2256 Federal Register / Vol. 66, No. 8 / Thursday, January 11, 2001 / Rules and Regulations

Because $200,000 of the contribution was

returned within the time period during

which qualifying expenditures could be

made, this amount is not includible in M’s

income. However, the remaining $100,000 is

includible in M’s income for its 2000 taxable

year (the taxable year in which the amount

was received) because the amount was

neither spent nor repaid during the

prescribed time period. To the extent M

repays the remaining $100,000 after year

2002, M would be entitled to a deduction in

the year such repayment is paid or incurred.

(d) Adjusted basis—(1) Exclusion

from basis. Except for a repayment

described in paragraph (d)(2) of this

section, to the extent that a water or

sewerage disposal facility is acquired or

constructed with an amount received as

a contribution to the capital of the

taxpayer under paragraph (a) of this

section, the basis of the facility is

reduced by the amount of the

contribution. To the extent the water or

sewerage disposal facility is acquired as

a contribution to the capital of the

taxpayer under paragraph (a) of this

section, the basis of the contributed

facility is zero.

(2) Repayment of contribution. If a

contribution to the capital of the

taxpayer under paragraph (a) of this

section is repaid to the contributor,

either in whole or in part, then the

repayment amount is a capital

expenditure in the taxable year in which

it is paid or incurred, resulting in an

increase in the property’s adjusted basis

in such year. Capital expenditures

allocated to depreciable property under

paragraph (d)(3) of this section may be

depreciated over the remaining recovery

period for that property.

(3) Allocation of contributions. An

amount treated as a capital expenditure

under this paragraph (d) is to be

allocated proportionately to the adjusted

basis of each property acquired or

constructed with the contribution based

on the relative cost of such property.

(4) Example. The application of this

paragraph (d) is illustrated by the

following example:

Example. A, a calendar year regulated

public utility that provides water services,

received a $1,000,000 contribution in aid of

construction in 2000 as an advance from B,

a developer, for the purpose of constructing

a water facility. To the extent that the

$1,000,000 exceeds the actual cost of the

facility, the contribution is subject to being

returned. Under the terms of the advance, A

agrees to pay to B a percentage of the receipts

from the facility over a fixed period, but

limited to the cost of the facility. In 2001, A

builds the facility at a cost of $700,000 and

returns $300,000 to B. In 2002, A pays

$20,000 to B out of the receipts from the

facility. Assuming accurate records are kept,

the $700,000 advance is a contribution to the

capital of A under paragraph (a) of this

section and is excludable from A’s income.

The basis of the $700,000 facility constructed

with this contribution to capital is zero. The

$300,000 excess amount is not a contribution

to the capital of A under paragraph (a) of this

section because it does not meet the

expenditure rule described in paragraph

(c)(1) of this section. However, this excess

amount is not includible in A’s income

pursuant to paragraph (c)(2)(ii) of this section

since the amount is repaid to B within the

required time period. The repayment of the

$300,000 excess amount to B in 2001 is not

treated as a capital expenditure by A. The

$20,000 payment to B in 2002 is treated as

a capital expenditure by A in 2002 resulting

in an increase in the adjusted basis of the

water facility from zero to $20,000.

(e) Statute of limitations—(1)

Extension of statute of limitations.

Under section 118(d)(1), the statutory

period for assessment of any deficiency

attributable to a contribution to capital

under paragraph (a) of this section does

not expire before the expiration of 3

years after the date the taxpayer notifies

the Secretary in the time and manner

prescribed in paragraph (e)(2) of this

section.

(2) Time and manner of notification.

Notification is made by attaching a

statement to the taxpayer’s federal

income tax return for the taxable year in

which any of the reportable items in

paragraphs (e)(2)(i) through (iii) of this

section occur. The statement must

contain the taxpayer’s name, address,

employer identification number, taxable

year, and the following information

with respect to contributions of property

other than water or sewerage disposal

facilities that are subject to the

expenditure rule described in paragraph

(c) of this section—

(i) The amount of contributions in aid

of construction expended during the

taxable year for property described in

section 118(c)(2)(A) (qualified property)

as required under paragraph (c)(1) of

this section, identified by taxable year

in which the contributions were

received;

(ii) The amount of contributions in

aid of construction that the taxpayer

does not intend to expend for qualified

property as required under paragraph

(c)(1) of this section, identified by

taxable year in which the contributions

were received; and

(iii) The amount of contributions in

aid of construction that the taxpayer

failed to expend for qualified property

as required under paragraph (c)(1) of

this section, identified by taxable year

in which the contributions were

received.

(f) Effective date. This section is

applicable for any money or other

property received by a regulated public

utility that provides water or sewerage

disposal services on or after January 11,

2001.

PART 602—OMB CONTROL NUMBERS

UNDER THE PAPERWORK

REDUCTION ACT

Par. 3. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 4. In § 602.101, paragraph (b) is

amended by adding an entry to the table

in numerical order to read as follows:

§ 602.101 OMB Control numbers.

* * * * *

(b) * * *

CFR part or section identified

and described

Current OMB

control No.

*****

1.118–2 ................................. 1545–1639

*****

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

Approved: December 20, 2000.

Jonathan Talisman,

Acting Assistant Secretary of the Treasury.

[FR Doc. 01–487 Filed 1–10–01; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 7

[TD 8937]

RIN 1545–AY53

Stock Transfer Rules: Transition Rules

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations and removal of

temporary regulations.

SUMMARY: This document contains final

regulations addressing distributions

with respect to, or a disposition of,

certain stock that was subject to prior

temporary regulations under section

367(b). Section 367(b) addresses the

application of nonrecognition exchange

provisions in Subchapter C of the

Internal Revenue Code to transactions

that involve one or more foreign

corporations.

DATES: Effective Date. These regulations

are effective as of January 11, 2001.

Applicability Dates. These regulations

apply to distributions or dispositions

that occur on or after January 11, 2001.

Federal Register / Vol. 66, No. 8 / Thursday, January 11, 2001 / Rules and Regulations 2257

FOR FURTHER INFORMATION CONTACT:

Mark D. Harris, (202) 622–3860 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Background

On January 24, 2000, the IRS and

Treasury issued final regulations under

section 367(b) of the Internal Revenue

Code (Code). At the same time, the IRS

and Treasury also modified temporary

regulation § 7.367(b)-12(a). The final

regulations and modified temporary

regulation were effective as of February

23, 2000.

As modified, § 7.367(b)-12(a)

addresses distributions with respect to,

or a disposition of, stock that was

subject to certain provisions of the

temporary section 367(b) regulations

that were in effect before February 23,

2000. This document finalizes the rule

stated in § 7.367(b)-12(a) in order to

insure its continued application. See

section 7805(e)(2) (stating a ‘‘sunset

rule’’ applicable to temporary

regulations).

Special Analyses

It has been determined that this

Treasury decision 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

notice of proposed rulemaking

preceding the regulations was issued

prior to March 29, 1996, 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 the

impact of the proposed regulations on

small business.

Drafting Information

The principal author of these

regulations is Mark Harris of the Office

of Associate Chief Counsel

(International). However, other

personnel from the IRS and Treasury

Department participated in their

development.

List of Subjects 26 CFR Parts 1 and 7

Income taxes, Reporting and

recordkeeping requirements.

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR parts 1 and 7 are

amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation

for part 1 is amended by adding an entry

in numerical order to read in part as

follows:

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

Section 1.367(b)–12 also issued under 26

U.S.C. 367(a) and (b). * * *

Par. 2. Section 1.367(b)–0 is amended

by revising the introductory text and

adding entries for § 1.367(b)–12 to read

as follows:

§ 1.367(b)–0 Table of contents.

This section lists the paragraphs

contained in §§ 1.367(b)–1 through

1.367(b)–6 and 1.367(b)–12.

* * * * *

§ 1.367(b)–12 Subsequent treatment of

amounts attributed or included in income.

(a) In general.

(b) Applicable rules.

(c) Effective date.

Par. 3. Section 1.367(b)–12 is added

to read as follows:

§ 1.367(b)–12 Subsequent treatment of

amounts attributed or included in income.

(a) In general. This section applies to

distributions with respect to, or a

disposition of, stock—

(1) To which, in connection with an

exchange occurring before February 23,

2000, an amount has been attributed

pursuant to § 7.367(b)–9 or 7.367(b)–10

of this chapter (as in effect prior to

February 23, 2000, see 26 CFR part 1

revised as of April 1, 1999); or

(2) In respect of which, before

February 23, 2000, an amount has been

included in income or added to earnings

and profits pursuant to § 7.367(b)–7 or

§ 7.367(b)–10 of this chapter (as in effect

prior to February 23, 2000, see 26 CFR

part 1 revised as of April 1, 1999).

(b) Applicable rules. See § 7.367(b)–

12(b) through (e) of this chapter (as in

effect prior to January 11, 2001, see 26

CFR part 1 revised as of April 1, 2000)

for purposes of applying paragraph (a)

of this section.

(c) Effective date. This section applies

to distributions or dispositions that

occur on or after January 11, 2001.

PART 7—TEMPORARY INCOME TAX

REGULATIONS UNDER THE TAX

REFORM ACT OF 1976

Par. 4. The authority citation for part

7 is amended by removing the entry for

§ 7.367(b)–12 and continues to read in

part as follows:

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

§ 7.367(b)–12 [Removed]

Par. 5. Section 7.367(b)–12 is

removed.

Approved: December 28, 2000

Robert E. Wenzel,

Deputy Commissioner of Internal Revenue.

Jonathan Talisman,

Assistant Secretary of the Treasury.

[FR Doc. 01–488 Filed 1–10–01; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[TD 8932]

RIN 1545–AW81

Timely Mailing Treated as Timely

Filing/Electronic Postmark

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations; and removal

of temporary regulations.

SUMMARY: This document contains

regulations relating to timely mailing

treated as timely filing and paying

under section 7502 of the Internal

Revenue Code. The regulations

generally reflect changes to the law

made since 1960. In addition, the

regulations provide that the date of an

electronic postmark will be the filing

date under certain circumstances. The

regulations affect taxpayers who file

documents or make payments or

deposits.

DATES: Effective Date: These regulations

are effective January 11, 2001.

Applicability Date: For dates of

applicability, see §§ 301.7502–1(g) and

301.7502–2(e).

FOR FURTHER INFORMATION CONTACT:

Charles A. Hall, (202) 622–4940 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments

to the Regulations on Procedure and

Administration (26 CFR part 301) under

section 7502 relating to timely mailing

treated as timely filing and paying. A

notice of proposed rulemaking (REG–

115433–98) was published in the

Federal Register (64 FR 2606) on

January 15, 1999. Temporary regulations

(TD 8807) relating to electronic

postmarks for electronically filed

income tax returns were published in

the Federal Register for the same day

(64 FR 2568). No public hearing was

requested or held. No comments were

received from the public in response to

the notice of proposed rulemaking. The

proposed regulations under section