Certain Elections for Intangible Property

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8528]

RIN 1545-AS12

Certain Elections for Intangible Property

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations relating to the

procedures for making elections under the intangibles provisions of the

Omnibus Budget Reconciliation Act of 1993 (OBRA '93). The regulations

affect electing taxpayers that acquired intangible property after July

25, 1991, or acquired intangibles under a written, binding contract

that was in effect on August 10, 1993. The text of these temporary

regulations also serves as the text of the proposed regulations set

forth in the notice of proposed rulemaking on this subject in the

Proposed Rules section of this issue of the Federal Register.

EFFECTIVE DATE: These regulations are effective March 15, 1994.

FOR FURTHER INFORMATION CONTACT: John Huffman, (202) 622-3110 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

These regulations are being issued without prior notice and public

procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553).

For this reason, the collection of information contained in these

regulations has been reviewed and, pending receipt and evaluation of

public comments, approved by the Office of Management and Budget under

control number 1545-1425. The estimated annual burden per respondent

varies from 30 minutes to 75 minutes, depending on individual

circumstances, with an estimated average of 1 hour.

For further information concerning this collection of information,

and where to submit comments on this collection of information, the

accuracy of the estimated burden, and suggestions for reducing this

burden, please refer to the preamble to the cross-referencing notice of

proposed rulemaking published in the Proposed Rules section of this

issue of the Federal Register.

Background

This document contains amendments to the Income Tax Regulations (26

CFR part 1) under sections 197 and 167(f). The amendments reflect

changes made by section 13261 of OBRA '93.

Explanation of Provisions

Section 13261 of OBRA '93 contains provisions affecting the tax

treatment of intangible property acquired after August 10, 1993 (the

date of enactment of OBRA '93). The temporary regulations provide

guidance on how to make the section 13261(g)(2) election to apply the

intangibles provisions of OBRA '93 to property acquired after July 25,

1991, and on or before August 10, 1993 (retroactive election). Once

made, the election applies to all property acquired during this period

by the taxpayer or a taxpayer under common control with the electing

taxpayer. Common control exists if the two taxpayers are treated as a

single taxpayer under section 41(f)(1) (A) or (B) at any time after

August 2, 1993, and on or before the election date as defined under

these regulations.

If a corporation is a former member of a consolidated group and the

common parent of that group makes the retroactive election, the

intangibles provisions of OBRA '93 will apply to property that was

acquired by the former member after July 25, 1991, while it was a

member of the consolidated group.

The regulations provide special rules for partnerships for which a

section 754 election was in effect. In these situations, a partner that

obtains an increased basis in intangibles held through the partnership

as a result of either section 734(b) or 743(b) will be treated as if

the increased basis were attributable to the partner's acquisition of a

new intangible asset on the date of the transaction that results in the

basis increase.

The regulations also provide guidance on how a taxpayer may make

the section 13261(g)(3) election to apply prior law to intangibles

acquired after August 10, 1993, pursuant to a written binding contract

in effect on August 10, 1993, and at all times thereafter before the

acquisition (binding contract election). Only taxpayers that have not

elected the retroactive election may make the binding contract

election.

The elections provided for in these regulations generally must be

made on the taxpayer's timely filed (including extensions) income tax

return for the taxable year that includes August 10, 1993. Transition

rules are provided, however for taxpayers that have filed tax returns

for the taxable year that includes August 10, 1993, prior to April 14,

1994.

The taxpayer must make the desired election by following the

election requirements under the regulations. An attempted election made

other than at the time and in the manner prescribed by the regulations

is not valid.

Taxpayers making the retroactive election must conform all affected

prior years' returns to reflect the application of the intangibles

provisions of OBRA '93.

The regulations also provide special rules for transfers of

intangibles in certain tax-free transactions. Under these rules, a

transferee is bound by a transferor's retroactive election with respect

to any transferred intangibles. In cases where the transferor does not

make the retroactive election, the transferee may make the election. In

these cases, the transferor is not required to apply the intangibles

provisions of OBRA '93 to the transferred intangibles (unless those

provisions are otherwise applicable), and the transferee must take into

account an adjustment with respect to the transferred intangibles on

account of any interim period during which the intangibles provisions

of OBRA '93 did not apply to the transferred intangibles. The

adjustment, which is taken into account in the taxable year of the

acquisition, is equal to the difference, as of the date of the

transfer, between the sum of the depreciation, amortization, or other

cost recovery deductions that would have been permitted for the

transferred intangibles had the intangibles provisions of OBRA '93

applied to the property during the interim period, and the sum of the

depreciation, amortization, or other cost recovery deductions claimed

with respect to the intangibles during the interim period. The

transferee must also make any corresponding basis adjustments to the

transferred intangibles.

Principles and adjustments similar to those described in the

preceding paragraph (in the case of a retroactive election by the

transferee where no election is made by the transferor) are also

applied in certain circumstances with respect to an electing former

member of a non-electing consolidated group.

Finally, in order for the retroactive or binding contract elections

to be valid, the regulations prescribe certain notice requirements and

require that certain information be included in a written election

statement filed with the election year return and any affected amended

returns.

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) and the Regulatory Flexibility Act (5 U.S.C. chapter

6) do not apply to these regulations, and, therefore, a Regulatory

Flexibility Analysis is not required. Pursuant to section 7805(f) of

the Internal Revenue Code, these temporary regulations will be

submitted to the Chief Counsel for Advocacy of the Small Business

Administration for comment on their impact on small business.

Drafting Information

The principal author of these regulations is John Huffman, Office

of Assistant Chief Counsel (Passthroughs and Special Industries).

However, other personnel from the IRS and Treasury Department

participated in their development.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 602 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 as follows:

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

Section 1.197-1T also issued under 26 U.S.C. 197(g).

Par. 2. Section 1.167(a)-13T is added to read as follows:

Sec. 1.167(a)-13T Certain elections for intangible property

(temporary).

For rules applying the elections under section 13261(g) (2) and (3)

of the Omnibus Budget Reconciliation Act of 1993 to intangible property

described in section 167(f), see Sec. 1.197-1T.

Par. 3. Section 1.197-1T is added under the heading ``Itemized

Deductions for Individuals and Corporations'' to read as follows:

Sec. 1.197-1T Certain elections for intangible property (temporary).

(a) In general. This section provides rules for making the two

elections under section 13261 of the Omnibus Budget Reconciliation Act

of 1993 (OBRA '93). Paragraph (c) of this section provides rules for

making the section 13261(g)(2) election (the retroactive election) to

apply the intangibles provisions of OBRA '93 to property acquired after

July 25, 1991, and on or before August 10, 1993 (the date of enactment

of OBRA '93). Paragraph (d) of this section provides rules for making

the section 13261(g)(3) election (binding contract election) to apply

prior law to property acquired pursuant to a written binding contract

in effect on August 10, 1993, and at all times thereafter before the

date of acquisition. The provisions of this section apply only to

property for which an election is made under paragraph (c) or (d) of

this section.

(b) Definitions and special rules--(1) Intangibles provisions of

OBRA '93. The intangibles provisions of OBRA '93 are sections 167(f)

and 197 of the Internal Revenue Code (Code) and all other pertinent

provisions of section 13261 of OBRA '93 (e.g., the amendment of section

1253 in the case of a franchise, trademark, or trade name).

(2) Transition period property. The transition period property of a

taxpayer is any property that was acquired by the taxpayer after July

25, 1991, and on or before August 10, 1993.

(3) Eligible section 197 intangibles. The eligible section 197

intangibles of a taxpayer are any section 197 intangibles that--

(i) Are transition period property; and

(ii) Qualify as amortizable section 197 intangibles (within the

meaning of section 197(c)) if an election under section 13261(g)(2) of

OBRA '93 applies.

(4) Election date. The election date is the date (determined after

application of section 7502(a)) on which the taxpayer files the

original or amended return to which the election statement described in

paragraph (e) of this section is attached.

(5) Election year. The election year is the taxable year of the

taxpayer that includes August 10, 1993.

(6) Common control. A taxpayer is under common control with the

electing taxpayer if, at any time after August 2, 1993, and on or

before the election date (as defined in paragraph (b)(4) of this

section), the two taxpayers would be treated as a single taxpayer under

section 41(f)(1) (A) or (B).

(7) Applicable convention for sections 197 and 167(f) intangibles.

For purposes of computing the depreciation or amortization deduction

allowable with respect to transition period property described in

section 167(f) (1) or (3) or with respect to eligible section 197

intangibles--

(i) Property acquired at any time during the month is treated as

acquired as of the first day of the month and is eligible for

depreciation or amortization during the month; and

(ii) Property is not eligible for depreciation or amortization in

the month of disposition.

(8) Application to adjustment to basis of partnership property

under section 734(b) or 743(b). Any increase in the basis of

partnership property under section 734(b) (relating to the optional

adjustment to basis of undistributed partnership property) or section

743(b) (relating to the optional adjustment to the basis of partnership

property) will be taken into account under this section by a partner as

if the increased portion of the basis were attributable to the

partner's acquisition of the underlying partnership property on the

date the distribution or transfer occurs. For example, if a section 754

election is in effect and, as a result of its acquisition of a

partnership interest, a taxpayer obtains an increased basis in an

intangible held through the partnership, the increased portion of the

basis in the intangible will be treated as an intangible asset newly

acquired by that taxpayer on the date of the transaction.

(9) Former member. A former member of a consolidated group is a

corporation that was a member of the consolidated group at any time

after July 25, 1991, and on or before August 2, 1993, but that is not

under common control with the common parent of the group for purposes

of paragraph (c)(1)(ii) of this section.

(c) Retroactive election--(1) Effect of election--(i) On taxpayer.

Except as provided in paragraph (c)(1)(v) of this section, if a

taxpayer makes the retroactive election, the intangibles provisions of

OBRA '93 will apply to all the taxpayer's transition period property.

Thus, for example, section 197 will apply to all the taxpayer's

eligible section 197 intangibles.

(ii) On taxpayers under common control. If a taxpayer makes the

retroactive election, the election applies to each taxpayer that is

under common control with the electing taxpayer. If the retroactive

election applies to a taxpayer under common control, the intangibles

provisions of OBRA '93 apply to that taxpayer's transition period

property in the same manner as if that taxpayer had itself made the

retroactive election. However, a retroactive election that applies to a

non-electing taxpayer under common control is not treated as an

election by that taxpayer for purposes of re-applying the rule of this

paragraph (c)(1)(ii) to any other taxpayer.

(iii) On former members of consolidated group. A retroactive

election by the common parent of a consolidated group applies to

transition period property acquired by a former member while it was a

member of the consolidated group and continues to apply to that

property in each subsequent consolidated or separate return year of the

former member.

(iv) On transferred assets--(A) In general. If property is

transferred in a transaction described in paragraph (c)(1)(iv)(C) of

this section and the intangibles provisions of OBRA '93 applied to such

property in the hands of the transferor, the property remains subject

to the intangibles provisions of OBRA '93 with respect to so much of

its adjusted basis in the hands of the transferee as does not exceed

its adjusted basis in the hands of the transferor. The transferee is

not required to apply the intangibles provisions of OBRA '93 to any

other transition period property that it owns, however, unless such

provisions are otherwise applicable under the rules of this paragraph

(c)(1).

(B) Transferee election. If property is transferred in a

transaction described in paragraph (c)(1)(iv)(C)(1) of this section and

the transferee makes the retroactive election, the transferor is not

required to apply the intangibles provisions of OBRA '93 to any of its

transition period property (including the property transferred to the

transferee in the transaction described in paragraph (c)(1)(iv)(C)(1)

of this section), unless such provisions are otherwise applicable under

the rules of this paragraph (c)(1).

(C) Transactions covered. This paragraph (c)(1)(iv) applies to--

(1) Any transaction described in section 332, 351, 361, 721, 731,

1031, or 1033; and

(2) Any transaction between corporations that are members of the

same consolidated group immediately after the transaction.

(D) Exchanged basis property. In the case of a transaction

involving exchanged basis property (e.g., a transaction subject to

section 1031 or 1033)--

(1) Paragraph (c)(1)(iv)(A) of this section shall not apply; and

(2) If the intangibles provisions of OBRA '93 applied to the

property by reference to which the exchanged basis is determined (the

predecessor property), the exchanged basis property becomes subject to

the intangibles provisions of OBRA '93 with respect to so much of its

basis as does not exceed the predecessor property's basis.

(E) Acquisition date. For purposes of paragraph (b)(2) of this

section (definition of transition period property), property (other

than exchanged basis property) acquired in a transaction described in

paragraph (c)(1)(iv)(C)(1) of this section generally is treated as

acquired when the transferor acquired (or was treated as acquiring) the

property (or predecessor property). However, if the adjusted basis of

the property in the hands of the transferee exceeds the adjusted basis

of the property in the hands of the transferor, the property, with

respect to that excess basis, is treated as acquired at the time of the

transfer. The time at which exchanged basis property is considered

acquired is determined by applying similar principles to the

transferee's acquisition of predecessor property.

(v) Special rule for property of former member of consolidated

group--(A) Intangibles provisions inapplicable for certain periods. If

a former member of a consolidated group makes a retroactive election

pursuant to paragraph (c)(1)(i) of this section or if an election

applies to the former member under the common control rule of paragraph

(c)(1)(ii) of this section, the intangibles provisions of OBRA '93

generally apply to all transition period property of the former member.

The intangibles provisions of OBRA '93 do not apply, however, to the

transition period property of a former member (including a former

member that makes or is bound by a retroactive election) during the

period beginning immediately after July 25, 1991, and ending

immediately before the earlier of--

(1) The first day after July 25, 1991, that the former member was

not a member of a consolidated group; or

(2) The first day after July 25, 1991, that the former member was a

member of a consolidated group that is otherwise required to apply the

intangibles provisions of OBRA '93 to its transition period property

(e.g., because the common control election under paragraph (c)(1)(ii)

of this section applies to the group).

(B) Subsequent adjustments. See paragraph (c)(5) of this section

for adjustments when the intangibles provisions of OBRA '93 first apply

to the transition period property of the former member after the

property is acquired.

(2) Making the election--(i) Partnerships, S corporations, estates,

and trusts. Except as provided in paragraph (c)(2)(ii) of this section,

in the case of transition period property of a partnership, S

corporation, estate, or trust, only the entity may make the retroactive

election for purposes of paragraph (c)(1)(i) of this section.

(ii) Partnerships for which a section 754 election is in effect. In

the case of increased basis that is treated as transition period

property of a partner under paragraph (b)(8) of this section, only that

partner may make the retroactive election for purposes of paragraph

(c)(1)(i) of this section.

(iii) Consolidated groups. An election by the common parent of a

consolidated group applies to members and former members as described

in paragraphs (c)(1)(ii) and (iii) of this section. Further, for

purposes of paragraph (c)(1)(ii) of this section, an election by the

common parent is not treated as an election by any subsidiary member. A

retroactive election cannot be made by a corporation that is a

subsidiary member of a consolidated group on August 10, 1993, but an

election can be made on behalf of the subsidiary member under paragraph

(c)(1)(ii) of this section (e.g., by the common parent of the group).

See paragraph (c)(1)(iii) of this section for rules concerning the

effect of the common parent's election on transition period property of

a former member.

(3) Time and manner of election--(i) Time. In general, the

retroactive election must be made by the due date (including extensions

of time) of the electing taxpayer's Federal income tax return for the

election year. If, however, the taxpayer's original Federal income tax

return for the election year is filed before April 14, 1994, the

election may be made by amending that return no later than September

12, 1994.

(ii) Manner. The retroactive election is made by attaching the

election statement described in paragraph (e) of this section to the

taxpayer's original or amended income tax return for the election year.

In addition, the taxpayer must--

(A) Amend any previously filed return when required to do so under

paragraph (c)(4) of this section; and

(B) Satisfy the notification requirements of paragraph (c)(6) of

this section.

(iii) Effect of nonconforming elections. An attempted election that

does not satisfy the requirements of this paragraph (c)(3) (including

an attempted election made on a return for a taxable year prior to the

election year) is not valid.

(4) Amended return requirements--(i) Requirements. A taxpayer

subject to this paragraph (c)(4) must amend all previously filed income

tax returns as necessary to conform the taxpayer's treatment of

transition period property to the treatment required under the

intangibles provisions of OBRA '93. See paragraph (c)(5) of this

section for certain adjustments that may be required on the amended

returns required under this paragraph (c)(4) in the case of certain

consolidated group member dispositions and tax-free transactions.

(ii) Applicability. This paragraph (c)(4) applies to a taxpayer

if--

(A) The taxpayer makes the retroactive election; or

(B) Another person's retroactive election applies to the taxpayer

or to any property acquired by the taxpayer.

(5) Adjustment required with respect to certain consolidated group

member dispositions and tax-free transactions--(i) Application. This

paragraph (c)(5) applies to transition period property if the

intangibles provisions of OBRA '93 first apply to the property while it

is held by the taxpayer but do not apply to the property for some

period (the ``interim period'') after the property is acquired (or

considered acquired) by the taxpayer. For example, this paragraph

(c)(5) may apply to transition period property held by a former member

of a consolidated group if a retroactive election is made by or on

behalf of the former member but is not made by the consolidated group.

See paragraph (c)(1)(v) of this section.

(ii) Required adjustment to income. If this paragraph (c)(5)

applies, an adjustment must be taken into account in computing taxable

income of the taxpayer for the taxable year in which the intangibles

provisions of OBRA '93 first apply to the property. The amount of the

adjustment is equal to the difference for the transition period

property between--

(A) The sum of the depreciation, amortization, or other cost

recovery deductions that the taxpayer (and its predecessors) would have

been permitted if the intangibles provisions of OBRA '93 applied to the

property during the interim period; and

(B) The sum of the depreciation, amortization, or other cost

recovery deductions that the taxpayer (and its predecessors) claimed

during that interim period.

(iii) Required adjustment to basis. The taxpayer also must make a

corresponding adjustment to the basis of its transition period property

to reflect any adjustment to taxable income with respect to the

property under this paragraph (c)(5).

(6) Notification requirements--(i) Notification of commonly

controlled taxpayers. A taxpayer that makes the retroactive election

must provide written notification of the retroactive election (on or

before the election date) to each taxpayer that is under common control

with the electing taxpayer.

(ii) Notification of certain former members, former consolidated

groups, and transferees. This paragraph (c)(6)(ii) applies to a common

parent of a consolidated group that makes or is notified of a

retroactive election that applies to transition period property of a

former member, a corporation that makes or is notified of a retroactive

election that affects any consolidated group of which the corporation

is a former member, or a taxpayer that makes or is notified of a

retroactive election that applies to transition period property the

taxpayer transfers in a transaction described in paragraph

(c)(1)(iv)(C) of this section. Such common parent, former member, or

transferor must provide written notification of the retroactive

election to any affected former member, consolidated group, or

transferee. The written notification must be provided on or before the

election date in the case of an election by the common parent, former

member, or transferor, and within 30 days of the election date in the

case of an election by a person other than the common parent, former

member, or transferor.

(7) Revocation. Once made, the retroactive election may be revoked

only with the consent of the Commissioner.

(8) Examples. The following examples illustrate the application of

this paragraph (c).

Example 1. (i) X is a partnership with 5 equal partners, A

through E. X acquires in 1989, as its sole asset, intangible asset

M. X has a section 754 election in effect for all relevant years. F,

an unrelated individual, purchases A's entire interest in the X

partnership in January 1993 for $700. At the time of F's purchase,

X's inside basis for M is $2,000, and its fair market value is

$3,500.

(ii) Under section 743(b), X makes an adjustment to increase F's

basis in asset M by $300, the difference between the allocated

purchase price and M's inside basis ($700 - $400 = $300). Under

paragraphs (b)(8) and (c)(2)(ii) of this section, if F makes the

retroactive election, the section 743(b) basis increase of $300 in M

is an amortizable section 197 intangible even though asset M is not

an amortizable section 197 intangible in the hands of X. F's

increase in the basis of asset M is amortizable over 15 years

beginning with the month of F's acquisition of the partnership

interest. With respect to the remaining $400 of basis, F is treated

as stepping into A's shoes and continues A's amortization (if any)

in asset M. F's retroactive election applies to all other

intangibles acquired by F or a taxpayer under common control with F.

Example 2. A, a calendar year taxpayer, is under common control

with B, a June 30 fiscal year taxpayer. A files its original

election year Federal income tax return on March 15, 1994, and does

not make either the retroactive election or the binding contract

election. B files its election year tax return on September 15,

1994, and makes the retroactive election. B is required by paragraph

(c)(6)(i) of this section to notify A of its election. Even though A

had already filed its election year return, A is bound by B's

retroactive election under the common control rules. Additionally,

if A had made a binding contract election, it would have been

negated by B's retroactive election. Because of B's retroactive

election, A must comply with the requirements of this paragraph (c),

and file amended returns for the election year and any affected

prior years as necessary to conform the treatment of transition

period property to the treatment required under the intangibles

provisions of OBRA '93.

Example 3. (i) P and Y, calendar year taxpayers, are the common

parents of unrelated calendar year consolidated groups. On August

15, 1991, S, a subsidiary member of the P group, acquires a section

197 intangible with an unadjusted basis of $180. Under prior law, no

amortization or depreciation was allowed with respect to the

acquired intangible. On November 1, 1992, a member of the Y group

acquires the S stock in a taxable transaction. On the P group's 1993

consolidated return, P makes the retroactive election. The P group

also files amended returns for its affected prior years. Y does not

make the retroactive election for the Y group.

(ii) Under paragraph (c)(1)(iii) of this section, a retroactive

election by the common parent of a consolidated group applies to all

transition period property acquired by a former member while it was

a member of the group. The section 197 intangible acquired by S is

transition period property that S, a former member of the P group,

acquired while a member of the P group. Thus, P's election applies

to the acquired asset. P must notify S of the election pursuant to

paragraph (c)(6)(ii) of this section.

(iii) S amortizes the unadjusted basis of its eligible section

197 intangible ($180) over the 15-year amortization period using the

applicable convention beginning as of the first day of the month of

acquisition (August 1, 1991). Thus, the P group amends its 1991

consolidated tax return to take into account $5 of amortization

($180/15 years x 5/12 year = $5) for S.

(iv) For 1992, S is entitled to $12 of amortization ($180/15).

Assume that under Sec. 1.1502-76, $10 of S's amortization for 1992

is allocated to the P group's consolidated return and $2 is

allocated to the Y group's return. The P group amends its 1992

consolidated tax return to reflect the $10 deduction for S. The Y

group must amend its 1992 return to reflect the $2 deduction for S.

Example 4. (i) The facts are the same as in Example 3, except

that the retroactive election is made for the Y group, not for the P

group.

(ii) The Y group amends its 1992 consolidated return to claim a

section 197 deduction of $2 ($180/15 years x 2/12 year = $2) for

S.

(iii) Under paragraph (c)(1)(ii) of this section, the

retroactive election by Y applies to all transition period property

acquired by S. However, under paragraph (c)(1)(v)(A) of this

section, the intangibles provisions of OBRA '93 do not apply to S's

transition period property during the period when it held such

property as a member of P group. Instead, these provisions become

applicable to S's transition period property beginning on November

1, 1992, when S becomes a member of Y group.

(iv) Because the P group did not make the retroactive election,

there is an interim period during which the intangibles provisions

of OBRA '93 do not apply to the asset acquired by S. Thus, under

paragraph (c)(5) of this section, the Y group must take into account

in computing taxable income in 1992 an adjustment equal to the

difference between the section 197 deduction that would have been

permitted if the intangibles provisions of OBRA '93 applied to the

property for the interim period (i.e., the period for which S was

included in the P group's 1991 and 1992 consolidated returns) and

any amortization or depreciation deductions claimed by S for the

transferred intangible for that period. The retroactive election

does not affect the P group, and the P group is not required to

amend its returns.

Example 5. The facts are the same as in Example 3, except that

both P and Y make the retroactive election. P must notify S of its

election pursuant to paragraph (c)(6)(ii) of this section. Further,

both the P and Y groups must file amended returns for affected prior

years. Because there is no period of time during which the

intangibles provisions of OBRA '93 do not apply to the asset

acquired by S, the Y group is permitted no adjustment under

paragraph (c)(5) of this section for the asset.

(d) Binding contract election--(1) General rule--(i) Effect of

election. If a taxpayer acquires property pursuant to a written binding

contract in effect on August 10, 1993, and at all times thereafter

before the acquisition (an eligible acquisition) and makes the binding

contract election with respect to the contract, the law in effect prior

to the enactment of OBRA '93 will apply to all property acquired

pursuant to the contract. A separate binding contract election must be

made with respect to each eligible acquisition to which the law in

effect prior to the enactment of OBRA '93 is to apply.

(ii) Taxpayers subject to retroactive election. A taxpayer may not

make the binding contract election if the taxpayer or a person under

common control with the taxpayer makes the retroactive election under

paragraph (c) of this section.

(iii) Revocation. A binding contract election, once made, may be

revoked only with the consent of the Commissioner.

(2) Time and manner of election--(i) Time. In general, the binding

contract election must be made by the due date (including extensions of

time) of the electing taxpayer's Federal income tax return for the

election year. If, however, the taxpayer's original Federal income tax

return for the election year is filed before April 14, 1994, the

election may be made by amending that return no later than September

12, 1994.

(ii) Manner. The binding contract election is made by attaching the

election statement described in paragraph (e) of this section to the

taxpayer's original or amended income tax return for the election year.

(iii) Effect of nonconforming election. An attempted election that

does not satisfy the requirements of this paragraph (d)(2) is not

valid.

(e) Election statement--(1) Filing requirements. For an election

under paragraph (c) or (d) of this section to be valid, the electing

taxpayer must:

(i) File (with its Federal income tax return for the election year

and with any affected amended returns required under paragraph (c)(4)

of this section) a written election statement, as an attachment to Form

4562 (Depreciation and Amortization), that satisfies the requirements

of paragraph (e)(2) of this section; and

(ii) Forward a copy of the election statement to the Statistics

Branch (QAM:S:6111), IRS Ogden Service Center, ATTN: Chief, Statistics

Branch, P.O. Box 9941, Ogden, UT 84409.

(2) Content of the election statement. The written election

statement must include the information in paragraphs (e)(2) (i) through

(vi) and (ix) of this section in the case of a retroactive election,

and the information in paragraphs (e)(2) (i) and (vii) through (ix) of

this section in the case of a binding contract election. The required

information should be arranged and identified in accordance with the

following order and numbering system--

(i) The name, address and taxpayer identification number (TIN) of

the electing taxpayer (and the common parent if a consolidated return

is filed).

(ii) A statement that the taxpayer is making the retroactive

election.

(iii) Identification of the transition period property affected by

the retroactive election, the name and TIN of the person from which the

property was acquired, the manner and date of acquisition, the basis at

which the property was acquired, and the amount of depreciation,

amortization, or other cost recovery under section 167 or any other

provision of the Code claimed with respect to the property.

(iv) Identification of each taxpayer under common control (as

defined in paragraph (b)(6) of this section) with the electing taxpayer

by name, TIN, and Internal Revenue Service Center where the taxpayer's

income tax return is filed.

(v) If any persons are required to be notified of the retroactive

election under paragraph (c)(6) of this section, identification of such

persons and certification that written notification of the election has

been provided to such persons.

(vi) A statement that the transition period property being

amortized under section 197 is not subject to the anti-churning rules

of section 197(f)(9).

(vii) A statement that the taxpayer is making the binding contract

election.

(viii) Identification of the property affected by the binding

contract election, the name and TIN of the person from which the

property was acquired, the manner and date of acquisition, the basis at

which the property was acquired, and whether any of the property is

subject to depreciation under section 167 or to amortization or other

cost recovery under any other provision of the Code.

(ix) The signature of the taxpayer or an individual authorized to

sign the taxpayer's Federal income tax return.

(f) Effective date. These regulations are effective March 15, 1994.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 4. The authority citation for part 602 continues to read as

follows:

Authority: 26 U.S.C. 7805.

Sec. 602.101(c) [Amended]

Par. 5. Section 602.101(c) is amended by adding an entry numerical

order to the table to read as follows:

``1.197-1T . . . . 1545-1425''.

Dated: March 2, 1994.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved:

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 94-5984 Filed 3-10-94; 3:04 pm]

BILLING CODE 4830-01-P