Continuity of Interest

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-120882-97]

RIN 1545-AV81

Continuity of Interest

AGENCY: Internal Revenue Service (IRS), Treasury.

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

regulations and notice of public hearing.

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SUMMARY: The IRS is issuing temporary regulations published elsewhere

in this issue of the Federal Register providing guidance regarding

satisfaction of the continuity of interest requirement for corporate

reorganizations. The temporary regulations affect corporations and

their shareholders. The text of those temporary regulations also serves

as the text of these proposed regulations. In addition, this document

provides notice of a public hearing on these proposed regulations.

DATES: Written comments and outlines of topics to be discussed at the

hearing scheduled for Tuesday, May 26, 1998, must be received by

Tuesday, May 5, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-120882-97), room

5226, Internal Revenue Service, POB 7604, Ben Franklin Station,

Washington, DC 20044. Submissions may be hand delivered between the

hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG-120882-97), Courier's

Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,

Washington, DC. Alternatively, taxpayers may submit comments

electronically via the Internet by selecting the ``Tax Regs'' option on

the IRS Home Page, or by submitting comments directly to the IRS

Internet site at http://www.irs.ustreas.gov/prod/tax__regs/

comments.html. The public hearing will be held in room 2615, Internal

Revenue Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Phoebe

Bennett, (202) 622-7750; concerning submissions and the hearing, LaNita

Van Dyke, (202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Temporary regulations published elsewhere in this issue of the

Federal Register amend the Income Tax Regulations (26 CFR part 1) under

section 368. The temporary regulations provide that in determining

whether the continuity of interest requirement for corporate

reorganizations is satisfied with respect to a potential

reorganization, a proprietary interest in the target corporation is not

preserved if, in connection with a potential reorganization, it is

redeemed or acquired by a person related to the target corporation, or

to the extent that, prior to and in connection with a potential

reorganization, an extraordinary distribution is made with respect to

it.

The text of the temporary regulations also serves as the text of

these proposed regulations. The preamble to the temporary regulations

describes the temporary regulations.

The temporary regulations do not provide guidance on the

determination of whether a distribution will be treated as an

extraordinary distribution, except that the rules of section 1059 do

not apply for this purpose. The IRS and Treasury Department invite

comments on whether the regulations should provide more specific

guidance in this area.

Special Analyses

It has been determined that this notice of proposed rulemaking is

not a significant regulatory action as defined in EO 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

regulation does not impose a collection of information on small

entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not

apply. Pursuant to section 7805(f) of the Internal Revenue Code, this

notice of proposed rulemaking will be submitted to the Chief Counsel

for Advocacy of the Small Business Administration for comment on its

impact on small business.

[[Page 4205]]

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,

consideration will be given to any comments that are submitted timely

to the IRS. All comments will be available for public inspection and

copying.

A public hearing has been scheduled at 10 a.m. on Tuesday, May 26,

1998, in room 2615, Internal Revenue Service, 1111 Constitution Avenue

NW., Washington, DC. Because of access restrictions, visitors will not

be admitted beyond the Internal Revenue Building lobby more than 15

minutes before the hearing starts.

The rules of 26 CFR 601.601(a)(3) apply to the hearing.

Persons that wish to present oral comments at the hearing must

submit written comments by Tuesday, May 5, 1998 and submit an outline

of the topics to be discussed and the time to be devoted to each topic

(a signed original and eight (8) copies) by Tuesday, May 5, 1998.

A period of 10 minutes will be allotted to each person for making

comments.

An agenda showing the scheduling of the speakers will be prepared

after the deadline for receiving outlines has passed. Copies of the

agenda will be available free of charge at the hearing.

Proposed Effective Date

These regulations are proposed to apply to transactions occurring

after January 28, 1998, except that they do not apply to any

transaction occurring pursuant to a written agreement which is (subject

to customary conditions) binding on January 28, 1998, and at all times

thereafter.

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

Paragraph 1. The authority citation for part 1 continues to read in

part as follows:

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

Par. 2. Section 1.368-1 is amended as follows:

1. Revising paragraphs (e)(1)(ii)(A), (e)(1)(ii)(B), (e)(2)(ii),

and (f).

2. Adding paragraph (e)(6) Example 10 and Example 11.

The addition and revisions read as follows:

Sec. 1.368-1 Purpose and scope of exception of reorganization

exchanges.

[The text of proposed paragraphs (e)(1)(ii)(A) and (B), (e)(2)(ii),

(e)(6) Example 10 and Example 11, and (f) is the same as the text of

Sec. 1.368-1T published elsewhere in this issue of the Federal

Register].

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

[FR Doc. 98-1817 Filed 1-23-98; 12:15 pm]

BILLING CODE 4830-01-U