Regulations Under Section 382 of the Internal Revenue Code of 1986; Application of Section 382 in Short Taxable Years and With Respect to Controlled Groups

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[CO-26-96]

RIN 1545-AU33

Regulations Under Section 382 of the Internal Revenue Code of

1986; Application of Section 382 in Short Taxable Years and With

Respect to Controlled Groups

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of prior proposed rule, notice of proposed

rulemaking by cross-reference to temporary regulations, and notice of

public hearing.

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SUMMARY: On January 29, 1991, proposed rules under section 382 of the

Internal Revenue Code of 1986 (relating to limitations on net operating

loss carryforwards and certain built-in losses following an ownership

change) were filed with the Office of the Federal Register (CO-77-90;

see 56 FR 4183; 1991-1 C.B. 749). The January, 1991, proposed rules are

withdrawn and these proposed rules are issued in their place.

In the Rules and Regulations section of this issue of the Federal

Register, the IRS is issuing temporary regulations relating to the

application of section 382 in short taxable years and with respect to

controlled groups. These regulations comply with the statutory

direction under section 382(m) to prescribe such regulations.

Additional rules amend certain aspects of Sec. 1.382-2T relating

principally to the separate tracking of the stock ownership of loss

corporations that cease to exist following a merger or similar

transactions.

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

these proposed regulations. This document also provides a notice of

public hearing on these proposed regulations.

DATES: Written comments must be received by September 25, 1996.

Outlines of topics to be discussed at the

public hearing scheduled for Thursday, October 17, 1996, at 10 a.m.

must be received by Thursday, September 26, 1996.

U.S.C.

3507) under the control number 1545-1434. Proposed Sec. 1.382-8(h)

requires a response from certain corporations that are members of

controlled groups. The IRS requires this information to assure

compliance with section 382(m)(5) so that the value of a loss

corporation that is a member of a controlled group is not taken into

account more than once in computing a section 382 limitation.

Comments concerning the collection of information should be sent to

the Office of Management and Budget, Attn: Desk Officer for the

Department of Treasury, Office of Information and Regulatory Affairs,

Washington, DC, 20503, with copies to the Internal Revenue Service,

Attn: IRS Reports Clearance Officer, T:FP. Washington, DC, 20224.

Comments on the collection of information should be received by August

26, 1996.

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.

Proposed Sec. 1.382-8(h) provides that the loss corporation must

file a statement signed by it and any other member of the controlled

group that elects to restore value to it indicating relevant

information regarding the election. The likely respondents and/or

recordkeepers are corporations that are members of certain controlled

groups. Responses to this collection of information are required to

obtain a benefit (relating to the restoration of value for section 382

purposes).

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.

Estimated total annual reporting burden: 875 hours. The estimated

annual burden per respondent varies from ten to thirty minutes,

depending on individual circumstances, with an estimated average of

fifteen minutes. Estimated number of respondents: 21,000

ministration of any Internal Revenue law. Generally, tax returns and

tax return information are confidential, as required by 26 U.S.C. 6103.

Estimated total annual reporting burden: 875 hours. The estimated

annual burden per respondent varies from ten to thirty minutes,

depending on individual circumstances, with an estimated average of

fifteen minutes. Estimated number of respondents: 21,000. Estimated

frequency of responses: once every six years.

Background

Temporary regulations in the Rules and Regulations section of this

issue of the Federal Register amend the Income Tax Regulations (26 CFR

Part 1) under section 382 of the Internal Revenue Code of 1986. Among

other changes, those regulations add temporary regulations Secs. 1.382-

5T and 1.382-8T, and amend Sec. 1.382-2T(f). The final regulations that

are proposed to be based on these proposed regulations would be added

to part 1 of title 26 of the Code of Federal Regulations. Those final

regulations would provide rules relating to limitations on net

operating loss carryforwards and certain built-in losses following an

ownership change under section 382.

For the text of these new temporary regulations, see TD 8679. The

preamble to the temporary regulations explains the regulations.

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) 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, 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.

Comments and Public Hearing

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, 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.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,

consideration will be given to any written comments (a signed original

and eight (8) copies) that are submitted timely to the IRS. All

comments will be available for public inspection and copying.

A public hearing has been scheduled for Thursday, October 17, 1996,

at 10 a.m. in the NYU Classroom, Room 2615, Internal Revenue Building,

1111 Constitution Avenue NW., Washington, DC. Because of access

restrictions, visitors will not be admitted beyond the 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 September 25, 1996 and submit an outline of

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

(signed original and eight (8) copies) by Thursday, September 26, 1996.

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.

Drafting Information: The principal author of the temporary

regulations is David B. Friedel of the Office of Assistant Chief

Counsel (Corporate), IRS. Other personnel from the IRS and Treasury

participated in their development.

Withdrawal of Notice of Proposed Rulemaking

Accordingly, under the authority of 26 U.S.C. 7805, the notice of

proposed rulemaking that was published on January 29, 1991 (56 FR 4183)

is withdrawn.

ipal author of the temporary

regulations is David B. Friedel of the Office of Assistant Chief

Counsel (Corporate), IRS. Other personnel from the IRS and Treasury

participated in their development.

Withdrawal of Notice of Proposed Rulemaking

Accordingly, under the authority of 26 U.S.C. 7805, the notice of

proposed rulemaking that was published on January 29, 1991 (56 FR 4183)

is withdrawn.

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 is amended by

revising the entry for Sec. 1.382-2T and adding citations for

Secs. 1.382-5 and 1.382-8 in numerical order to read as follows:

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

Section 1.382-2T also issued under 26 U.S.C. 382(g)(4)(C), (i),

(k)(1) and (6), (l)(3), (m), and 26 U.S.C. 383.* * *

Section 1.382-5 also issued under 26 U.S.C. 382(m).* * *

Section 1.382-8 also issued under 26 U.S.C. 382(m).* * *

Par. 2. Section 1.382-1 is amended by revising the entry for

Sec. 1.382-2(a)(1)(iv), and adding Secs. 1.382-5 and 1.382-8 to read as

follows:

Sec. 1.382-1 Table of contents.

* * * * *

Sec. 1.382-2 General rules for ownership change.

(a) * * *

(1) * * *

(iv) End of separate accounting for losses and credits of

distributor or transferor loss corporation.

* * * * *

Sec. 1.382-5 Section 382 limitation.

(a) Scope.

(b) Computation of value.

(c) Short taxable year.

(d) Successive ownership changes and absorption of a section 382

limitation.

(1) In general.

(2) Recognized built-in gains and losses.

(3) Effective date.

(e) Controlled groups.

(f) Effective date.

* * * * *

Sec. 1.382-8 Controlled groups.

(a) Introduction.

(b) Controlled group loss and controlled group with respect to a

controlled group loss.

utation of value.

(c) Short taxable year.

(d) Successive ownership changes and absorption of a section 382

limitation.

(1) In general.

(2) Recognized built-in gains and losses.

(3) Effective date.

(e) Controlled groups.

(f) Effective date.

* * * * *

Sec. 1.382-8 Controlled groups.

(a) Introduction.

(b) Controlled group loss and controlled group with respect to a

controlled group loss.

(c) Computation of value.

(1) Reduction in value.

(2) Restoration of value.

(3) Reduction in value by the amount restored.

(4) Appropriate adjustments.

(5) Certain reductions in the value of members of a controlled

group.

(d) No double reduction.

(e) Definitions and nomenclature.

(1) Definitions in Sec. 1.382-2T.

(2) Controlled group.

(3) Component member.

(4) Predecessors and successors.

(f) Coordination between consolidated groups and controlled

groups.

(g) Examples.

(h) Time and manner of filing election to restore.

(1) Statement required.

(2) Revocation of election.

(3) Filing by component member.

(i) [Reserved]

(j) Effective date.

(1) In general.

(2) Transition rule.

(3) Corporations that are not members on January 29, 1991.

(4) Amended returns.

Par. 3. Section 1.382-2 is amended as follows:

Sec. 1.382-2 General rules for ownership change.

[The text of the proposed amendments to paragraphs (e)(2)(iv),

(f)(1)(i), (ii) and (iii), (f)(4), (f)(5), and (f)(18)(i) is the same

as the text of the amendments to paragraphs (e)(2)(iv), (f)(1)(i), (ii)

and (iii), (f)(4), (f)(5), and (f)(18)(i) of Sec. 1.382-2T, published

elsewhere in this issue of the Federal Register.]

Par. 4. Sections 1.382-5 and 1.382-8 are added to read as follows:

[The text of these proposed sections is the same as the text of

Secs. 1.382-5T and 1.382-8T published elsewhere in this issue of the

Federal Register.]

Margaret Milner Richardson,

Commissioner of Internal Revenue.

[FR Doc. 96-15828 Filed 6-26-96; 8:45 am]

BILLING CODE 4830-01-U