67086 Federal Register / Vol. 66, No. 249 / Friday, December 28, 2001 / Rules and Regulations

4. Revising paragraph (b)(4)(iii).

5. Adding Example 3 to paragraph

(b)(4)(iv).

6. Revising paragraphs (d)(3), (e)(1),

and (e)(2)(i).

The revisions and additions read as

follows:

§ 1.865–2 Loss with respect to stock.

(a)(1) * * * For purposes of this

section, loss includes loss on property

that is marked-to-market (such as under

section 475) and subject to the rules of

this section. * * *

* * * * *

(3) * * *

(ii) * * * If gain from a sale of such

stock would give rise to income exempt

from tax under section 933, the loss

with respect to such stock shall be

allocated to amounts that are excluded

from gross income under section 933(1)

and therefore shall not be allowed as a

deduction from gross income. See

section 933(1) and § 1.933–1(c).

* * * * *

(b) * * *

(1) * * *

(iv) * * *

Example 6. (i) On January 1, 1998, P, a

domestic corporation, purchases N, a foreign

corporation, for $1,000. On March 1, 1998, P

causes N to sell its operating assets,

distribute a $400 general limitation dividend

to P, and invest its remaining $600 in shortterm government securities. P converted the

N assets into low-risk investments with a

principal purpose of holding the N stock

without significant risk of loss until the

recapture period expired. N earns interest

income from the securities. The income

constitutes subpart F income that is included

in P’s income under section 951, increasing

P’s basis in the N stock under section 961(a).

On March 1, 2002, P sells N and recognizes

a $400 loss.

(ii) Pursuant to paragraph (d)(3) of this

section, the recapture period is increased by

the period in which N’s assets were held as

low-risk investments because P caused N’s

assets to be converted into and held as lowrisk investments with a principal purpose of

enabling P to hold the N stock without

significant risk of loss. Accordingly, under

paragraph (b)(1)(i) of this section the $400

loss is allocated against foreign source

general limitation income.

* * * * *

(4) * * *

(iii) Matching rule. If a taxpayer (or a

person described in section

1059(c)(3)(C) with respect to the

taxpayer) engages in a transaction or

series of transactions with a principal

purpose of recognizing foreign source

income that results in the creation of a

corresponding loss with respect to stock

(as a consequence of the rules regarding

the timing of recognition of income, for

example), the loss shall be allocated and

apportioned against such income to the

extent of the recognized foreign source

income. This paragraph (b)(4)(iii)

applies to any portion of a loss that is

not allocated under paragraph (b)(1)(i)

of this section (dividend recapture rule),

including a loss in excess of the

dividend recapture amount and a loss

that is related to a dividend recapture

amount described in paragraph (b)(1)(ii)

(de minimis exception) or (b)(1)(iii)

(passive dividend exception) of this

section.

(iv) Examples. ***

Example 3. (i) Facts. On January 1, 2002,

P and Q, domestic corporations, form R, a

domestic partnership. The corporations and

partnership use the calendar year as their

taxable year. P contributes $900 to R in

exchange for a 90-percent partnership

interest and Q contributes $100 to R in

exchange for a 10-percent partnership

interest. R purchases a dance studio in

country X for $1,000. On January 2, 2002, R

enters into contracts to provide dance lessons

in Country X for a 5-year period beginning

January 1, 2003. These contracts are prepaid

by the dance studio customers on December

31, 2002, and R recognizes foreign source

taxable income of $500 from the prepayments

(R’s only income in 2002). P takes into

income its $450 distributive share of

partnership taxable income. On January 1,

2003, P’s basis in its partnership interest is

$1,350 ($900 from its contribution under

section 722, increased by its $450

distributive share of partnership income

under section 705). On September 22, 2003,

P contributes its R partnership interest to S,

a newly-formed domestic corporation, in

exchange for all the stock of S. Under section

358, P’s basis in S is $1,350. On December

1, 2003, P sells S to an unrelated party for

$1050 and recognizes a $300 loss.

(ii) Loss allocation. P recognized foreign

source income for tax purposes before the

income had economically accrued, and the

accelerated recognition of income increased

P’s basis in R without increasing its value by

a corresponding amount, which resulted in

the creation of a built-in loss with respect to

the S stock. Under paragraph (b)(4)(iii) of this

section the $300 loss is allocated against

foreign source income if P had a principal

purpose of recognizing foreign source income

and corresponding loss.

* * * * *

(d) * * *

(3) Recapture period. A recapture

period is the 24-month period ending on

the date on which a taxpayer recognized

a loss with respect to stock. For

example, if a taxpayer recognizes a loss

on March 15, 2002, the recapture period

begins on and includes March 16, 2000,

and ends on and includes March 15,

2002. A recapture period is increased by

any period of time in which the

taxpayer has diminished its risk of loss

in a manner described in section

246(c)(4) and the regulations thereunder

and by any period in which the assets

of the corporation are hedged against

risk of loss (or are converted into and

held as low-risk investments) with a

principal purpose of enabling the

taxpayer to hold the stock without

significant risk of loss until the

recapture period has expired. In the case

of a loss recognized after a dividend is

declared but before such dividend is

paid, the recapture period is extended

through the date on which the dividend

is paid.

* * * * *

(e) Effective date—(1) In general. This

section is applicable to loss recognized

on or after January 11, 1999, except that

paragraphs (a)(3)(ii), (b)(1)(iv) Example

6, (b)(4)(iii), (b)(4)(iv) Example 3, and

(d)(3) of this section are applicable to

loss recognized on or after January 8,

2002. For purposes of this paragraph (e),

loss that is recognized but deferred (for

example, under section 267 or 1092)

shall be treated as recognized at the time

the loss is taken into account.

(2) * * *

(i) The taxpayer’s tax liability as

shown on an original or amended tax

return is consistent with the rules of this

section for each such year for which the

statute of limitations does not preclude

the filing of an amended return on June

30, 2002; and

* * * * *

§ 1.865–2T [Removed]

Par. 7. Section 1.865–2T is removed.

§ 1.904–4 [Amended]

Par. 8. In § 1.904–4, paragraph

(c)(2)(ii)(A), remove the language

‘‘1.865–1T through 1.865–2T’’ at the end

of the first sentence and add ‘‘1.865–1

and 1.865–2’’ in its place.

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

Approved: December 19, 2001.

Mark Weinberger,

Assistant Secretary of the Treasury.

[FR Doc. 01–31819 Filed 12–27–01; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

31 CFR Part 103

[FinCEN Issuance 2001–2]

Financial Crimes Enforcement

Network; Bank Secrecy Act

Regulations—Issuance Concerning the

Requirement that Money Transmitters

and Money Order and Traveler’s Check

Issuers, Sellers, and Redeemers

Report Suspicious Transactions;

Effective Date and Reporting Form

AGENCY: Financial Crimes Enforcement

Network (‘‘FinCEN’’), Treasury.

Federal Register / Vol. 66, No. 249 / Friday, December 28, 2001 / Rules and Regulations 67087

1The information collection in this Issuance has

been approved by the Office of Management and

Budget (‘‘OMB’’) in accordance with the

requirements of the Paperwork Reduction Act (44

U.S.C. 3507(d)) under control number 1506–0001.

An agency may not conduct or sponsor, and person

is not required to respond to, a collection of

information unless it displays a valid control

number.

ACTION: Guidance on reporting

requirement effective date and form.

SUMMARY: This document reminds

money transmitters and money order

and traveler’s check issuers, sellers, and

redeemers of the January 1, 2002

effective date for the requirement to

report suspicious transactions. In

addition, this document explains which

form these businesses must use to report

suspicious transactions.

FOR FURTHER INFORMATION CONTACT:

Patrice Motz, Money Services Business

Program, Office of Compliance and

Regulatory Enforcement, FinCEN (800)

949–2732; Judith Starr, Chief Counsel or

Cynthia L. Clark, Deputy Chief Counsel,

FinCEN (703) 905–3590.

SUPPLEMENTARY INFORMATION:

I. Introduction

The statute generally referred to as the

‘‘Bank Secrecy Act,’’ Titles I and II of

Public Law 91–508, as amended,

codified at 12 U.S.C. 1829b, 12 U.S.C.

1951–1959, and 31 U.S.C. 5311–5331,

authorizes the Secretary of the Treasury,

inter alia, to require financial

institutions to keep records and file

reports that are determined to have a

high degree of usefulness in criminal,

tax, and regulatory matters, or in the

conduct of intelligence or counterintelligence activities, to protect against

international terrorism, and to

implement counter-money laundering

programs and compliance procedures.

Regulations implementing Title II of the

Bank Secrecy Act appear at 31 CFR part

103. The authority of the Secretary to

administer the Bank Secrecy Act has

been delegated to the Director of

FinCEN.

The Secretary of the Treasury was

granted authority in 1992, with the

enactment of 31 U.S.C. 5318(g), to

require financial institutions to report

suspicious transactions. On March 14,

2000, FinCEN issued a final rule

requiring money transmitters, and

issuers, sellers, and redeemers of money

orders and traveler’s checks, to report

suspicious transactions. (65 FR 13683).

II. FinCEN Issuance 2001–2

This document, FinCEN Issuance

2001–2, reminds money transmitters

and issuers, sellers, and redeemers of

money orders and traveler’s checks that

the requirement to report suspicious

transactions applies to transactions

occurring on or after January 1, 2002.1

A report of a suspicious transaction

must be filed no later than 30 calendar

days after the date of initial detection of

facts that may constitute a basis for

filing a report of the suspicious

transaction. See, 31 CFR 103.20(b)(3).

FinCEN is developing a form to be

used solely by money transmitters and

issuers, sellers, and redeemers of money

orders and traveler’s checks to report

suspicious transactions. That form, the

Suspicious Activity Report—MSB

(‘‘SAR–MSB’’), will be published in the

Federal Register for public comment. In

the meantime, money transmitters and

issuers, sellers, and redeemers of money

orders and traveler’s checks are to use

the existing bank suspicious activity

report, Form TD F 90–22.47, to report

suspicious activities. Money

transmitters and issuers, sellers, and

redeemers of money orders and

traveler’s checks are requested to enter

the letters ‘‘MSB’’ in block letters at the

top of the form and in the empty space

in item 5 of the TD F 90–22.47. Further

information about completing the TD F

90–22.47 is available on the general

FinCEN Web site at http://

www.treas.gov/fincen and on the site

specific to money services businesses at

http://www.msb.gov.

Money services businesses are

encouraged to continue to use the

Financial Institutions Hotline to

voluntarily report to law enforcement

suspicious transactions that may relate

to recent terrorist activity against the

United States. The Hotline was

established to facilitate the immediate

transmittal of this information to law

enforcement. The use of the Hotline is

voluntary and does not negate the

responsibility of a particular money

services business to file a TD F 90–

22.47.

Dated: December 20, 2001.

James F. Sloan,

Director, Financial Crimes Enforcement

Network.

[FR Doc. 01–31851 Filed 12–27–01; 8:45 am]

BILLING CODE 4820–03–P

DEPARTMENT OF COMMERCE

Patent and Trademark Office

37 CFR Part 1

[Docket No.: 010815207–1285–03]

RIN 0651–AB41

Requirements for Claiming the Benefit

of Prior-Filed Applications Under

Eighteen-Month Publication of Patent

Applications

AGENCY: United States Patent and

Trademark Office, Commerce.

ACTION: Final rule.

SUMMARY: In implementing the

provisions of the American Inventors

Protection Act of 1999 related to the

eighteen-month publication of patent

applications, the United States Patent

and Trademark Office (Office) revised

the rules of practice related to

requirements for claiming the benefit of

a prior-filed application. The Office is

now revising the time period for

claiming the benefit of a prior-filed

application in an application filed

under the Patent Cooperation Treaty

(PCT), revising the time period for filing

an English language translation of a

non-English language provisional

application, and making other technical

corrections to the rules of practice

related to eighteen-month publication.

EFFECTIVE DATE: December 28, 2001.

FOR FURTHER INFORMATION CONTACT:

Robert A. Clarke or Joni Y. Chang, Legal

Advisors, Office of Patent Legal

Administration, by telephone at (703)

308–6906, or by mail addressed to: Box

Comments—Patents, Commissioner for

Patents, Washington, DC 20231, or by

facsimile to (703) 872–9399, marked to

the attention of Robert A. Clarke.

SUPPLEMENTARY INFORMATION: The

American Inventors Protection Act of

1999 was enacted into law on November

29, 1999. See Pub. L. 106–113, 113 Stat.

1501, 1501A–552 through 1501A–591

(1999). The American Inventors

Protection Act of 1999 contained a

number of changes to title 35, United

States Code, including provisions for

the publication of pending applications

for patent, with certain exceptions,

promptly after the expiration of a period

of eighteen months from the earliest

filing date for which a benefit is sought

under title 35, United States Code

(‘‘eighteen-month publication’’). The

Office implemented the eighteen-month

publication provisions of the American

Inventors Protection Act of 1999 in a

final rule published in September of

2000. See Changes to Implement

Eighteen-Month Publication of Patent