Source: https://www.irs.gov/irb/2013-34_IRB
Timestamp: 2019-03-24 17:42:17
Document Index: 222686913

Matched Legal Cases: ['§1', '§1', '§1', '§1', 'art 1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', '§1', 'art 1', '§ 51', '§ 51', '§ 51']

Internal Revenue Bulletin: 2013-34 | Internal Revenue Service
Internal Revenue Bulletin: 2013-34
Announcement 2013-37
T.D. 9625 T.D. 9625
Final regulations provide rules regarding the exception to the deduction limitations on certain expenditures paid or incurred under reimbursement or other expense allowance arrangements under section 274 of the Code.
T.D. 9626 T.D. 9626
These final regulations under section 337(d) of the Code provide guidance concerning certain transfers of property from a C corporation to a Regulated Investment Company or a Real Estate Investment Trust.
Announcement 2013-37 Announcement 2013-37
This announcement extends the deadline to submit on-cycle applications for opinion and advisory letters for sponsors and practitioners maintaining defined benefit mass submitter lead plans for the plans’ second six-year remedial amendment cycle. Rev. Procs. 2007-44 and 2011-49 are modified.
Notice 2013-51 Notice 2013-51
This notice provides guidance on the branded prescription drug fee for the 2014 fee year related to (1) the submission of Form 8947, Report of Branded Prescription Drug Information, (2) the time and manner for notifying covered entities of their preliminary fee calculation, (3) the time and manner for submitting error reports for the dispute resolution process, and (4) the time for notifying covered entities of their final fee calculation. Notice 2012-74 is obsoleted.
Applicability Date: For date of applicability, see §1.274-2(f)(2)(iv)(F).
Patrick Clinton, (202) 622-4930 (not a toll-free number).
The regulations use the term payor to clarify that the rules relating to reimbursement and other expense allowance arrangements with employees do not require determining who is the common law employer. The rules require, instead, identifying the party that bears the expense. Thus, the regulations are not limited to employers but encompass any party that reimburses an employee’s expenses under a reimbursement or other expense allowance arrangement. Accordingly, the final regulations do not adopt this comment.
(B) Reimbursement arrangements involving employees. In the case of an employee’s expenditure for entertainment, amusement, recreation, food, or beverages in performing services as an employee under a reimbursement or other expense allowance arrangement with a payor (the employer, its agent, or a third party), the limitations on deductions in paragraphs (a) through (e) of this section and section 274(n)(1) apply—
(1) To the employee to the extent the employer treats the reimbursement or other payment of the expense on the employer’s income tax return as originally filed as compensation paid to the employee and as wages to the employee for purposes of withholding under chapter 24 (relating to collection of income tax at source on wages); or
Example 1. (i) Y, an employee, performs services under an arrangement in which L, an employee leasing company, pays Y a per diem allowance of $10x for each day that Y performs services for L’s client, C, while traveling away from home. The per diem allowance is a reimbursement of travel expenses for food and beverages that Y pays in performing services as an employee. L enters into a written agreement with C under which C agrees to reimburse L for any substantiated reimbursements for travel expenses, including meals, that L pays to Y. The agreement does not expressly identify the party that is subject to the deduction limitations. Y performs services for C while traveling away from home for 10 days and provides L with substantiation that satisfies the requirements of section 274(d) of $100x of meal expenses incurred by Y while traveling away from home. L pays Y $100x to reimburse those expenses pursuant to their arrangement. L delivers a copy of Y’s substantiation to C. C pays L $300x, which includes $200x compensation for services and $100x as reimbursement of L’s payment of Y’s travel expenses for meals. Neither L nor C treats the $100x paid to Y as compensation or wages.
(iii) Because the agreement between L and C expressly states that C will reimburse L for substantiated reimbursements for travel expenses that L pays to Y, under paragraph (f)(2)(iv)(D)(2)(a) of this section, L and C have established a reimbursement or other expense allowance arrangement for purposes of paragraph (f)(2)(iv)(C) of this section. L accounts to C for C’s reimbursement in the manner required by section 274(d) by delivering to C a copy of the substantiation L received from Y. Therefore, under section 274(e)(3)(B) and paragraph (f)(2)(iv)(C)(2) of this section, C and not L is subject to the section 274 deduction limitations.
Except as provided in §§1.274-2(a), 1.274-2(e), 1.274-2(f)(2)(iv)(F), and 1.274-5, §§1.274-1 through 1.274-7 apply to taxable years ending after December 31, 1962.
(Filed by the Office of the Federal Register on July 31, 2013, 8:45 a.m., and published in the issue of the Federal Register for August 1, 2013, 78 F.R. 46502)
Effective Date: These regulations are effective on August 2, 2013.
Applicability Date: For date of applicability, see §1.337(d)-7(f)(2).
Grid Glyer (202) 622-7530 or Maury Passman (202) 622-7750 with respect to the corporate issues, and David H. Kirk (202) 622-3060 with respect to the partnership issues (not toll-free numbers).
This document contains an amendment to 26 CFR Part 1. On April 16, 2012, a notice of proposed rulemaking (NPRM) concerning certain transfers of property (converted property) from a C corporation to a RIC or a REIT was published in the Federal Register (REG-139991-08; 77 FR 22516). One written comment was received and no public hearing was requested or held. This Treasury Decision adopts the proposed regulations with the changes discussed in this preamble.
Section 1.337(d)-7 generally provides (in paragraphs (a) and (b)(1)) that if property of a C corporation (the C corporation transferor) becomes the property of a RIC or REIT by the qualification of that C corporation as a RIC or REIT or by the transfer of assets of that C corporation to a RIC or REIT (a conversion transaction), then the RIC or REIT will be subject to tax on the net built-in gain in the converted property under the rules of section 1374 and the underlying regulations (the general rule). The general rule, however, does not apply if the C corporation transferor makes a “deemed sale election” provided for under §1.337(d)-7(c) to recognize gain and loss as if it sold the converted property to an unrelated person at fair market value.
The NPRM proposed to amend §1.337(d)-7 to provide two exceptions from the general rule. First, the general rule would not apply to the extent that the conversion transaction qualifies for nonrecognition treatment under either section 1031 (relating to like-kind exchanges) or section 1033 (relating to involuntary conversions) (the exchange exception). Second, a conversion transaction in which the C corporation that owned the converted property is a tax-exempt entity (within the meaning of §1.337(d)-4(c)(2)) would not be subject to the general rule if the tax-exempt entity would not be subject to tax (such as under the unrelated business income tax rules of section 511) on gain resulting from a deemed sale election had such an election been made under §1.337(d)-7(c)(5) (the tax-exempt exception).
The commenter requested clarification regarding the application of the tax-exempt exception. The IRS and Treasury Department recognize that it may be unclear whether the tax-exempt exception applies to a transaction in which some of the gain resulting from a deemed sale election would be subject to tax if such an election were made, and some of the resulting gain would not be subject to tax. For example, if a tax-exempt entity transferred an asset to a REIT and a portion of the gain resulting from a deemed sale election would be subject to tax under section 511, it may be unclear whether the tax-exempt exception applies to the portion of the gain that would be exempt from tax under section 501(a). Under one interpretation of the proposed regulations, the tax-exempt exception would not apply to any of the gain, including the portion that would be exempt from tax under section 501(a), because a portion of the gain would be subject to tax under section 511.
As noted in the NPRM, the IRS and Treasury Department believe that the general rule should not apply to transfers by tax-exempt entities to the extent that resulting gain (if any) would not be subject to tax under some Code provision were a deemed sale election made. Accordingly, the final regulations clarify that the general rule does not apply to a conversion transaction in which the C corporation that owned the converted property is a tax-exempt entity to the extent that gain would not be subject to tax under Title 26 of the United States Code if a deemed sale election were made. Thus, in the example described, the tax-exempt exception applies to the extent the deemed sale gain with respect to the converted property would be exempt from tax under section 501(a) because that portion of the gain would not be subject to tax under any Code provision had a deemed sale election been made. This is the case even though the tax-exempt exception does not apply to the extent the deemed sale gain with respect to the converted property would be subject to tax under section 511. This clarification is made in a new paragraph in §1.337(d)-7(d).
The commenter also requested clarification that the exchange exception applies to certain multi-party like-kind exchanges of property involving intermediaries, including “reverse like-kind exchanges” in which the replacement property is acquired before the relinquished property is transferred. The IRS and Treasury Department believe that the language of the exchange exception is sufficiently clear and operates to exclude from the general rule any realized gain that is not recognized by reason of either section 1031 or 1033, regardless of the specific transactional form. Accordingly, the IRS and Treasury Department do not believe that any change to the NPRM is necessary on this issue.
In addition, the commenter requested that a new exception to the general rule be added to address the fact pattern in which a REIT purchases appreciated property from a C corporation for cash or other consideration equal to the property’s fair market value. According to the commenter, if the REIT does not have a continuing relationship with the C corporation, the REIT would have no way of knowing the extent to which the C corporation might not recognize any gain, whether pursuant to section 1031, 1033, or some other Code provision. Because the REIT’s basis in property purchased in an arm’s length transaction generally is its cost, the REIT should generally not have any built-in gain in the converted property. Thus, the commenter suggested that this fact pattern should never give rise to a conversion transaction.
The IRS and Treasury Department agree with the commenter that a RIC or REIT that purchases property in an arm’s length transaction from a C corporation for an amount of cash equal to the property’s fair market value should have a cost basis equal to fair market value. Thus, if the RIC or REIT subsequently were to sell the property at a gain during the recognition period, the RIC or REIT should be able to establish that the gain recognized is not built-in gain within the meaning of section 1374(d)(3). Accordingly, the IRS and Treasury Department do not believe that any change to the NPRM is necessary on this issue.
Finally, as suggested by the commenter, a reference in §1.337(d)-7(d)(1) of the NPRM is corrected to refer to section 1033(a)(2) instead of section 1033(b).
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. Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it is hereby certified that these regulations would not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these regulations do not create additional obligations for, or impose an economic impact on, small entities. Instead, these regulations provide an additional exception to the current regulations, and thus have a more limited application to all businesses, including small businesses, than the current regulations. Therefore, a regulatory flexibility analysis is not required. Pursuant to section 7805(f) of the Code, the proposed regulations preceding these regulations were submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business, and no comments were received.
1. Revising paragraphs (a)(2), (d)(1), (e), and (f).
2. Adding paragraphs (d)(3) and (d)(4).
(i) C corporation. The term C corporation has the meaning provided in section 1361(a)(2) except that the term does not include a RIC or a REIT.
(1) Gain otherwise recognized. Paragraph (a)(1) of this section does not apply to any conversion transaction to the extent that gain or loss otherwise is recognized on such conversion transaction by the C corporation that either qualifies as a RIC or a REIT or that transfers property to a RIC or REIT. See, for example, sections 311(b), 336(a), 351(b), 351(e), 356, 357(c), 367, 368(a)(2)(F), 1001, 1031(b), and 1033(a)(2).
(3) Special rules for like-kind exchanges and involuntary conversions.—(i) In general. Paragraph (a)(1) of this section does not apply to a conversion transaction to the extent that a C corporation transfers property with a built-in gain to a RIC or REIT, and the C corporation’s gain is not recognized by reason of either section 1031 or 1033.
Example 1. Section 1031(a) exchange. (i) Facts. X owned a building that it leased for commercial use (Property A). Y owned a building leased for commercial use (Property B). On January 1, Year 3, Y transferred Property B to X in exchange for Property A in a nonrecognition transaction under section 1031(a). Immediately before the exchange, Properties A and B each had a value of $100, X had an adjusted basis of $60 in Property A, Y had an adjusted basis of $70 in Property B, and X was not subject to section 1374 treatment with respect to Property A.
(ii) Analysis. The transfer of property (Property B) by Y (a C corporation) to X (a REIT) is a conversion transaction within the meaning of paragraph (a)(2)(ii) of this section. The conversion transaction is a nonrecognition transaction under section 1031(a) as to Y; thus, Y does not recognize any of its $30 gain. Therefore, the conversion transaction is not subject to paragraph (a)(1) of this section by reason of paragraph (d)(3)(i) of this section.
(ii) Analysis. The Year 3 transfer of Property B by Y to X is a conversion transaction within the meaning of paragraph (a)(2)(ii) of this section. The conversion transaction is a nonrecognition transaction under section 1031(a) as to Y; thus, Y does not recognize any of its $30 gain. Therefore, the Year 3 transfer is not subject to paragraph (a)(1) of this section by reason of paragraph (d)(3)(i) of this section. However, X had been subject to section 1374 treatment with respect to $25 of net built-in gain in Property A immediately before the Year 3 transfer, and X’s basis in Property B is determined (in whole or in part) by reference to its adjusted basis in Property A. Accordingly, the rules of section 1374(d)(6) apply and X is subject to section 1374 treatment on Property B with respect to the $25 net built-in gain. See paragraph (d)(3)(ii) of this section.
Example 3. Section 1031(b) exchange. (i) Facts. The facts are the same as in Example 1, except that immediately before the Year 3 exchange Property A had a value of $92, and X transferred Property A and $8 to Y in exchange for Property B in a nonrecognition transaction under section 1031(b).
(ii) Analysis. The transfer of Property B by Y to X is a conversion transaction within the meaning of paragraph (a)(2)(ii) of this section. Pursuant to section 1031(b), Y recognizes $8 of its gain. Paragraph (a)(1) of this section does not apply to the transaction to the extent of the $8 gain recognized by Y by reason of paragraph (d)(1) of this section, or to the extent of the $22 gain realized but not recognized by Y by reason of paragraph (d)(3)(i) of this section.
(ii) Analysis. The transfer of Property 1 by Y to X is a conversion transaction within the meaning of paragraph (a)(2)(ii) of this section. The conversion transaction (combined with Y’s purchase of Property 2) is a nonrecognition transaction under section 1033(a) as to Y; thus, Y does not recognize any of its $30 gain. Therefore, the conversion transaction is not subject to paragraph (a)(1) of this section by reason of paragraph (d)(3)(i) of this section.
(ii) Analysis. The transfer of Property 2 by Y to X in the Second Transaction is a conversion transaction within the meaning of paragraph (a)(2)(ii) of this section. The Second Transaction (combined with the First Transaction) is a nonrecognition transaction under section 1033(a) as to X, but not as to Y. Assume no nonrecognition provision applied to Y; thus, Y recognized gain or loss on its sale of Property 2 in the Second Transaction, and the Second Transaction is not subject to paragraph (a)(1) of this section by reason of paragraph (d)(1) of this section.
(4) Special rule if C corporation is a tax-exempt entity. Paragraph (a)(1) of this section does not apply to a conversion transaction in which the C corporation that owned the converted property is a tax-exempt entity described in §1.337(d)-4(c)(2) to the extent that gain (if any) would not be subject to tax under Title 26 of the United States Code if a deemed sale election under paragraph (c)(5) of this section were made.
(2) Example. Transfer by partnership of property to REIT. (i) Facts. PRS, a partnership for Federal income tax purposes, has three partners: TE, a C corporation (within the meaning of paragraph (a)(2)(i) of this section) that is also a tax-exempt entity (within the meaning of §1.337(d)-4(c)(2)), owns 50 percent of the capital and profits of PRS; A, an individual, owns 30 percent of the capital and profits of PRS; and Y, a C corporation (within the meaning of paragraph (a)(2)(i) of this section), owns the remaining 20 percent. PRS owns a building that it leases for commercial use (Property 1). On January 1, Year 2, when PRS has an adjusted basis in Property 1 of $100 and Property 1 has a fair market value of $500, PRS transfers Property 1 to X, a REIT, in exchange for stock of X in an exchange described in section 351. PRS does not elect deemed sale treatment under paragraph (c) of this section. TE would not be subject to tax with respect to any gain that would be allocated to it if PRS had sold Property 1 to an unrelated party at fair market value.
(ii) Analysis. The transfer of Property 1 by PRS to X is a conversion transaction within the meaning of paragraph (a)(2)(ii) of this section to the extent of any gain or loss that would be allocated to any C corporation partner if PRS sold Property 1 at fair market value to an unrelated party on the deemed sale date. TE and Y are C corporations, but A is not a C corporation within the meaning of paragraph (a)(2)(i) of this section. Therefore, the transfer of Property 1 by PRS to X is a conversion transaction within the meaning of paragraph (a)(2)(ii) of this section to the extent of the gain in Property 1 that would be allocated to TE and Y. Pursuant to paragraph (d)(4) of this section, paragraph (a)(1) of this section does not apply to the extent of the gain that would be allocated to TE if PRS had sold Property 1 to an unrelated party at fair market value on the deemed sale date. If PRS were to sell Property 1 to an unrelated party at fair market value on the deemed sale date, PRS would allocate $80 of built-in gain to Y. Thus, X is subject to section 1374 treatment on Property 1 with respect to $80 of built-in gain.
(2) Special rule. Paragraphs (a)(2), (d)(1), (d)(3), (d)(4), and (e) of this section apply to conversion transactions that occur on or after August 2, 2013. However, taxpayers may apply paragraphs (a)(2), (d)(1), (d)(3), (d)(4), and (e) of this section to conversion transactions that occurred before August 2, 2013. For conversion transactions that occurred on or after January 2, 2002, and before August 2, 2013, see §1.337(d)-7 as contained in 26 CFR part 1 in effect on April 1, 2013.
(Filed by the Office of the Federal Register on August 1, 2013, 8:45 a.m., and published in the issue of the Federal Register for August 2, 2013, 78 F.R. 46805)
The principal authors of these regulations are Grid Glyer and Maury Passman of the Office of Associate Chief Counsel (Corporate). Other personnel from the IRS and Treasury Department participated in their development.
Branded Prescription Drug Fee; Guidance for the 2014 Fee Year
This notice provides guidance on the branded prescription drug fee for the 2014 fee year related to (1) the submission of Form 8947, Report of Branded Prescription Drug Information, (2) the time and manner for notifying covered entities of their preliminary fee calculation, (3) the time and manner for submitting error reports for the dispute resolution process, and (4) the time for notifying covered entities of their final fee calculation.
Section 51.3T provides that annually, each covered entity may submit a completed Form 8947, Report of Branded Prescription Drug Information, in accordance with the instructions for the form. Generally, the form solicits information from covered entities on National Drug Codes, orphan drugs, designated entities, rebates, and other information specified by the form or its instructions. The form is to be filed by the date prescribed in guidance published in the Internal Revenue Bulletin.
Section 51.6T provides that for each sales year the Internal Revenue Service (IRS) will make a preliminary fee calculation for each covered entity and will notify each covered entity of this calculation by the date prescribed in guidance published in the Internal Revenue Bulletin. This notification will also include additional prescribed information. As used in this notice, “notice of preliminary fee calculation” includes the additional prescribed information.
For the 2014 fee year, a covered entity that chooses to submit Form 8947 must file the form by November 1, 2013.
For the 2014 fee year, the IRS will mail each covered entity a paper notice of its preliminary fee calculation by March 3, 2014. This mailing will include a National Drug Code (NDC) attachment (NDC attachment) that lists the covered entity’s NDCs and the sales data reported to the IRS by each government program pursuant to § 51.4T.
A covered entity may request that the IRS send a CD-ROM with the NDC attachment in Microsoft Excel format. The covered entity must make this request by February 17, 2014. This request must be made either by telephone to Ingrid Taylor at (908) 301-2118 or Mi Lim at (312) 292-3775 (not toll-free calls) or by email to it.bpd.fee@irs.gov. If a covered entity makes this request timely, the IRS will mail the covered entity its notice of preliminary fee calculation on paper and the NDC attachment on paper and CD-ROM by March 3, 2014.
For the 2014 fee year, a covered entity that chooses to submit an error report regarding its preliminary fee calculation must mail the error report by May 15, 2014.
When the IRS mails each covered entity a notice of its preliminary fee calculation by March 3, 2014, the IRS will also send each covered entity a template on a CD-ROM that the covered entity must use to prepare its error report. All completed templates and the supporting documentation must be submitted on a CD-ROM and sent by mail to:
Internal Revenue Service —
In accordance with § 51.8T(a), the IRS will notify each covered entity of its final fee calculation for 2014 by August 29, 2014. In accordance with § 51.8T(c), each covered entity must pay this fee by September 30, 2014.
Notice 2012-74, 2012-51 I.R.B. 714, which provides guidance for the 2013 fee year, is obsoleted.
The principal author of this notice is Celia Gabrysh of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice contact Celia Gabrysh at (202) 622-3130 (not a toll-free call).
Deadline to Submit Opinion and Advisory Letter Applications for Defined Benefit Mass Submitter Plans is Extended to January 31, 2014
Rev. Proc. 2007-44 and Rev. Proc. 2011-49 are modified.
The principal author of this announcement is Angelique Carrington of the Employee Plans, Tax Exempt and Government Entities Division. For further information regarding this announcement, please call the Employee Plans taxpayer assistance answering service at (877) 829-5500 (a toll-free number) or e-mail Ms. Carrington at retirementplanquestions@irs.gov.
Bulletins 2013-27 through 2013-34
2013-37 2013-34 I.R.B. 2013-34
2013-51 2013-34 I.R.B. 2013-34
9625 2013-34 I.R.B. 2013-34
9626 2013-34 I.R.B. 2013-34
2012-74 Obsoleted by Notice 2013-51 2013-34 I.R.B. 2013-34
2007-44 Modified by Ann. 2013-37 2013-34 I.R.B. 2013-34
2011-49 Modified by Ann. 2013-37 2013-34 I.R.B. 2013-34