[Federal Register Volume 67, Number 1 (Wednesday, January 2, 2002)]
[Proposed Rules]
[Pages 48-49]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-31968]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-142299-01] [REG-209135-88]
RIN 1545-BA36 and 1545-AW92


Certain Transfers of Property to Regulated Investment Companies 
and Real Estate Investment Trusts

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations.

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SUMMARY: This document contains proposed regulations that apply to 
certain transactions or events that result in a Regulated Investment 
Company [RIC] or Real Estate Investment Trust [REIT] owning property 
that has a basis determined by reference to a C corporation's basis in 
the property. The text of the temporary regulations published in the 
Rules and Regulations section of this issue of the Federal Register 
serves as the text of this proposed regulation.

DATES: Written or electronic comments must be received by April 2, 
2002.

ADDRESSES: Send submissions to: CC:ITA:RU [REG-142299-01], room 5226, 
Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, 
DC 20044. Submissions may be hand delivered Monday through Friday 
between the hours of 8 a.m. and 5 p.m. to CC:ITA:RU [REG-142299-01], 
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., 
Washington, DC or sent to the IRS Internet site at: http://www.irs.gov/taxregs/reglist.html.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Lisa A. Fuller, (202) 622-7750; concerning submissions of comments, 
Donna Poindexter (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44

[[Page 49]]

U.S.C. 3507(d)). Comments on the collection of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, W:CAR:MP:FP:S:O, 
Washington, DC 20224. Comments on the collection of information should 
be received by March 4, 2002. Comments are specifically requested 
concerning: Whether the proposed collection of information is necessary 
for the proper performance of the functions of the IRS, including 
whether the collection will have practical utility; The accuracy of the 
estimated burden associated with the proposed collection of information 
(see below); How the quality, utility, and clarity of the information 
to be collected may be enhanced; How the burden of complying with the 
proposed collection of information may be minimized, including through 
the application of automated collection techniques or other forms of 
information technology; and Estimates of capital or start-up costs and 
costs of operation, maintenance, and purchase of services to provide 
information.
    The collection of information in this proposed regulation is in 
Secs. 1.337(d)-6T and 1.337(d)-7T. This information is necessary for 
the IRS to determine whether section 1374 treatment or deemed sale 
treatment is appropriate for the entity for which the regulation 
applies. The collection of information is required to obtain a benefit, 
i.e., to elect section 1374 treatment in lieu of deemed sale treatment 
in Sec. 1.337(d)-6T, or to elect deemed sale treatment in lieu of 
section 1374 treatment in Sec. 1.337(d)-7T. The likely respondents for 
deemed sale elections are C corporations. The likely respondents for 
section 1374 elections are RICs and REITs.
    Section 1.337(d)-6T provides that a section 1374 election is made 
by filing a statement and attaching it to any Federal income tax return 
filed by the RIC or REIT on or before March 15, 2003, provided that the 
RIC or REIT has reported consistently with such election for all 
periods. Alternatively, a RIC or REIT can also make a section 1374 
election by informing the IRS prior to January 2, 2002 of its intent to 
make a section 1374 election. Section 1.337(d)-7T provides that a 
deemed sale election is made by filing a statement and attaching it to 
the C corporation's Federal income tax return for the taxable year in 
which the deemed sale occurs.
    Estimated total annual reporting burden: 70 hours.
    Estimated average annual burden per respondent: 30 minutes.
    Estimated number of respondents: 140.
    Estimated annual frequency of responses: Once.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register revise and add the Income Tax Regulations 
(26 CFR part 1) relating to section 337(d). The temporary regulations 
generally provide that, if property owned by a C corporation or 
property subject to section 1374 owned by a RIC, a REIT, or an S 
corporation becomes the property of a RIC or REIT by (1) the 
qualification of the C corporation as a RIC or REIT, or (2) certain 
transfers of property to a RIC or REIT, then the RIC or REIT will be 
subject either to section 1374 treatment or the C corporation will be 
subject to deemed sale treatment. The text of those temporary 
regulations also serves as the text of these proposed regulations. The 
preamble to the temporary regulations explains the temporary 
regulations.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
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) does not apply to these regulations and, because 
the regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Therefore, a Regulatory Flexibility Analysis is not required. 
Pursuant to section 7805(f) of the Code, these proposed regulations 
will be submitted to the Chief Counsel for Advocacy of the Small 
Business Administration for comment on their impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (a signed original 
and eight (8) copies) or electronic comments that are submitted timely 
to the IRS. The IRS and Treasury request comments on the clarity of the 
proposed rule and how it may be made easier to understand. All comments 
will be made available for public inspection and copying. A public 
hearing may be scheduled. When a public hearing is scheduled, notice of 
the date, time, and place for the public hearing will be published in 
the Federal Register.

Drafting Information

    The principal author of these regulations is Lisa A. Fuller of the 
Office of Associate Chief Counsel (Corporate). Other personnel from 
Treasury and the IRS participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

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

PART 1--INCOME TAXES

    Par. 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read in part as follows:

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

    Section 1.337(d)-6 also issued under 26 U.S.C. 337.
    Section 1.337(d)-7 also issued under 26 U.S.C. 337. * * *

    Par. 2. Sections 1.337(d)-6 and 1.337(d)-7 are added to read as 
follows:


Sec. 1.337(d)-6  New transitional rules imposing tax on property owned 
by a C corporation that becomes property of a RIC or REIT.

    [The text of proposed Sec. 1.337(d)-6 is the same as the text of 
Sec. 1.337(d)-6T published elsewhere in this issue of the Federal 
Register.]


Sec. 1.337(d)-7  Tax on property owned by a C corporation that becomes 
property of a RIC or REIT.

    [The text of proposed Sec. 1.337(d)-7 is the same as the text of 
Sec. 1.337(d)-7T published elsewhere in this issue of the Federal 
Register.]

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
[FR Doc. 01-31968 Filed 12-31-01; 8:45 am]
BILLING CODE 4830-01-P