Consolidated ReturnsLimitation on Recapture of Overall

Official source: Federal Register (GovInfo) (https://www.govinfo.gov/content/pkg/FR-1998-12-29/pdf/98-33702.pdf), retrieved 2026-10-03. U.S. Government work (17 U.S.C. § 105).

Federal Register / Vol. 63, No. 249 / Tuesday, December 29, 1998 / Rules and Regulations 71589

(h) Computer redaction . The Agency will identify the location of deletions in the released portion of the records, and where technologically feasible, will show the deletion at the place on the record where the deletion was made, unless including that indication would harm an interest protected by an exemption.

(i) Report to Congress . In addition to the information already provided to Congress in the Agency’s Annual Report on FOIA Activities, the Agency will include the following: the number of Privacy Act (PA) requests handled; the number of backlogged requests; the number of days taken to process requests; the number of staff devoted to processing FOIA requests; whether a claimed (b)(3) statute has been upheld in court; and the costs of litigation. The Agency’s annual report will be available both in hard copy and through the Internet. In the past, annual reports were required based on a calendar year and were provided to Congress on or before March 1 of the following year. However, the new law has changed the annual reporting requirements now to be related to the Agency’s fiscal year. Thus, the Annual Report to Congress on FOIA Activities for 1997 only encompassed the first nine months (January through September), and was reported by March 1, 1998. The FY 98 report will begin in October 1997 and conclude at the end of September 1998. This report will be presented to the Department of Justice instead of Congress, by February 1, 1999, and Justice will report all Federal agency FOIA activity through electronic means.

(j) Reference materials and guides . The Agency has available in hard copy, and will have electronically via the Internet, a guide for requesting records under the FOIA and an index and description of all major information systems of the Agency. The guide is a simple explanation of what the FOIA is intended to do, and how you can use it to access USIA records. The Index explains the types of records that may be requested from the Agency through FOIA requests and why some records cannot, by law, be made available by USIA. Les Jin, General Counsel.

[FR Doc. 98–34443 Filed 12–28–98; 8:45 am]

BILLING CODE 8230–01–M

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8800]

RIN 1545–AW51

Consolidated Returns—Limitation on Recapture of Overall Foreign Loss Accounts

Background

As announced in Notice 98–40 (1998– 35 I.R.B. 7), these temporary regulations permit taxpayers to elect to delay the effective date of § 1.1502–9T, published in the Federal Register on January 12, 1998 (TD 8751, 63 FR 1740), and modified by amendments published in the Federal Register on March 16, 1998 (TD 8766, 63 FR 12641).

On January 12, 1998, Treasury and the IRS published in the Federal Register (TD 8751, 63 FR 1740) final, temporary and proposed regulations (the January 1998 regulations) relating to limitations on the use of certain tax credits and related attributes by corporations filing consolidated income tax returns. In general, the January 1998 regulations

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains temporary amendments to the consolidated return regulations. The temporary amendments modify the date temporary regulations apply as published in the Federal Register on January 12, 1998, and modified by amendments published in the Federal Register on March 16, 1998, relating to a consolidated group’s recapture of an overall foreign loss account arising in a separate return limitation year. The regulations affect consolidated groups that claim foreign tax credits. The text of the 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 .

DATES: Effective dates: These amendments are effective December 29, 1998. Applicability dates: For dates of applicability of these regulations, see § 1.1502–9T(b)(1)(v).

FOR FURTHER INFORMATION CONTACT: Trina Dang of the Office of Associate Chief Counsel (International), (202) 622–3850 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

relate to the separate return limitation year (SRLY) provisions for general business credits, alternative minimum tax credits, foreign tax credits and overall foreign loss accounts. The January 1998 regulations were generally applicable to consolidated return years beginning on or after January 1, 1997.

On March 16, 1998, Treasury and the IRS published in the Federal Register (TD 8766, 63 FR 12641) final, temporary, and proposed regulations (the March 1998 regulations) modifying the effective date of the January 1998 regulations. The March 1998 regulations provide that the provisions of the January 1998 regulations will apply for consolidated return years for which the due date (without extensions) of the income tax return is after March 13, 1998. In lieu of applying this effective date, however, the March 1998 regulations permit a consolidated group to choose to apply the effective date provisions under the January 1998 regulations. The March 1998 regulations provide that taxpayers making this choice must apply all those effective date provisions for all relevant years. Thus, under the March 1998 regulations, taxpayers are not permitted to apply one provision of the January 1998 regulations (e.g., the general business credit effective date) without applying all the other provisions (e.g., the foreign tax credit effective date).

On May 7, 1998, a public hearing was held regarding the proposed January and March regulations. At the hearing and in written submissions, commentators expressed concern regarding the effective dates contained in the January 1998 and March 1998 regulations with respect to the overall foreign loss account provisions of § 1.1502–9T. The commentators’ principal concern was that these effective dates resulted in adverse tax consequences not anticipated by taxpayers with respect to business transactions that occurred prior to the issuance of the January 1998 regulations. Treasury and the IRS now believe that certain of these consequences are inappropriate.

Accordingly, on August 14, 1998, Treasury and the Service issued Notice 98–40 (1998–35 I.R.B. 7), announcing their intent to issue regulations providing relief from the application of § 1.1502–9T (the overall foreign loss account provisions) for consolidated return years beginning before January 1, 1998.

Explanation of Provisions

As announced in Notice 98–40, taxpayers are permitted to elect not to apply § 1.1502–9T(b)(1)(v) to

71590 Federal Register / Vol. 63, No. 249 / Tuesday, December 29, 1998 / Rules and Regulations

consolidated return years beginning before January 1, 1998. Section 1.1502– 3T(c)(4) is amended to clarify that a taxpayer that chooses under the March 1998 regulations to apply the effective date provisions under the January 1998 regulations may also make the election referred to in Notice 98–40.

To make the election, a taxpayer must write ‘‘Election Pursuant to Notice 98– 40’’ across the top of page 1 of an original or amended tax return for each consolidated return year subject to the election. For the first consolidated return year to which the overall foreign loss provisions of § 1.1502–9T apply (i.e., the first year beginning on or after January 1, 1998), such taxpayer must write ‘‘Notice 98–40 Election in Effect in Prior Years’’ across the top of page 1 of the consolidated tax return for that year. For purposes of applying § 1.1502–9T with respect to such year, any member with a balance in an overall foreign loss account from a separate return limitation year on the first day of such year shall be treated as joining the group on such first day.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required. It is hereby certified that these regulations do not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these regulations principally affect corporations filing consolidated federal income tax returns that have overall foreign losses from separate return limitation years. Available data indicates that many consolidated return filers are large companies (not small businesses). In addition, the data indicates that an insubstantial number of consolidated return filers that are smaller companies have overall foreign losses. Presumably, even fewer of these filers have overall foreign loss accounts that are subject to the separate return limitation year rules. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. It has also been determined that under section 553(d) of the Administrative Procedure Act (5 U.S.C. chapter 5) these regulations should be effective immediately because they involve the applicability of regulations that modify the limitations on the use of certain tax attributes for taxable years for which a return is due after March 13, 1998. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking accompanying

these regulations is being sent to the Small Business Administration for comment on its impact on small businesses.

Drafting Information

The principal author of these regulations is Trina Dang of the Office of Associate Chief Counsel (International). However, other personnel from the IRS and Treasury participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is 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 1.1502–3T is amended by removing the last sentence of paragraph (c)(4) and adding two sentences in its place to read as follows:

§ 1.1502–3T Consolidated investment credit (temporary).

- - - (c) * - (4) * - - A consolidated group making this choice generally must apply all such paragraphs for all relevant years. However, a consolidated group making the election provided in § 1.1502–9T(b)(1)(vi) (electing not to apply § 1.1502–9T(b)(1)(v) to years beginning before January 1, 1998) may nevertheless choose to apply all such paragraphs other than § 1.1502– 9T(b)(1)(v) for all relevant years.
- - - Par. 3. In § 1.1502–9, paragraph (a) is amended by revising the last two sentences to read as follows:

§ 1.1502–9 Application of overall foreign loss recapture rules to corporations filing consolidated returns.

(a) * - - See § 1.1502–9T(b)(1)(v) for the rule that ends the separate return limitation year limitation for consolidated return years for which the due date of the income tax return (without extensions) is after March 13, 1998, and § 1.1502–9T(b)(1)(vi) for an election to continue the separate return limitation year limitation for consolidated return years beginning before January 1, 1998. See also § 1.1502–3T(c)(4) for an optional effective date rule (generally making the

rules of paragraphs (b)(1)(iii) and (iv) of this section inapplicable for a consolidated return year beginning after December 31, 1996, if the due date of the income tax return (without extensions) for such year is on or before March 13, 1998).

- - - Par. 4. Section 1.1502–9T is amended by revising paragraph (b)(1)(v) and adding paragraph (b)(1)(vi) to read as follows:

§ 1.1502–9T Application of overall foreign loss recapture rules to corporations filing consolidated returns (temporary).

- - - (b)(1)(v) Special effective date for SRLY limitation. Except as provided in paragraph (b)(1)(vi) of this section, § 1.1502–9(b)(1)(iii) and (iv) apply only to consolidated return years for which the due date of the income tax return (without extensions) is on or before March 13, 1998. For consolidated return years for which the due date of the income tax return (without extensions) is after March 13, 1998, the rules of § 1.1502–9(b)(1)(ii) shall apply to overall foreign losses from separate return years that are separate return limitation years. For purposes of applying § 1.1502– 9(b)(1)(ii) in such years, the group treats a member with a balance in an overall foreign loss account from a separate return limitation year on the first day of the first consolidated return year for which the due date of the income tax return (without extensions) is after March 13, 1998, as a corporation joining the group on such first day. An overall foreign loss that is part of a net operating loss or net capital loss carryover from a separate return limitation year of a member that is absorbed in a consolidated return year for which the due date of the income tax return (without extensions) is after March 13, 1998, shall be added to the appropriate consolidated overall foreign loss account in the year that it is absorbed. For consolidated return years for which the due date of the income tax return (without extensions) is after March 13, 1998, similar principles apply to overall foreign losses when there has been a consolidated return change of ownership (regardless of when the change of ownership occurred). See also § 1.1502–3T(c)(4) for an optional effective date rule (generally making this paragraph (b)(1)(v) applicable to a consolidated return year beginning after December 31, 1996, if the due date of the income tax return (without extensions) for such year is on or before March 13, 1998).

Federal Register / Vol. 63, No. 249 / Tuesday, December 29, 1998 / Rules and Regulations 71591

(vi) Election to defer application of special effective date. A consolidated group may elect not to apply paragraph (b)(1)(v) of this section to consolidated return years beginning before January 1, 1998. To make this election, a consolidated group must write ‘‘Election Pursuant to Notice 98–40’’ across the top of page 1 of an original or amended tax return for each consolidated return year subject to the election. For the first consolidated return year to which the overall foreign loss provisions of paragraph (b)(1)(v) of this section apply (i.e., the first year beginning on or after January 1, 1998), such consolidated group must write ‘‘Notice 98–40 Election in Effect in Prior Years’’ across the top of page 1 of the consolidated tax return for that year. For purposes of applying § 1.1502–9(b)(1)(ii) with respect to such year, any member with a balance in an overall foreign loss account from a separate return limitation year on the first day of such year shall be treated as joining the group on such first day.

- - - Approved: December 7, 1998. Robert L. Wenzel, Deputy Commissioner of Internal Revenue.

Donald C. Lubick, Assistant Secretary of the Treasury.

[FR Doc. 98–33702 Filed 12–28–98; 8:45 am]

BILLING CODE 4830–01–P

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8802]

RIN 1545–AN21

Certain Asset Transfers to a Tax- Exempt Entity

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations that implement provisions of the Tax Reform Act of 1986 and the Technical and Miscellaneous Revenue Act of 1988. The final regulations generally affect a taxable corporation that transfers all or substantially all of its assets to a tax-exempt entity or converts from a taxable corporation to a tax-exempt entity in a transaction other than a liquidation, and generally require the taxable corporation to recognize gain or loss as if it had sold the assets transferred at fair market value.

DATES: Effective Date: These regulations are effective January 28, 1999.

Applicability Date: For dates of applicability of these regulations, see § 1.337(d)-4(e).

FOR FURTHER INFORMATION CONTACT: Stephen R. Cleary, (202) 622–7530 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information in these final regulations has been reviewed and, pending receipt and evaluation of public comments, approved by the Office of Management and Budget (OMB) under 44 U.S.C. 3507 and assigned control number 1545–1633.

The collection of information in this regulation is described in § 1.337(d)4(b)(1)(i). The information is a written representation made by a tax-exempt entity estimating the percentage it will use assets formerly held by a taxable corporation in an activity the income from which is subject to tax under section 511(a), as opposed to other activities. The information may be used by the taxable corporation in computing the amount of gain or loss that is recognized under the regulations. The information may also be used by the IRS in determining whether the proper amount of tax is due on the transaction. The collection of information is not mandatory but will enable the taxable corporation to support its reporting of the tax consequences of the transaction. The likely respondents are tax-exempt entities subject to the unrelated business income tax under section 511(a) (including most organizations that are exempt from tax under section 501, state colleges and universities, and certain charitable trusts).

Comments concerning the collection of information should be sent 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, with copies to the Internal Revenue Service, Attention: IRS Reports Clearance Officer, OP:FS:FP, Washington, DC 20224. Any such comments should be submitted not later than March 1, 1999.

Comments are specifically requested concerning:

(a) Whether the collection of information is necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility;

(b) The accuracy of the estimated burden associated with the collection of information (see below);

(d) How the burden of complying with the collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and

(e) Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of services to provide information.

Estimated total annual reporting burden: 125 hours. The annual burden per respondent varies from 1 hour to 10 hours, depending on individual circumstances, with an estimated average of 5 hours.

Estimated number of respondents: 25. Estimated frequency of responses: Once.

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 assigned by OMB.

Books or records relating to a 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 return information are confidential, as required by 26 U.S.C. 6103.

Background

On January 15, 1997, proposed regulations § 1.337(d)-4 were published in the Federal Register (62 FR 2064,

[REG–209121–89, 1997–1 C.B. 719]). The regulations were proposed to amend 26 CFR part 1 and were intended to carry out the purposes of the repeal of the General Utilities doctrine (‘‘ General Utilities repeal’’) as enacted in the Tax Reform Act of 1986 (the ‘‘1986 Act’’).

The 1986 Act amended sections 336 and 337, generally requiring corporations to recognize gain or loss when appreciated or depreciated property is distributed in complete liquidation or is sold in connection with a complete liquidation. Section 337(d) directs the Secretary to prescribe regulations as may be necessary to carry out the purposes of General Utilities repeal, including rules to ‘‘ensure that these purposes shall not be circumvented * - - through the use of a * - - tax-exempt entity.’’

The legislative history concerning a 1988 amendment to section 337(d) explains:

The bill also clarifies in connection with the built-in gain provisions of the Act that the Treasury Department shall prescribe such regulations as may be necessary or appropriate to carry out those provisions

- - . For example, this includes rules to