Certain Elections Under the Omnibus Budget Reconciliation Act of 1993

DEPARTMENT OF THE TREASURY

26 CFR Parts 1 and 602

[TD 8688]

RIN 1545-AS14

Certain Elections Under the Omnibus Budget Reconciliation Act of

1993

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations relating to the time

and manner of making certain elections under the Omnibus Budget

Reconciliation Act of 1993. These regulations provide guidance to

persons making the elections.

EFFECTIVE DATE: December 12, 1996.

FOR FURTHER INFORMATION CONTACT: George Bradley, 202-622-4920 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in these final regulations

have been reviewed and approved by the Office of Management and Budget

in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under

control number 1545-1421. Responses to these collections of information

are required to obtain the benefits of the particular election that is

the subject of the collection.

An agency may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless the collection of

information displays a valid control number.

The estimated annual burden per respondent varies from 15 minutes

to 45 minutes, depending on individual circumstances, with an estimated

average of 30 minutes.

Comments concerning the accuracy of this burden estimate and

suggestions for reducing this burden should be sent to the Internal

Revenue Service, Attn: IRS Reports Clearance Officer, T:FP, Washington,

DC 20224, and 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.

Books or records relating to this 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

This document contains final regulations relating to elections

under the following sections of the Internal Revenue Code of 1986

(Code) and the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-

66, 107 Stat. 312) (Act):

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Act section Code section

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13114..................................... 1044(a).

13150..................................... 108(c)(3)(C).

13206(d).................................. 163(d)(4)(B)(iii).

13225..................................... 6655(e)(2)(C).

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On December 27, 1993, the Federal Register published temporary

regulations (TD 8509) and a cross-reference notice of proposed

rulemaking (IA-62-93), 58 FR 68300 and 58 FR 68336, respectively,

relating to these elections. Three written comments responding to the

regulations were submitted. Since none of the commentators requested a

public hearing, one was not held. After consideration of the comments,

the proposed regulations are adopted as final regulations subject to

modifications to proposed Sec. 1.108(c)-1, and the corresponding

temporary regulations are removed. The comments and a description of

the modifications to proposed Sec. 1.108(c)-1 are discussed below.

Summary of Comments and Modifications

All three comments related to the election under section

163(d)(4)(B)(iii), which allows a taxpayer to take all or a portion of

certain net capital gains, attributable to dispositions of property

held for investment, into account as investment income. As a

consequence, the capital gains affected by this election are not

eligible for the maximum capital gain rate of 28 percent. The election

must be made on Form 4952, Investment Interest Expense Deduction, on or

before the due date (including extensions) of the income tax return for

the taxable year in which the net capital gain is recognized.

The commentators questioned the authority of the IRS to require a

formal election, stated that a formal election will add to the

complexity of filing individual income tax returns, and suggested that

taxpayers be allowed to freely change the manner in which they treat

long-term capital gains, as long as the taxable year is open. These

comments were given careful consideration. However, they have not been

incorporated into these final regulations. The IRS and the Treasury

Department believe that the requirement of a formal election is

supported by the language of section 163(d)(4)(B)(iii), is not unduly

burdensome, and provides taxpayers with flexibility, since the election

is revocable.

The final regulations modify the requirements for making the

election for discharge of qualified real property business indebtedness

under section 108(c). Under the previous temporary regulations a

taxpayer was required to make the election with the taxpayer's income

tax return for the taxable year in which the discharge occurred, but

was permitted to file an election with an amended return or claim for

credit or refund if the taxpayer established reasonable cause for

failure to file the election with the original return. The final

regulations require the taxpayer to make the election on the timely-

filed (including extensions) Federal income tax return for the taxable

year in which the taxpayer has discharge of indebtedness income that is

excludible under section 108(a). Therefore, a taxpayer that fails to

make the election on that return must request the Commissioner's

consent to file a late election under Sec. 301.9100-3T or any

regulations that supersede Sec. 301.9100-3T.

Special Analyses

It has been determined that these regulations are not significant

rules as defined in Executive Order 12866. 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, a Regulatory Flexibility Analysis is not required.

Pursuant to section 7805(f) of the Internal Revenue Code, the notice of

proposed rulemaking preceding these regulations was submitted to the

Small Business Administration for comment on its impact on small

business.

Drafting Information: The principal author of these regulations

is George Bradley, Office of Assistant Chief Counsel (Income Tax and

Accounting), Internal Revenue Service. However, personnel from other

offices of the Internal Revenue Service and the Treasury Department

participated in their development.

[[Page 65322]]

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, parts 1 and 602 of title 26 of the Code of Federal

Regulations are amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by

removing the entry for section 1.108(c)-1T and by adding an entry in

numerical order to read as follows.

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

Section 1.108(c)-1 also issued under the authority of 26 U.S.C.

108(d)(9); * * *

Sec. 1.108(c)-1T [Removed

Par. 2. Section 1.108(c)-1T is removed.

Sec. 1.163(d)-1T [Removed]

Par. 3. Section 1.163(d)-1T is removed.

Sec. 1.1044(a)-1T [Removed]

Par. 4. Section 1.1044(a)-1T is removed.

Sec. 1.6655(e)-1T [Removed]

Par. 5. Section 1.6655(e)-1T is removed.

Par. 6. Section 1.108(c)-1 is added to read as follows:

Sec. 1.108(c)-1 Time and manner for making election under the Omnibus

Budget Reconciliation Act of 1993.

(a) Description. Section 108(c)(3)(C), as added by section 13150 of

the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-66, 107

Stat. 446), allows certain noncorporate taxpayers to elect to treat

certain indebtedness described in section 108(c)(3) that is discharged

after December 31, 1992, as qualified real property business

indebtedness. This discharged indebtedness is excluded from gross

income to the extent allowed by section 108.

(b) Time and manner for making election. The election described in

this section must be made on the timely-filed (including extensions)

Federal income tax return for the taxable year in which the taxpayer

has discharge of indebtedness income that is excludible from gross

income under section 108(a). The election is to be made on a completed

Form 982, in accordance with that Form and its instructions.

(c) Revocability of election. The election described in this

section is revocable with the consent of the Commissioner.

(d) Effective date. The rules set forth in this section are

effective December 27, 1993.

Par. 7. Section 1.163(d)-1 is added to read as follows.

Sec. 1.163(d)-1 Time and manner for making election under the Omnibus

Budget Reconciliation Act of 1993.

(a) Description. Section 163(d)(4)(B)(iii), as added by section

13206(d) of the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-

66, 107 Stat. 467), allows an electing taxpayer to take all or a

portion of certain net capital gains, attributable to dispositions of

property held for investment, into account as investment income. As a

consequence, the capital gains affected by this election are not

eligible for the maximum capital gain rate of 28 percent. The election

may be made for net capital gains recognized by noncorporate taxpayers

during any taxable year beginning after December 31, 1992.

(b) Time and manner for making the election. The election under

section 163(d)(4)(B)(iii) must be made on or before the due date

(including extensions) of the income tax return for the taxable year in

which the net capital gain is recognized. The election is to be made on

Form 4952, Investment Interest Expense Deduction, in accordance with

the Form and its instructions.

(c) Revocability of election. The election described in this

section is revocable with the consent of the Commissioner.

(d) Effective date. The rules set forth in this section are

effective December 12, 1996.

Par. 8. Section 1.1044(a)-1 is added to read as follows.

Sec. 1.1044(a)-1 Time and manner for making election under the Omnibus

Budget Reconciliation Act of 1993.

(a) Description. Section 1044(a), as added by section 13114 of the

Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-66, 107 Stat.

430), generally allows individuals and C corporations that sell

publicly traded securities after August 9, 1993, to elect not to

recognize certain gain from the sale if the taxpayer purchases common

stock or a partnership interest in a specialized small business

investment company (SSBIC) within the 60-day period beginning on the

date the publicly traded securities are sold.

(b) Time and manner for making the election. The election under

section 1044(a) must be made on or before the due date (including

extensions) for the income tax return for the year in which the

publicly traded securities are sold. The election is to be made by

reporting the entire gain from the sale of publicly traded securities

on Schedule D of the income tax return in accordance with instructions

for Schedule D, and by attaching a statement to Schedule D showing--

(1) How the nonrecognized gain was calculated;

(2) The SSBIC in which common stock or a partnership interest was

purchased;

(3) The date the SSBIC stock or partnership interest was purchased;

and

(4) The basis of the SSBIC stock or partnership interest.

(c) Revocability of election. The election described in this

section is revocable with the consent of the Commissioner.

(d) Effective date. The rules set forth in this section are

effective December 12, 1996.

Par. 9. Section 1.6655(e)-1 is added to read as follows.

Sec. 1.6655(e)-1 Time and manner for making election under the Omnibus

Budget Reconciliation Act of 1993.

(a) Description. Section 6655(e)(2)(C), as added by section 13225

of the Omnibus Budget Reconciliation Act of 1993 (Pub. L. 103-66, 107

Stat. 486), allows a corporate taxpayer to make an annual election to

use a different annualization period to determine annualized income for

purposes of paying any required installment of estimated income tax for

a taxable year beginning after December 31, 1993.

(b) Time and manner for making the election. An election under

section 6655(e)(2)(C) must be made on or before the date required for

the payment of the first required installment for the taxable year. For

a calendar or fiscal year corporation, Form 8842, Election to Use

Different Annualization Periods for Corporate Estimated Tax, must be

filed by the 15th day of the 4th month of the taxable year for which

the election is to apply. Form 8842 must be filed with the Internal

Revenue Service Center where the corporation files its income tax

return.

(c) Revocability of election. The election described in this

section is irrevocable.

(d) Effective date. The rules set forth in this section are

effective December 12, 1996.

[[Page 65323]]

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

Par. 10. The authority citation for part 602 continues to read as

follows:

Authority: 26 U.S.C. 7805.

Par. 11. In Sec. 602.101, paragraph (c) is amended as follows:

1. The following entries are removed from the table:

Sec. 602.101 OMB Control numbers.

* * * * *

(c) * * *

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Current OMB

CFR part or section where identified and described control No.

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* * * * *

1.108(c)-1T................................................ 1545-1421

* * * * *

1.163(d)-1T................................................ 1545-1421

* * * * *

1.1044(a)-1T............................................... 1545-1421

* * * * *

1.6655(e)-1T............................................... 1545-1421

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2. The following entries are added in numerical order to the table:

Sec. 602.101 OMB Control numbers.

* * * * *

(c) * * *

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Current OMB

CFR part or section where identified and described control No.

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* * * * *

1.108(c)-1................................................. 1545-1421

* * * * *

1.163(d)-1................................................. 1545-1421

* * * * *

1.1044(a)-1................................................ 1545-1421

* * * * *

1.6655(e)-1................................................ 1545-1421

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Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: November 1, 1996.

Donald C. Lubick,

Acting Assistant Secretary of the Treasury.

[FR Doc. 96-31362 Filed 12-11-96; 8:45 am]

BILLING CODE 4380-01-U