[Federal Register Volume 79, Number 246 (Tuesday, December 23, 2014)]
[Proposed Rules]
[Pages 76928-76929]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30103]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-109187-11]
RIN 1545-BK15


Nonrecognition of Gain or Loss on Certain Dispositions of 
Installment Obligations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations relating to the 
nonrecognition of gain or loss on certain dispositions of an 
installment obligation. In general, under the proposed regulations a 
transferor does not recognize gain or loss on certain dispositions of 
an installment obligation if gain or loss is not recognized on the 
disposition under another provision of the Internal Revenue Code. The 
proposed regulations also provide that this general rule does not apply 
to the satisfaction of an installment obligation. For example, an 
installment obligation of an issuer, such as a corporation or 
partnership, is satisfied when the holder transfers the obligation to 
the issuer for an equity interest in the issuer.

DATES: Comments or a request for a public hearing must be received by 
March 23, 2015.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-109187-11), room 5203, 
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
109187-11), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue NW., Washington, DC, or sent electronically via the Federal 
eRulemaking Portal at www.regulations.gov (IRS REG-109187-11).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Arvind Ravichandran, (202) 317-4718; concerning the submission of 
comments and/or requests for a public hearing, Olawafunmilayo (Funmi) 
Taylor at (202) 317-6901 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains proposed amendments to the regulations in 26 
CFR part 1 under section 453B of the Internal Revenue Code (Code) 
relating to gain or loss on the disposition of installment obligations. 
Section 453B was added to the Code by the Installment Sales Revision 
Act of 1980, Public Law 96-471 (94 Stat. 2252 (1980)).
    Section 453B replaces and provides generally the same rules as 
former section 453(d). In general, under section 453B(a) gain or loss 
is recognized upon the satisfaction of an installment obligation at 
other than its face value, or upon the distribution, transmission, 
sale, or other disposition of the installment obligation. Section 
1.453-9(c)(2) of the Income Tax Regulations, issued under former 
section 453(d), provides an exception to the general rule. Under Sec.  
1.453-9(c)(2), if the Code provides an exception to the recognition of 
gain or loss for certain dispositions, then gain or loss is not 
recognized under former section 453(d) on the disposition of an 
installment obligation within that exception. The exceptions identified 
in Sec.  1.453-9(c)(2) include certain transfers to corporations under 
sections 351 and 361, contributions to partnerships under section 721, 
and distributions by partnerships to partners under section 731 (except 
as provided by section 736 and section 751).
    Under Rev. Rul. 73-423, 1973-2 CB 161, the exceptions in Sec.  
1.453-9(c)(2) to recognition of gain or loss under the installment sale 
rules do not apply to the transfer of an installment obligation that 
results in a satisfaction of the obligation. Thus, the revenue ruling 
holds that the transfer of a corporation's installment obligation to 
the issuing corporation in exchange for stock of the issuing 
corporation results in a satisfaction of the obligation. In that case, 
the transferor must recognize gain or loss on the satisfaction of the 
obligation to the extent of the difference between the transferor's 
basis in the obligation and the fair market value of the stock 
received, even though gain or loss generally is not recognized on 
section 351 transfers.

Explanation of Provisions

    These proposed regulations republish in Sec.  1.453B-1(c) the 
general rule in Sec.  1.453-9(c)(2) under which gain or loss is not 
recognized upon certain dispositions. In addition, the proposed 
regulations incorporate and expand the holding of Rev. Rul. 73-423 to 
provide that a transferor recognizes gain or loss under section 453B(a) 
when the transferor disposes of an installment obligation in a 
transaction that results in the satisfaction of the installment 
obligation, including, for example, when an installment obligation of a 
corporation or partnership is contributed to the corporation or 
partnership in exchange for an equity interest in the corporation or 
partnership. Finally, the proposed regulations amend the regulations 
under sections 351, 361, and 721 to include a cross-reference to the 
regulations under section 453B regarding recognition of any gain or 
loss upon the satisfaction of an installment obligation. The IRS and 
the Treasury Department anticipate publishing regulations addressing 
the general rule under section 453B(a) and the basis of an obligation 
under section 453B(b) in the future. Therefore, regulations under Sec.  
1.453B-1(a) and (b) are reserved.

Proposed Effective/Applicability Date

    These regulations are proposed to apply to satisfactions, 
distributions, transmissions, sales, or other

[[Page 76929]]

dispositions of installment obligations after the date these 
regulations are published as final regulations in the Federal Register.

Special Analyses

    This notice of proposed rulemaking 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 also has 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 the regulation does 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, this notice of proposed rulemaking has been submitted to the 
Chief Counsel for Advocacy of the Small Business Administration for 
comment on its impact on small business.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments that are submitted 
timely to the IRS as prescribed in this preamble under the 
``Addresses'' heading. The Treasury Department and the IRS invite 
comments on all aspects of the proposed rules. In particular, the 
Treasury Department and the IRS request comments on how a partnership's 
distribution of a partner's installment obligation to the obligor 
partner should be treated under section 453B, and whether there are 
circumstances in which such a distribution should not result in gain or 
loss recognition by the partnership. All comments will be available for 
public inspection and copying at www.regulations.gov or upon request. A 
public hearing will be scheduled if requested in writing by any person 
who timely submits written comments. If a public hearing is scheduled, 
notice of the date, time and place for the hearing will be published in 
the Federal Register.

Drafting Information

    The principal author of these regulations is Arvind Ravichandran, 
Office of the Associate Chief Counsel (Income Tax and Accounting). 
However, other personnel from the IRS and the Treasury Department 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income Taxes, Reporting and record keeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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

0
Par. 2. Section 1.351-1(a)(1) is amended by adding a heading and new 
second and third sentences to read as follows:


Sec.  1.351-1  Transfer to corporation controlled by transferor.

    (a)(1) In general. * * * See Sec.  1.453B-1(c) for rules requiring 
a transferor to recognize gain or loss upon the satisfaction of an 
installment obligation of a corporation when the obligation is 
exchanged for stock in that corporation. The preceding sentence applies 
to satisfactions of installment obligations after the date these 
regulations are published as final regulations in the Federal 
Register.* * *
* * * * *
0
Par. 3. Section 1.361-1 is amended by adding new second and third 
sentences to read as follows:


Sec.  1.361-1  Nonrecognition of gain or loss to corporations.

    * * * See Sec.  1.453B-1(c) for rules requiring a corporation 
transferring an installment obligation to the acquiring corporation (as 
that term is used in Sec.  1.368-1) to recognize gain or loss upon the 
receipt of stock of the acquiring corporation or another party to the 
reorganization (as defined in Sec.  1.368-2(f)) in satisfaction of that 
installment obligation. The preceding sentence applies to satisfactions 
of installment obligations after the date these regulations are 
published as final regulations in the Federal Register.* * *
0
Par. 4. Section 1.453B-1 is added to read as follows:


Sec.  1.453B-1  Gain or loss on disposition of installment obligations.

    (a) General rule. [Reserved].
    (b) Basis of obligation. [Reserved].
    (c) Dispositions on which no gain or loss is recognized.
    (1) Certain nonrecognition transactions--(i) In general. If the 
Internal Revenue Code provides an exception to the recognition of gain 
or loss for certain dispositions, no gain or loss shall be recognized 
under section 453B on the disposition of an installment obligation 
within that exception. These exceptions include--
    (A) Certain transfers to corporations under sections 351 and 361;
    (B) Contributions to a partnership under section 721; and
    (C) Distributions by a partnership to a partner under section 731 
(except as provided by sections 704(c)(1)(B), 736, 737, and 751(b)).
    (ii) Transactions resulting in a satisfaction of installment 
obligations. Paragraph (c)(1)(i) of this section does not apply to a 
disposition that results in a satisfaction of an installment 
obligation, regardless of whether the disposition occurs as part of a 
transaction for which the Internal Revenue Code provides an exception 
to the recognition of gain or loss. These dispositions include, but are 
not limited to--
    (A) The receipt of stock of a corporation from the corporation in 
satisfaction of an installment obligation of the corporation; and
    (B) The receipt of an interest in a partnership from the 
partnership in satisfaction of an installment obligation of the 
partnership.
    (2) Effective/applicability date. This paragraph (c) applies to 
satisfactions, distributions, transmissions, sales, or other 
dispositions of installment obligations after the date these 
regulations are published as final regulations in the Federal Register.
0
Par. 5. Section 1.721-1(a) is amended by adding new ninth and tenth 
sentences to read as follows:


Sec.  1.721-1  Nonrecognition of gain or loss on contribution.

    (a) * * * For rules in determining a partner's gain or loss when an 
installment obligation of a partnership is contributed to the 
partnership, see section 453B and Sec.  1.453B-1(c). The preceding 
sentence applies to satisfactions of installment obligations after the 
date these regulations are published as final regulations in the 
Federal Register.
* * * * *

 John Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2014-30103 Filed 12-22-14; 8:45 am]
BILLING CODE 4830-01-P