Federal Register / Vol. 79, No. 218 / Wednesday, November 12, 2014 / Rules and Regulations 67059 

added May 13, 2014, at 79 FR 27439, 

effective November 10, 2014, by adding 

an items paragraph .y to read as follows: 

Supplement No. 1 to Part 774—The 

Commerce Control List 

9A004 Space Launch Vehicles and 

‘‘Spacecraft,’’ as Follows (See List of 

Items Controlled) 

License Requirements 

Reason for Control: * * * 

Control(s) Country chart 

(see supp. No. 1 to part 738) 

NS applies to entire entry except .y ......................................................... NS Column 1. 

AT applies to entire entry ......................................................................... AT Column 1. 

* * * * * 

List of Items Controlled 

* * * * * 

Items: 

* * * * * 

y. Items that would otherwise be within 

the scope of ECCN 9A004.x but that have 

been identified in an interagency-cleared 

commodity classification (CCATS) pursuant 

to § 748.3(e) as warranting control in 

9A004.y. 

* * * * * 

■ 11. In Supplement No. 1 to Part 774, 

Category 9—Aerospace and Propulsion, 

Export Control Classification Number 

(ECCN) 9A515 is amended by: 

■ a. Adding a sentence at the end of the 

Related Controls paragraph in the List of 

Items Controlled section as added May 

13, 2014, at 79 FR 27440, effective 

November 10, 2014; 

■ b. Revising the note to paragraph .a in 

the List of Items Controlled section as 

added May 13, 2014, at 79 FR 27440, 

effective November 10, 2014; and 

■ c. Adding paragraph .f in the Items 

paragraph in the List of Items Controlled 

section as added May 13, 2014, at 79 FR 

27440, effective November 10, 2014, to 

read as follows: 

9A515 ‘‘Spacecraft’’ and Related 

Commodities, as Follows (See List of 

Items Controlled) 

License Requirements 

* * * * * 

List of Items Controlled 

Related Controls: * * * See ECCN 9A610.g 

for pressure suits used for high altitude 

aircraft. 

* * * * * 

Items: 

* * * * * 

a. * * * 

Note: ECCN 9A515.a includes commercial 

communications satellites, remote sensing 

satellites, planetary rovers, planetary and 

interplanetary probes, and in-space habitats, 

not identified in USML Category XV(a). 

* * * * * 

f. Pressure suits (i.e., space suits) capable 

of operating at altitudes 55,000 feet above sea 

level. 

* * * * * 

■ 12. In Supplement No. 1 to Part 774, 

Category 9—Aerospace and Propulsion, 

Product Group E. ‘‘Technology’’ is 

amended by: 

■ a. Redesignating the Note to Product 

Group E: ‘‘Technology’’ as Note 1 and 

revising newly redesignated Note 1; and 

■ b. Adding a Note 2 to Product Group 

E: ‘‘Technology’’ to read as follows: 

Category 9—Aerospace and Propulsion 

* * * * * 

E. ‘‘Technology’’ 

Note 1: ‘‘Development’’ or ‘‘production’’ 

‘‘technology’’ controlled by 9E001 to 9E003 

for gas turbine engines remains controlled 

when used for repair or overhaul. Excluded 

from 9E001 to 9E003 control are: technical 

data, drawings or documentation for 

maintenance activities directly associated 

with calibration, removal or replacement of 

damaged or unserviceable line replaceable 

units, including replacement of whole 

engines or engine modules. 

Note 2: USML Category XV(f) and ECCNs 

9E001, 9E002 and 9E515 do not control the 

data transmitted to or from a satellite or 

‘‘spacecraft,’’ whether real or simulated, 

when limited to information about the 

health, operational status, or measurements 

or function of, or raw sensor output from, the 

‘‘spacecraft,’’ ‘‘spacecraft’’ payload(s), or its 

associated subsystems or components. Such 

information is not within the scope of 

information captured within the definition of 

‘‘technology’’ in the EAR for purposes of 

Category 9 Product Group E. Examples of 

such information, which are commonly 

referred to as ‘‘housekeeping data,’’ include 

(i) system, hardware, component 

configuration, and operation status 

information pertaining to temperatures, 

pressures, power, currents, voltages, and 

battery charges; (ii) ‘‘spacecraft’’ or payload 

orientation or position information, such as 

state vector or ephemeris information; (iii) 

payload raw mission or science output, such 

as images, spectra, particle measurements, or 

field measurements; (iv) command responses; 

(v) accurate timing information; and (vi) link 

budget data. The act of processing such 

telemetry data—i.e., converting raw data into 

engineering units or readable products—or 

encrypting it does not, in and of itself, cause 

the telemetry data to become subject to the 

ITAR or to ECCN 9E515 for purposes of 

9A515, or to ECCNs 9E001 or 9E002 for 

purposes of 9A004. All classified technical 

data directly related to items controlled in 

USML Category XV or ECCNs 9A515, and 

defense services using the classified technical 

data remains subject to the ITAR. This note 

does not affect controls in USML XV(f), ECCN 

9D515, or ECCN 9E515 on software source 

code or commands that control a 

‘‘spacecraft,’’ payload, or associated 

subsystems for purposes of 9A515. This note 

also does not affect controls in ECCNs 9D001, 

9D002, 9E001, or 9E002 on software source 

code or commands that control a 

‘‘spacecraft,’’ payload, or associated 

subsystems for purposes of 9A004. 

* * * * * 

■ 13. In Supplement No. 1 to Part 774, 

Category 9—Aerospace and Propulsion, 

Export Control Classification Number 

(ECCN) 9E515 is amended by removing 

Note 3 to 9E515 at the end of the Items 

paragraph in the List of Items Controlled 

section as added May 13, 2014, at 79 FR 

27442, effective November 10, 2014. 

Dated: November 5, 2014. 

Kevin J. Wolf, 

Assistant Secretary of Commerce for Export 

Administration. 

[FR Doc. 2014–26664 Filed 11–10–14; 8:45 am] 

BILLING CODE 3510–33–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[TD 9702] 

RIN 1545–BJ21 

Allocation of Basis in All Cash D 

Reorganizations 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations and removal of 

temporary regulations. 

SUMMARY: This document contains final 

regulations regarding the determination 

of the basis of stock or securities in 

certain reorganizations where no stock 

or securities of the issuing corporation 

is issued and distributed in the 

transaction. These final regulations 

clarify that only a shareholder that owns 

actual shares in the issuing corporation 


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67060 Federal Register / Vol. 79, No. 218 / Wednesday, November 12, 2014 / Rules and Regulations 

in such a reorganization can designate 

the actual share of stock of the issuing 

corporation to which the basis, if any, 

of the stock or securities surrendered 

will attach. These regulations affect 

corporations engaging in such 

transactions and their shareholders. 

DATES: These regulations are effective 

on November 12, 2014. 

FOR FURTHER INFORMATION CONTACT: 

Michael R. Gould, (202) 317–5363, or 

Kevin M. Jacobs, (202) 317–5024 (not 

toll-free numbers). 

SUPPLEMENTARY INFORMATION: 

Background and Explanation of 

Provisions 

1. Introduction 

This Treasury Decision contains final 

regulations that amend the Income Tax 

Regulations (26 CFR part 1) under 

section 358(a) of the Internal Revenue 

Code (Code). In the case of certain 

reorganizations under section 368, 

section 358(a) and the regulations 

thereunder provide, in part, rules for 

determining a taxpayer’s basis in stock 

or securities of an issuing corporation 

received without the recognition of gain 

or loss (permitted property), as well as 

rules relating to the basis of other 

property received in the reorganization. 

These final regulations clarify the rules 

under section 358(a) regarding the 

allocation of stock basis in a transaction 

that qualifies as a reorganization under 

section 368(a)(1)(D) (D reorganization) 

in which no permitted property is 

actually issued (All Cash D 

reorganization). 

2. D Reorganizations Generally 

Section 368(a)(1)(D) provides, in part, 

that a reorganization includes a transfer 

by a corporation (transferor corporation) 

of all or a part of its assets to another 

corporation (issuing corporation) if, 

immediately after the transfer, the 

transferor corporation or one or more of 

its shareholders (including persons who 

were shareholders immediately before 

the transfer), or any combination 

thereof, is in control of the issuing 

corporation, but only if, in pursuance of 

the plan, stock or securities of the 

issuing corporation are distributed 

under section 354, 355, or 356. 

Under section 354(a)(1), a shareholder 

or security holder of the transferor 

corporation generally recognizes no gain 

or loss if the shareholder or security 

holder exchanges stock or securities of 

the transferor corporation, in pursuance 

of the plan of reorganization, solely for 

permitted property. Section 354(b)(1) 

provides that section 354(a)(1) is 

inapplicable to a D reorganization 

unless the issuing corporation acquires 

substantially all of the assets of the 

transferor corporation, and the stock, 

securities, and other properties received 

by the transferor corporation, as well as 

the other properties of the transferor 

corporation, are distributed in 

pursuance of the plan of reorganization. 

Further, section 356 provides, in part, 

that if section 354 would apply to an 

exchange but for the fact that property 

other than permitted property is also 

received, the recipient recognizes gain, 

but not in excess of the amount of 

money and fair market value of such 

other property. 

3. All Cash D Reorganizations 

On December 18, 2009, the IRS and 

the Treasury Department published 

final regulations (TD 9475) in the 

Federal Register (74 FR 67053) (2009 

regulations) providing that the 

distribution requirement of section 

368(a)(1)(D) and 354(b)(1)(B) is satisfied 

in the case of an All Cash D 

reorganization even though there is no 

actual distribution of permitted property 

by the transferor corporation, provided 

the same person(s) own, directly or 

indirectly, all of the stock of the 

transferor and issuing corporations in 

identical proportions. See § 1.368– 

2(l)(2)(i). In such cases, assuming a 

value-for-value exchange between the 

transferor and issuing corporations, the 

issuing corporation is deemed to issue 

a nominal share of its stock in addition 

to the actual consideration exchanged 

for the transferor corporation’s assets. If 

the issuing corporation provides the 

transferor corporation with no 

consideration or consideration having a 

value less than the transferor 

corporation’s assets (bargain exchange), 

the issuing corporation is treated as 

issuing shares of its stock having a value 

necessary to result in a value-for-value 

exchange. The rules of § 1.368–2(l) 

further provide that all stock treated as 

issued, or deemed issued, by the issuing 

corporation to the transferor corporation 

is then deemed distributed by the 

transferor corporation to its 

shareholders and, if appropriate, further 

transferred through chains of ownership 

to the extent necessary to reflect the 

actual ownership of the transferor and 

issuing corporations. 

The 2009 regulations also amended 

the regulations under § 1.358– 

2(a)(2)(iii). Prior to being amended by 

the 2009 regulations, these regulations 

provided a two-step rule under section 

358 for allocating the basis of stock or 

securities of a transferor corporation 

surrendered as a result of a bargain 

exchange by a shareholder or security 

holder (bargain exchange basis rule). 

First, a shareholder or security holder 

was generally treated as receiving the 

consideration actually received in the 

transaction and an amount of stock of 

the issuing corporation having a value 

equal to the difference in value between 

the stock or securities surrendered in 

the transaction and the consideration 

actually received. Second, the 

shareholder or security holder was 

treated as surrendering all of its stock 

and securities that it actually owned 

and was treated as owning of the issuing 

corporation in a reorganization under 

section 368(a)(1)(E) in exchange for the 

shares of stock and securities of the 

issuing corporation actually held 

immediately after the transaction. 

The 2009 regulations added a new 

sentence after the bargain exchange 

basis rule that permitted a shareholder 

that was deemed to have received a 

nominal share of issuing corporation 

stock under § 1.368–2(l) to, after 

adjusting the basis of the nominal share 

under the rules of §§ 1.358–1 and 1.358– 

2, designate a share of the issuing 

corporation’s stock to which the basis, 

if any, of the nominal share would 

attach (nominal share basis designation 

rule). 

4. Temporary Regulations 

On November 21, 2011, the IRS and 

the Treasury Department published 

temporary regulations (TD 9558) in the 

Federal Register (76 FR 71878) to 

amend § 1.358–2(a)(2)(iii) of the 2009 

regulations in response to an 

inappropriate interpretation of those 

rules. Certain taxpayers had taken the 

position that a shareholder of a 

transferor corporation who did not own 

any actual shares of an issuing 

corporation’s stock immediately after 

the section 354 or section 356 exchange 

in a value-for-value All Cash D 

reorganization was permitted to 

designate another person’s share of the 

issuing corporation’s stock as the share 

to which the nominal share’s basis 

could attach. For example, assume that 

corporation P owns all of the stock of 

corporations S1 and S2, and that S1 

owns all of the stock of corporation S3. 

If S3 (the transferor corporation) 

transfers to S2 all of its assets (subject 

to liabilities) having a value of $100x in 

exchange for $100x of cash, S2 (the 

issuing corporation) would be deemed 

to issue a nominal share of its stock to 

S3 under § 1.368–2(l)(2), provided the 

transaction otherwise qualified as a D 

reorganization. S3 would then be 

deemed to distribute the nominal S2 

share to S1 in the section 356 exchange. 

Because S1 received a nominal S2 share 

but did not actually own any S2 stock, 

§ 1.368–2(l)(2) would require that the 

nominal S2 share be treated as 


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Federal Register / Vol. 79, No. 218 / Wednesday, November 12, 2014 / Rules and Regulations 67061 

distributed by S1 to P to reflect the 

actual ownership of S2 and P’s basis in 

the nominal share would be its fair 

market value under section 301(d). In an 

attempt to avoid this result under 

similar circumstances, certain taxpayers 

took the position that S1 was permitted 

to, after allocating the basis of its S3 

stock to the nominal S2 share under the 

rules of §§ 1.358–1 and 1.358–2, 

designate a share of S2 stock that was 

actually held by P to which S1’s basis 

in the nominal S2 share would attach. 

These taxpayers further took the 

position that such designation and 

allocation could occur immediately 

before the nominal S2 share was 

deemed (under § 1.368–2(l)) to be 

further transferred through the chain of 

ownership to reflect the actual 

ownership of S3 and S2. 

Under this interpretation, any built-in 

loss in the shares of transferor 

corporation stock (which the 2009 

regulations allocated to the nominal 

share of issuing corporation stock) 

would be preserved even if a direct 

shareholder of the transferor corporation 

did not directly own stock of the issuing 

corporation. Taxpayers could thus avoid 

losing the built-in loss in the nominal 

share, which may have occurred as a 

result of the deemed transfer(s) of the 

nominal share through the chains of 

ownership to the actual shareholder(s) 

of the issuing corporation. In addition, 

the actual shareholder could then sell 

the share of the issuing corporation’s 

stock to which the nominal share’s basis 

was allocated and recognize a loss or a 

reduced amount of gain. 

The IRS and the Treasury Department 

did not intend for the nominal share 

basis designation rule of the 2009 

regulations to allow such an 

inappropriate allocation of basis and do 

not believe the 2009 regulations have 

ever supported such an allocation. The 

temporary regulations therefore clarified 

the application of the nominal share 

basis designation rule of the 2009 

regulations. Specifically, the temporary 

regulations provided that, using the 

facts of the example described earlier in 

this section, because P (an actual 

shareholder of S2 (the issuing 

corporation)) is deemed to receive a 

nominal share of S2 stock described in 

§ 1.368–2(l), P must, after allocating and 

adjusting the basis of the nominal S2 

share in accordance with the rules of 

§§ 1.358–1 and 1.358–2, and after 

adjusting the basis in the nominal S2 

share for any transfers described in 

§ 1.368–2(l) (that is the transfer from S3 

to S1 and from S1 to P), designate the 

share of S2 stock actually held by P to 

which the basis, if any, of the nominal 

S2 share will attach. The purpose of the 

temporary regulations was to clarify that 

only a shareholder that owned actual 

shares of the issuing corporation’s stock 

immediately after a value-for-value All 

Cash D reorganization could designate 

one of its actual shares of the issuing 

corporation’s stock to which the 

nominal share’s basis, if any, would 

attach. 

A notice of proposed rulemaking 

(REG–101273–10) cross-referencing the 

temporary regulations was also 

published in the Federal Register (76 

FR 71919) on November 21, 2011. No 

written comments were received in 

response to the notice of proposed 

rulemaking. In addition, no requests for 

a public hearing were received, and 

accordingly, no hearing was held. 

5. Final Regulations 

This Treasury Decision adopts the 

temporary regulations with clarifying 

changes. These changes include 

redesignating the paragraphs under 

§ 1.358–2(a)(2)(iii) to separate newly 

designated § 1.358–2(a)(2)(iii)(A), the 

bargain exchange basis rule, and newly 

designated § 1.358–2(a)(2)(iii)(B), the 

nominal share basis designation rule, 

and clarifying the language of these 

rules. The IRS and the Treasury 

Department do not intend any 

substantive changes to the rules of the 

temporary regulations. 

The changes to newly designated 

§ 1.358–2(a)(2)(iii)(A)(1) and (2) were 

made to clarify that the deemed 

recapitalization under the second step 

of the bargain exchange basis rule 

occurs only after the stock treated as 

issued by the issuing corporation 

pursuant to § 1.368–2(l) is held by a 

shareholder that actually owns issuing 

corporation stock. Thus, using the facts 

of the example described in section 4 of 

this preamble, except that the 

consideration provided by S2 is not 

$100 of cash but only $90 of cash, 

because S1 (the shareholder of S3 (the 

transferor corporation)) does not 

actually own any stock of S2 (the 

issuing corporation), the basis of the S2 

stock treated as issued under the first 

step of the bargain exchange basis rule 

that S1 receives in the section 356 

exchange is determined under §§ 1.358– 

1 and 1.358–2 (without regard to the 

second step of the bargain exchange 

basis rule or the nominal share basis 

designation rule) and then further 

adjusted for the transfer to P described 

in § 1.368–2(l) prior to the deemed 

recapitalization of the stock of S2 that 

P actually holds and is deemed to hold. 

The numbering changes reflected in 

newly designated § 1.358– 

2(a)(2)(iii)(A)(1), (2) and (B) were made 

to clarify that the nominal share basis 

designation rule applies in cases in 

which a nominal share of issuing 

corporation stock is deemed issued 

under § 1.368–2(l). Additional changes 

were made under § 1.358–2(a)(2)(iii) to 

emphasize that the nominal share basis 

designation rule applies only after an 

actual shareholder of the issuing 

corporation receives the nominal share 

pursuant to § 1.368–2(l), and that such 

a shareholder must attach the nominal 

share’s basis to a share of the issuing 

corporation’s stock that the particular 

shareholder actually owns. 

In addition, the analysis of Example 

16 of § 1.358–2(c) has been clarified to 

confirm that Corporation P must 

designate a share of Corporation Y stock 

to which the distributed nominal share’s 

zero basis will attach. This designation 

of the share to which the basis of a 

nominal share must attach is relevant in 

various scenarios, including if an 

affiliated group files a consolidated 

return and must determine the 

particular share that is a successor asset 

for purposes of § 1.1502–13. Finally, 

minor editorial changes were made to 

reflect the new paragraph designations 

under § 1.358–2(a)(2)(iii) and to make 

Examples 15 and 16 of § 1.358–2(c) 

consistent with the clarifying changes 

adopted by the final regulations. 

Special Analyses 

It has been determined that this 

Treasury Decision is not a significant 

regulatory action as defined in 

Executive Order 12866, as 

supplemented by Executive Order 

13563. Therefore, a regulatory 

assessment is not required. It has also 

been determined that section 553(b) of 

the Administrative Procedure Act (5 

U.S.C. chapter 5) does not apply to these 

regulations, and because these 

regulations do not impose a collection 

of information on small entities, the 

Regulatory Flexibility Act (5 U.S.C. 

chapter 6) does not apply. Pursuant to 

section 7805(f) of the Code, the notice 

of proposed rulemaking preceding these 

regulations was submitted to the Chief 

Counsel for Advocacy of the Small 

Business Administration for comment 

on its impact on small businesses, and 

no comments were received. 

Drafting Information 

The principal author of these 

regulations is Michael R. Gould of the 

Office of Associate Chief Counsel 

(Corporate). However, other personnel 

from the IRS and the Treasury 

Department participated in their 

development. 


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67062 Federal Register / Vol. 79, No. 218 / Wednesday, November 12, 2014 / Rules and Regulations 

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 * * * 

Section 1.358–2 is also issued under 26 

U.S.C. 358(b). 

■ Par. 2. Section 1.358–2 is amended 

by: 

■ 1. Revising paragraph (a)(2)(iii). 

■ 2. Adding Example 15 and Example 

16 to paragraph (c). 

■ 3. Revising paragraph (d). 

The revisions and additions are as 

follows: 

§ 1.358–2 Allocation of basis among 

nonrecognition property. 

(a) * * * 

(2) * * * 

(iii)(A) For purposes of this section, if 

a shareholder or security holder 

surrenders a share of stock or a security 

in a transaction under the terms of 

section 354 (or so much of section 356 

as relates to section 354) in which the 

shareholder or security holder receives 

no property or property (including 

property permitted by section 354 to be 

received without the recognition of gain 

or ‘‘other property’’ or money) with a 

fair market value less than that of the 

stock or securities surrendered in the 

transaction: 

(1) Such shareholder or security 

holder shall be treated as receiving the 

stock, securities, other property, and 

money actually received by the 

shareholder or security holder in the 

transaction and an amount of stock of 

the issuing corporation (as defined in 

§ 1.368–1(b)) that has a value equal to 

the excess of the value of the stock or 

securities the shareholder or security 

holder surrendered in the transaction 

over the value of the stock, securities, 

other property, and money the 

shareholder or security holder actually 

received in the transaction. If the 

shareholder owns only one class of 

stock of the issuing corporation the 

receipt of which would be consistent 

with the economic rights associated 

with each class of stock of the issuing 

corporation, the stock deemed received 

by the shareholder pursuant to the 

previous sentence shall be stock of such 

class. If the shareholder owns multiple 

classes of stock of the issuing 

corporation the receipt of which would 

be consistent with the economic rights 

associated with each class of stock of 

the issuing corporation, the stock 

deemed received by the shareholder 

shall be stock of each such class owned 

by the shareholder immediately prior to 

the transaction, in proportion to the 

value of the stock of each such class 

owned by the shareholder at that time. 

The basis of each share of stock or 

security of the issuing corporation 

deemed received and actually received 

shall be determined under the rules of 

this section. If and to the extent 

necessary to reflect the actual 

ownership of the issuing corporation 

immediately after the exchange to 

which section 354 (or so much of 

section 356 as relates to section 354) 

applies, an appropriate amount of the 

stock of the issuing corporation treated 

as issued to the shareholder or security 

holder in the exchange is deemed 

further transferred in accordance with 

§ 1.368–2(l) to reflect the actual 

ownership of the issuing corporation. 

Paragraph (a)(2)(iii)(A)(2) of this section 

is only applied to any shareholder of the 

issuing corporation after all of the 

deemed transfers pursuant to § 1.368– 

2(l) are completed. The transferred 

shares’ basis shall be adjusted for all 

deemed transfers required by § 1.368– 

2(l). 

(2) A direct shareholder of the issuing 

corporation that receives the shares 

deemed issued as part of the 

transaction, as described in paragraph 

(a)(2)(iii)(A)(1) of this section, shall then 

be treated as surrendering all of its 

shares of stock and securities in the 

issuing corporation, including those 

shares of stock or securities held 

immediately prior to the transaction, 

those shares of stock or securities 

actually received in the transaction, and 

those shares of stock deemed received 

as described in paragraph 

(a)(2)(iii)(A)(1) of this section, in a 

reorganization under section 

368(a)(1)(E) in exchange for the shares 

of stock and securities of the issuing 

corporation that the shareholder or 

security holder actually holds 

immediately after the transaction. The 

basis of each share of stock and security 

deemed received in the reorganization 

under section 368(a)(1)(E) shall be 

determined under the rules of this 

section. 

(B) For purposes of this section, if an 

actual shareholder of the issuing 

corporation is deemed to receive a 

nominal share of stock of the issuing 

corporation as provided in § 1.368–2(l), 

then that shareholder must, after 

allocating and adjusting the basis of the 

nominal share in accordance with the 

rules of this section and § 1.358–1, 

designate the share of stock of the 

issuing corporation that it owns to 

which the basis, if any, of the nominal 

share will attach. If the shareholder does 

not actually own any shares of stock in 

the issuing corporation immediately 

after the exchange to which section 354 

(or so much of section 356 as relates to 

section 354) applies, the nominal share 

of stock of the issuing corporation 

received by the shareholder in the 

exchange is deemed further transferred 

in accordance with § 1.368–2(l) without 

applying the designation rule set forth 

in the first sentence of this paragraph 

until it is transferred to a person that 

actually owns stock in the issuing 

corporation. The transferred share’s 

basis shall be adjusted for all deemed 

transfers required by § 1.368–2(l). 

* * * * * 

(c) * * * 

Example 15. (i) Facts. Each of Corporation 

X and Corporation Y has a single class of 

stock outstanding, all of which is owned by 

J, an individual. J purchased 100 shares of 

Corporation X stock on Date 1 for $1.50 each, 

resulting in J having an aggregate basis in the 

stock of Corporation X of $150. On Date 2, 

Corporation Y acquires the assets of 

Corporation X for $100 of cash, their fair 

market value, in a transaction described in 

§ 1.368–2(l). Pursuant to the terms of the 

exchange, Corporation X does not receive any 

Corporation Y stock. Corporation X 

distributes the $100 of cash to J and retains 

no assets. 

(ii) Analysis. Pursuant to § 1.368–2(l), 

Corporation Y will be deemed to issue a 

nominal share of Corporation Y stock to 

Corporation X in addition to the $100 of cash 

actually exchanged for the Corporation X 

assets. Corporation X will then be deemed to 

distribute the nominal share of Corporation 

Y stock to J in addition to the $100 of cash 

actually distributed to J. Pursuant to § 1.368– 

2(l), J, the actual shareholder of Corporation 

Y, the issuing corporation, is deemed to 

receive the nominal share of Corporation Y 

stock described in § 1.368–2(l). J will have a 

basis of $50 in the nominal share of 

Corporation Y stock under section 358(a)(1). 

Therefore, under paragraph (a)(2)(iii)(B) of 

this section, J must designate a share of 

Corporation Y stock to which J’s basis of $50 

in the nominal share of Corporation Y stock 

will attach. 

Example 16. (i) Facts. Each of Corporation 

X and Corporation Y has a single class of 

stock outstanding, all of which is owned by 

Corporation P. Corporation T has a single 

class of stock outstanding, all of which is 

owned by Corporation X. The corporations 

do not join in the filing of a consolidated 

return. Corporation X purchased 100 shares 

of Corporation T stock on Date 1 for $1.50 

each, resulting in Corporation X having an 

aggregate basis in the stock of Corporation T 

of $150. On Date 2, Corporation Y acquires 

the assets of Corporation T for $100 of cash, 

their fair market value, in a transaction 

described in § 1.368–2(l). Pursuant to the 

terms of the exchange, Corporation T does 

not receive any Corporation Y stock. 

Corporation T distributes the $100 of cash to 

Corporation X and retains no assets. 


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Federal Register / Vol. 79, No. 218 / Wednesday, November 12, 2014 / Rules and Regulations 67063 

(ii) Analysis. Pursuant to § 1.368–2(l), 

Corporation Y will be deemed to issue a 

nominal share of Corporation Y stock to 

Corporation T in addition to the $100 of cash 

actually exchanged for the Corporation T 

assets. Corporation T will be deemed to 

distribute the nominal share of Corporation 

Y stock to Corporation X in addition to the 

$100 of cash actually distributed. 

Corporation X will have a basis of $50 in the 

nominal share of Corporation Y stock under 

section 358(a). However, Corporation X is not 

an actual shareholder of Corporation Y, the 

issuing corporation. Therefore, Corporation X 

cannot designate any share of Corporation Y 

stock under paragraph (a)(2)(iii)(B) of this 

section to which the basis of the nominal 

share of Corporation Y stock will attach and 

Corporation X will be deemed to distribute 

the nominal share of Corporation Y stock to 

Corporation P as required by § 1.368–2(l). 

Corporation X does not recognize the loss on 

the deemed distribution of the nominal share 

to Corporation P under section 311(a). 

Corporation P’s basis in the nominal share it 

receives is zero, its fair market value, under 

section 301(d). Under paragraph (a)(2)(iii)(B) 

of this section, Corporation P must designate 

a share of Corporation Y stock to which the 

nominal share’s zero basis will attach. 

(d) Effective/applicability date. This 

section generally applies to exchanges 

and distributions of stock and securities 

occurring on or after January 23, 2006. 

However, paragraph (a)(2)(iii) and 

Examples 15 and 16 of paragraph (c) of 

this section apply to exchanges and 

distributions of stock and securities 

occurring on or after November 12, 

2014. See § 1.358–2T(a)(2)(iii) and 

§ 1.358–2T(c), Examples 15 and 16, as 

contained in 26 CFR part 1, revised 

April 1, 2014, for exchanges and 

distributions of stock and securities 

occurring on or after November 21, 2011 

and before November 12, 2014; see 

§ 1.358–2(a)(2)(iii), as contained in 26 

CFR part 1, revised as of April 1, 2011, 

for exchanges and distributions of stock 

and securities occurring on or after 

January 23, 2006 and before November 

21, 2011. 

§ 1.358–2T [Removed] 

■ Par. 3. Section 1.358–2T is removed. 

John Dalrymple, 

Deputy Commissioner for Services and 

Enforcement. 

Approved: October 17, 2014. 

Mark J. Mazur, 

Assistant Secretary of the Treasury (Tax 

Policy). 

[FR Doc. 2014–26780 Filed 11–10–14; 8:45 am] 

BILLING CODE 4830–01–P 

DEPARTMENT OF HOMELAND 

SECURITY 

Coast Guard 

33 CFR Part 165 

[Docket No. USCG–2014–0693] 

RIN 1625–AA00 

Safety Zone, Elizabeth River; 

Portsmouth, VA 

AGENCY: Coast Guard, DHS. 

ACTION: Temporary final rule. 

SUMMARY: The Coast Guard is 

establishing a safety zone on the 

navigable waters of the Elizabeth River 

in Portsmouth, VA for 12 periods of 48 

hours beginning at midnight on January 

5, January 12, January 19, January 22, 

January 27, February 9, March 2, March 

5, March 10, March 23, March 30 and 

April 6, 2015. This action will restrict 

vessel traffic movement in the 

designated area during construction of 

the new Midtown Tunnel. This action is 

necessary to protect the life and 

property of the maritime public due to 

the number of work vessels in the 

designated area and their lack of 

maneuverability while engaged in 

construction operations. 

DATES: This rule will be effective from 

January 5, 2015, through April 6, 2015. 

This rule will be enforced for 12 periods 

of 48 hours in length, beginning at 

midnight on January 5, January 12, 

January 19, January 22, January 27, 

February 9, March 2, March 5, March 

10, March 23, March 30, and April 6, 

2015. 

ADDRESSES: Documents mentioned in 

this preamble are part of docket [USCG– 

2014–0693]. To view documents 

mentioned in this preamble as being 

available in the docket, go to http://

www.regulations.gov, type the docket 

number in the ‘‘SEARCH’’ box and click 

‘‘SEARCH.’’ Click on Open Docket 

Folder on the line associated with this 

rulemaking. You may also visit the 

Docket Management Facility in Room 

W12–140 on the ground floor of the 

Department of Transportation West 

Building, 1200 New Jersey Avenue SE., 

Washington, DC 20590, between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. 

FOR FURTHER INFORMATION CONTACT: If 

you have questions on this rule, call or 

email LCDR Gregory Knoll, Waterways 

Management Division Chief, Sector 

Hampton Roads, Coast Guard; telephone 

(757)-668–5580, email 

HamptonRoadsWaterway@uscg.mil. If 

you have questions on viewing or 

submitting material to the docket, call 

Cheryl Collins, Program Manager, 

Docket Operations, telephone (202)– 

366–9826. 

SUPPLEMENTARY INFORMATION: 

Table of Acronyms 

DHS Department of Homeland Security 

FR Federal Register 

NPRM Notice of Proposed Rulemaking 

A. Regulatory History and Information 

SKW Constructors are building a 

second span for the Midtown Tunnel 

between Portsmouth and Norfolk, VA 

and will be conducting operations that 

require closures of the federal channel 

beginning in January 2015. A Notice of 

Proposed Rulemaking (NPRM) was 

published on August 25, 2014 in the 

Federal Register (79 FR 50571). 

The Coast Guard received one 

comment on the NPRM, which is 

addressed below in Section C. No 

request for a public meeting was 

received, and no meeting was held. 

B. Basis and Purpose 

The legal basis for the rule is the 

Coast Guard’s authority to establish 

regulated navigation areas and other 

limited access areas: 33 U.S.C. 1231; 46 

U.S.C. Chapter 701, 3306, 3703; 50 

U.S.C. 191, 195; 33 CFR 1.05–1, 6.04–1, 

6.04–6, 160.5; Public Law 107–295, 116 

Stat. 2064; Department of Homeland 

Security Delegation No. 0170.1. 

Due to increased vehicle traffic in the 

Hampton Roads area, SKW 

Constructors, in concert with Elizabeth 

River Crossings and the Virginia 

Department of Transportation, is 

constructing a second tunnel parallel to 

the existing Midtown Tunnel between 

Portsmouth and Norfolk, VA. The 

construction will involve submerging 

elements of the new Midtown Tunnel. 

The presence of working vessels and the 

inability to maneuver submerged 

equipment necessitate closures of the 

federal channel. The closures will be in 

effect for 12 48-hour periods to allow 

SKW Constructors to install the 

segments of the tunnel that overlap the 

federal channel. 

The Coast Guard is establishing a 

safety zone in the portion of the 

Elizabeth River between Elizabeth River 

Channel Buoy 31 (LLNR 9835) and 

Elizabeth River Channel Buoy 34 (LLNR 

9855). The first of the 12 scheduled 

closures will begin at midnight on 

January 5, 2015; the final scheduled 

closure will begin at midnight on April 

6, 2015. The dates and hours are subject 

to change due to weather, scheduling 

conflicts, equipment failure and other 

unforeseen factors. Any changes to these 

dates will be listed in the Federal 


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