

amount specified in paragraph (a)(3)(iii)

of this section.

(ii) Requirements for deemed chargeoff. A debt is deemed to have been

charged off only if—

(A) The taxpayer (or, in the case of a

debt that constitutes transferred basis

property within the meaning of section

7701(a)(43), a transferor taxpayer) has

claimed a deduction for partial

worthlessness of the debt in any prior

taxable year; and

(B) Each prior charge-off and

deduction for partial worthlessness

satisfied the requirements of paragraphs

(a)(1) and (2) of this section.

(iii) Amount of deemed charge-off.

The amount of the deemed charge-off, if

any, is the amount by which the tax

basis of the debt exceeds the greater of

the fair market value of the debt or the

amount of the debt recorded on the

taxpayer’s books and records reduced as

appropriate for a specific allowance for

loan losses. The amount of the deemed

charge-off, however, may not exceed the

amount of recognized gain described in

paragraph (a)(3)(i) of this section.

(iv) Effective date. This paragraph

(a)(3) is effective September 23, 1996.

(b) [Reserved]. For further guidance,

see § 1.166–3(b).

Par. 3. Section 1.1001–4T is added to

read as follows:

§ 1.1001–4T Modifications of certain

notional principal contracts.

(a) Dealer assignments. For purposes

of § 1.1001–1(a), the substitution of a

new party on an interest rate or

commodity swap, or other notional

principal contract (as defined in

§ 1.446–3(c)(1)) is not treated as a

deemed exchange by the nonassigning

party of the original contract for a

modified contract that differs materially

either in kind or in extent if—

(1) The party assigning its rights and

obligations under the contract and the

party to which the rights and obligations

are assigned are both dealers in notional

principal contracts, as defined in

§ 1.446–3(c)(4)(iii); and

(2) The terms of the contract permit

the substitution.

(b) Effective date. This section is

effective September 23, 1996.

Margaret Milner Richards,

Commissioner of Internal Revenue.

Approved: May 31, 1996.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 96–15829 Filed 6–24–96; 8:45 am]

BILLING CODE 4830–01–P
Federal Register / Vol. 61, No. 123 / Tuesday, June 25, 1996 / Rules and Regulations 32655

DEPARTMENT OF TRANSPORTATION

Saint Lawrence Seaway Development

Corporation

33 CFR Chapter IV

46 CFR Chapter III

Great Lakes Pilotage; Consolidation of

Regulations

AGENCY: Saint Lawrence Seaway

Development Corporation, DOT.

ACTION: Final rule.

SUMMARY: The Coast Guard’s

responsibility for administering the

Secretary’s functions under the Great

Lakes Pilotage Act of 1960, as amended,

(the Act) was transferred from the Coast

Guard to the Saint Lawrence Seaway

Development Corporation (SLSDC) on

December 11, 1995. This rule moves the

Great Lakes Pilotage Regulations from

Title 46, Code of Federal Regulations, to

Title 33, Code of Federal Regulations.

This rule is necessary to consolidate all

regulations administered by the SLSDC.

EFFECTIVE DATE: June 25, 1996.

FOR FURTHER INFORMATION CONTACT:

Marc C. Owen, Chief Counsel, Saint

Lawrence Seaway Development

Corporation, United States Department

of Transportation, 400 7th Street SW.,

Washington, DC 20590, room 5424, 1–

800–785–2779, or Scott A. Poyer, Chief

Economist, Saint Lawrence Seaway

Development Corporation, Office of

Great Lakes Pilotage, United States

Department of Transportation, 400 7th

Street SW., Washington, DC 20590,

room 5421, 1–800–785–2779.

SUPPLEMENTARY INFORMATION: By final

rule published in the Federal Register

on December 11, 1995 (60 FR 63444),

the Coast Guard’s responsibility for

administering the Secretary’s functions

under the Great Lakes Pilotage Act of

1960, as amended, (the Act) was

transferred to the Saint Lawrence

Seaway Development Corporation

(SLSDC), effective on the date of

publication.

This rule moves the Great Lakes

Pilotage Regulations from Chapter III of

Title 46, Code of Federal Regulations

(46 CFR Parts 401–404), to Title 33,

Code of Federal Regulations, Chapter IV

as Parts 404–407. Chapter III of Title 46,

Code of Federal Regulations, is removed

in its entirety and vacated. This rule

also amends references to the

regulations that have been moved and

renumbers those references in

accordance with their new location in

the Code of Federal Regulations, and

amends the Authority citation for each

part. This rule is necessary to

consolidate all regulations administered

by the SLSDC.

Since this rule relates to departmental

management, organization, procedure,

and practice, notice and public

comment are unnecessary. For the same

reason, good cause exists for not

publishing this rule at least 30 days

before its effective date, as is ordinarily

required by 5 U.S.C. 553(d). Because the

transfer of Great Lakes Pilotage

responsibility has already occurred, it is

necessary to reflect redesignation in the

Code of Federal Regulations

immediately. Accordingly, this rule is

effective on the date of its publication

in the Federal Register.

For reasons set out in the preamble

and under the authority of 49 U.S.C. 322

and 49 CFR 1.52, the Saint Lawrence

Seaway Development Corporation is

amending 33 CFR Chapter IV, and

removing 46 CFR Chapter III as follows:

1. Parts 401, 402, 403, and 404 of 46

CFR chapter III are redesignated as parts

404, 405, 406, and 407, respectively,

and transferred to 33 CFR chapter IV

and 46 CFR chapter III is vacated.

33 CFR CHAPTER IV

PART 404—[AMENDED]

2. The authority citation for new part

404, Title 33, Code of Federal

Regulations is revised to read as follows:

Authority: 46 U.S.C. 6101, 7701, 8105,

9303, 9304; 49 CFR 1.45, 1.52. 33 CFR

404.105 also is issued under the authority of

44 U.S.C. 3507.

PART 405—[AMENDED]

3. The authority citation for new part

405, Title 33, Code of Federal

Regulations is revised to read as follows:

Authority: 46 U.S.C. 8105, 9303, 9304; 49

CFR 1.52.

PART 406—[AMENDED]

4. The authority citation for new part

406, Title 33, Code of Federal

Regulations is revised to read as follows:

Authority: 46 U.S.C. 8105, 9303, 9304; 49

CFR 1.52.

PART 407—[AMENDED]

5. The authority citation for new part

407, Title 33, Code of Federal

Regulations is revised to read as follows:

Authority: 46 U.S.C. 8105, 9303, 9304; 49

CFR 1.52.

6. In the following new sections of 33

CFR chapter IV, references to part 401

in the text of each section are amended

to reference part 404:

33 CFR Sections

404.210(a)(8)

404.210(b)

404.211(a)(1), (b) and (e)

404.230(e)

404.240(b)

404.320(b)

404.330(a)

404.335(a)(1)

404.340 (a) and (c)

404.400(c)

404.405 introductory text

404.410(a) introductory text

404.420(a)

404.425

404.428

404.431(a), (f) and (g)

404.451(a)(1)

404.600(b)

404.620(b)

404.645

404.700(b)

404.710(e)

404.720(b)

405.100

405.210(a)

405.320(a) introductory text

406.100

406.400(c)

407.1(a)

7. In the following new sections of 33

CFR chapter IV, references to part 402

in the text of each section are amended

to reference part 405:

33 CFR Sections

404.340(a)

404.710 (d) and (e)

8. In the following new sections and

parts of 33 CFR chapter IV, references to

part 403 in the text of each section are

amended to reference part 406:

33 CFR Sections and Parts

404.320(d)(3)

Part 407, Appendix A, Step 1.A.

9. In the following new sections and

parts of 33 CFR chapter IV, references to

part 404 in the text of each section are

amended to reference part 407:

33 CFR Sections and Parts

406.120(b)

407.1(b)

407.10(a)

Part 407, Appendix A, Step 1.B.

Part 407, Appendix C, introductory text

§ 404.250 [Amended]

10. In 33 CFR 404.250(d), the term

‘‘Part 137 of this title’’ is revised to read

‘‘46 CFR part 137’’.

Issued at Washington D.C. on June 4, 1996.

Saint Lawrence Seaway Development

Corporation.

Gail C. McDonald,

Administrator.

[FR Doc. 96–14637 Filed 6–24–96; 8:45 am]

BILLING CODE 4910–61–P