Part I. Rulings — Internal Revenue Bulletin 1996-9

§ 472.—Last-in, First-out Inventories

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; department stores. The December 1995 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and lastin, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, December 31, 1995.

Rev. Rul. 96–12

The following Department Store Inventory Price Indexes for December 1995 were issued by the Bureau of Labor Statistics on February 1, 1996. The indexes are accepted by the Internal Revenue Service, under § 1.472–1(k) of the Income Tax Regulations and Rev. Proc. 86–46, 1986–2 C.B. 739, for appropriate application to inventories of department stores employing the retail inventory and last

in, first-out inventory methods for tax years ended on, or with reference to, December 31, 1995.

The Department Store Inventory Price Indexes are prepared on a national basis and include (a) 23 major groups of departments, (b) three special combinations of the major groups—soft goods, durable goods, and miscellaneous goods, and (c) a store total, which covers all departments, including some not listed separately, except for the following: candy, foods, liquor, tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Groups Dec. 1994 Dec. 1995

Percent Change from Dec. 1994 to Dec. 1995 ¹

Piece Goods. . . . . . . . . . . . . . . . . . . . . . . . . . . 483.5 532.6 10.2
Domestics and Draperies . . . . . . . . . . . . . . . . 630.5 633.5 0.5
Women’s and Children’s Shoes . . . . . . . . . . 630.9 625.6 –0.8
Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . 907.3 891.0 –1.8
Infants’ Wear. . . . . . . . . . . . . . . . . . . . . . . . . . 620.9 635.6 2.4
Women’s Underwear . . . . . . . . . . . . . . . . . . . 521.9 521.6 –0.1
Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . 280.4 290.2 3.5
Women’s and Girls’ Accessories . . . . . . . . . 560.6 559.9 –0.1
Women’s Outerwear and Girls’ Wear. . . . . 413.9 407.1 –1.6
Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . 603.0 602.1 –0.1
Men’s Furnishings. . . . . . . . . . . . . . . . . . . . . . 558.6 561.6 0.5
Boys’ Clothing and Furnishings. . . . . . . . . . 472.4 481.8 2.0
Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 979.4 978.1 –0.1
Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720.8 773.6 7.3
Toilet Articles and Drugs . . . . . . . . . . . . . . . 854.2 870.8 1.9
Furniture and Bedding . . . . . . . . . . . . . . . . . . 637.3 669.0 5.0
Floor Coverings. . . . . . . . . . . . . . . . . . . . . . . . 564.2 564.5 0.1
Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . 776.3 782.3 0.8
Major Appliances . . . . . . . . . . . . . . . . . . . . . . 249.4 246.1 –1.3
Radio and Television . . . . . . . . . . . . . . . . . . . 83.9 79.1 –5.7
Recreation and Education ² . . . . . . . . . . . . . . 114.5 112.8 –1.5
Home Improvements ² . . . . . . . . . . . . . . . . . . . 122.0 123.7 1.4
Auto Accessories ² . . . . . . . . . . . . . . . . . . . . . . 106.6 107.5 0.8

Groups 1–15: Soft Goods. . . . . . . . . . . . . . . . . . . 584.4 585.1 0.1

Groups 16–20: Durable Goods . . . . . . . . . . . . . . 463.4 462.2 –0.3

Groups 21–23: Misc. Goods ² . . . . . . . . . . . . . . . . 114.1 113.3 –0.7

Store Total ³ . . . . . . . . . . . . . . . . . . . . . . . . . 544.0 543.7 –0.1

1Absence of a minus sign before percentage change in this column signifies price increase.

2Indexes on a January 1986=100 base.

3The store total index covers all departments, including some not listed separately, except for the following: candy, foods, liquor, tobacco, and contract departments.

proposed regulations require the taxpayer to identify, before the close of the day on which the positions become part of the conversion transaction, all the positions that are part of the conversion transaction. In addition, the taxpayer has to dispose of all the positions within a 14-day period that is within a single taxable year. The proposed regulations also define builtin loss and prohibit the netting of builtin loss against gain.

The commenters uniformly supported the netting relief provided by the proposed regulations. Accordingly, the final regulations are substantially unchanged from the proposed regulations.

The proposed regulations provide that the regulations will be effective for conversion transactions entered into on or after the date of filing of final regulations with the Federal Register. Several commenters requested that the regulations also apply to conversion transactions entered into prior to the filing date. In response to these comments, the final regulations provide for application of the regulations to any conversion transaction that is outstanding on December 21, 1995, provided that all the positions which are part of the conversion transaction are identified under §1.1258–1(b)(2) before the close of business on February 20, 1996. The final regulations also provide a transition rule for the same-day identification requirement that allows taxpayers to identify conversion transactions entered into prior to February 20, 1996, at any time on or before February 20, 1996.

Several commenters criticized the examples for failing to adjust the applicable imputed income amount (AIIA) under section 1258(b) for interest and dividends received. The scope of these regulations, however, is limited to netting relief. The IRS is still studying various situations to determine the extent to which it is appropriate to reduce the AIIA by reason of amounts capitalized under section 263(g), ordinary income received, or otherwise. Accordingly, Example 3 has been deleted and Examples 1 and 2 have been clarified to eliminate any implication on this issue.

One commenter requested that the identification requirement be eliminated as impractical, unnecessary, and a trap for the unwary. This same-day identification requirement is similar to identification requirements under sections 475 and 1221. Identification of all the

DRAFTING INFORMATION

The principal author of this revenue ruling is Stan Michaels of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Michaels on (202) 622-4970 (not a toll-free call).

Section 1258.—Recharacterization of Gain from Certain Financial Transactions

26 CFR 1.1258–1: Netting rule for certain conversion transactions.

T.D. 8649

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 602

Regulations Under Section 1258 of the Internal Revenue Code of 1986; Netting Rule For Certain Conversion Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to conversion transactions. These regulations provide that certain gains and losses from positions of the same conversion transaction may be netted for purposes of determining the amount of gain that is recharacterized as ordinary income. These regulations reflect changes to the law made by the Revenue Reconciliation Act of 1993 and affect persons who enter into conversion transactions.

DATE: These regulations are effective December 21, 1995.

For applicability of these regulations, see EFFECTIVE DATES under the part of the preamble.

FOR FURTHER INFORMATION CONTACT: Alan B. Munro, (202) 622-3950 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations has

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 1545–1452. Responses to this collection of information are required to obtain netting relief for conversion transactions.

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 recordkeeper varies from .05 to 10 hours, depending on individual circumstances, with an estimated average of .10 hour.

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

On December 27, 1994, the IRS published in the Federal Register a notice of proposed rulemaking and notice of public hearing at 59 FR 66498 (FI–43–94 [1995–1 C.B. 932]) under section 1258 of the Internal Revenue Code of 1986.

The IRS received a number of written comments on the proposed regulations. No requests to speak at the public hearing were received, however, and consequently the hearing was cancelled.

Explanation of Provisions

A. General

The proposed regulations allow taxpayers to net gains and losses on the positions of certain conversion transactions for purposes of section 1258(a). For a taxpayer to be eligible, the

built-in losses as defined in paragraph (c) of this section) are netted solely for purposes of determining the amount of gain treated as ordinary income under section 1258(a). For purposes of the preceding sentence, a taxpayer is treated as disposing of any position that is treated as sold under any provision of the Code or regulations thereunder (for example, under section 1256(a)(1)).

(2) Identified netting transaction . For purposes of this section, an identified netting transaction is a conversion transaction (as defined in section 1258(c)) that the taxpayer identifies as an identified netting transaction on its books and records. Identification of each position of the conversion transaction must be made before the close of the day on which the position becomes part of the conversion transaction. No particular form of identification is necessary, but all the positions of a single conversion transaction must be identified as part of the same transaction and must be distinguished from all other positions.

(1) Built-in loss as defined in section 1258(d)(3)(B); and

(2) If a taxpayer realizes gain or loss on any one position of a conversion transaction (for example, under section 1256), as of the date that gain or loss is realized, any unrecognized loss in any other position of the conversion transaction that is not disposed of, terminated, or treated as sold under any provision of the Code or regulations thereunder within 14 days of and within the same taxable year as the realization event.

(d) Examples . These examples illustrate this section:

Example 1 . Identified netting transaction with simultaneous actual dispositions . (i) On December 1, 1995, A purchases 1,000 shares of XYZ stock for $100,000 and enters into a forward contract to sell 1,000 shares of XYZ stock on November 30, 1997, for $110,000. The XYZ stock is actively traded as defined in §1.1092(d)– 1(a) and is a capital asset in A ’s hands. A maintains books and records on which, on December 1, 1995, it identifies the two positions as all the positions of a single conversion transaction. A owns no other XYZ stock. On December 1, 1996, when the applicable imputed income amount for the transaction is $7,000, A sells the 1,000 shares of XYZ stock for $95,000. On the same day, A terminates its forward contract with its counterparty, receiving $10,200. No dividends were received on the stock during

positions of a conversion transaction will aid examiners attempting to determine whether conversion transactions are present and will prevent mismatching of those positions by both taxpayers and agents. The final regulations retain the same-day identification requirement but provide a transition rule.

Some commenters asked that netting relief be expanded to cover unrealized losses in retained positions by allowing loss positions to be marked to market when a gain position is disposed of or terminated. Allowing retained positions to be marked to market raises valuation and other potentially complex issues. For example, many of the issues addressed by the regulations under section 475 would have to be addressed here. The complexity of these issues outweighs the potential benefit of allowing retained positions to be marked to market. Thus, the final regulations do not include a mark-to-market provision.

To preserve the character of gain that arose before a position became part of a conversion transaction, one commenter requested built-in gain rules similar to the built-in loss rules in the proposed regulations. The appropriateness of a built-in gain rule under section 1258 is beyond the scope of these regulations. Therefore, the final regulations do not address this issue.

The IRS is aware that section 1258 presents a number of issues not addressed by these final regulations. The IRS continues to study the scope of section 1258, the types of transactions that should be included under the regulatory authority of section 1258(c)(2)(D), and what reductions, if any, in the AIIA are appropriate under section 1258(b). The IRS welcomes comments on these and other issues under section 1258.

B. Effective Dates

The regulations are effective for conversion transactions that are outstanding on or after December 21, 1995. In the case of a conversion transaction entered into before February 20, 1996, the same-day identification requirement is treated as satisfied if the identification is made on or before February 20, 1996.

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 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, 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 Alan B. Munro, Office of Assistant Chief Counsel (Financial Institutions and Products). However, other personnel from the IRS and Treasury Department participated in their development.

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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 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Par. 2. Section 1.1258–1 is added to read as follows:

§1.1258–1 Netting rule for certain conversion transactions .

(a) Purpose . The purpose of this section is to provide taxpayers with a method to net certain gains and losses from positions of the same conversion transaction before determining the amount of gain treated as ordinary income under section 1258(a).

(b) Netting of gain and loss for identified transactions —(1) In general . If a taxpayer disposes of or terminates all the positions of an identified netting transaction (as defined in paragraph (b)(2) of this section) within a 14-day period in a single taxable year, all gains and losses on those positions taken into account for federal tax purposes within that period (other than

the time it was part of the conversion transaction.

(ii) The XYZ stock and forward contract are positions of a conversion transaction. Under section 1258(c)(1), substantially all of A ’s expected return from the overall transaction is attributable to the time value of the net investment in the transaction. Under section 1258(c)(2)(B), the transaction is an applicable straddle as defined in section 1258(d)(1).

(iii) A disposed of or terminated all the positions of the conversion transaction within 14 days and within the same taxable year as required by paragraph (b)(1) of this section. The transaction is an identified netting transaction because it meets the identification requirement of paragraph (b)(2) of this section. Solely for purposes of section 1258(a), the $5,000 loss realized ($100,000 basis less $95,000 amount realized) on the disposition of the XYZ stock is netted against the $10,200 gain recognized on the disposition of the forward contract. Thus, the net gain from the conversion transaction for purposes of section 1258(a) is $5,200 ($10,200 gain less $5,000 loss). Only the $5,200 net gain is recharacterized as ordinary income under section 1258(a) even though the applicable imputed income amount is $7,000. For federal tax purposes other than section 1258(a), A has recognized a $10,200 gain on the disposition of the forward contract ($5,200 of which is treated as ordinary income) and realized a separate $5,000 loss on the sale of the XYZ stock.

Example 2 . Identified netting transaction with built-in loss . (i) The facts are the same as in Example 1, except that A had purchased the XYZ stock for $104,000 on May 15, 1995. The XYZ stock had a fair market value of $100,000 on December 1, 1995, the date it became part of a conversion transaction.

(ii) The results are the same as in Example 1, except that A has built-in loss (in addition to the $5,000 loss that arose economically during the period of the conversion transaction), as defined in section 1258(d)(3)(B), of $4,000 on the XYZ stock. That $4,000 built-in loss is not netted against the $10,200 gain on the forward contract for purposes of section 1258(a). Thus, the net gain from the conversion transaction for purposes of section 1258(a) is $5,200, the same as in Example 1 . The $4,000 built-in loss is recognized and has a character determined without regard to section 1258.

(e) Effective date and transition rule —(1) In general . These regulations are effective for conversion transactions that are outstanding on or after December 21, 1995.

(2) Transition rule for identification requirements . In the case of a conversion transaction entered into before February 20, 1996, paragraph (b)(2) of this section is treated as satisfied if the identification is made before the close of business on February 20, 1996.

PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 3. The authority citation for part 602 continues to read as follows:

Authority: 26 U.S.C. 7805.

§602.101 [Amended]

Par. 4. In §602.101, paragraph (c) is amended by adding the entry ‘‘1.1258– 1 .... 1545–1452’’ in numerical order to the table.

Approved November 28, 1995.

Leslie Samuels, Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on

December 20, 1995, 8:45 a.m., and published in the issue of the Federal Register for December 21, 1995, 60 F.R. 66083)

Section 1445.—Withholding of Tax on Dispositions of United States Real Property Interests

26 CFR 1.1445–1: Withholding on dispositions of U.S. real property interests by foreign persons; in general.

T.D. 8647

DEPARTMENT OF TREASURY Internal Revenue Service 26 CFR Part 1

Withholding of Tax on Dispositions of U.S. Real Property Interests by Foreign Persons.

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to withholding upon certain distributions or dispositions of U.S. real property interests. These regulations reflect changes to the law made by the Omnibus Budget Reconciliation Act of 1993 and affect withholding agents required to withhold tax due on certain dispositions and distributions of U.S. real property interests.

DATES: These final regulations are effective January 22, 1996. These regulations are applicable to transactions occurring after August 9, 1993.

Margaret Milner Richardson,

Commissioner of

Internal Revenue.

FOR FURTHER INFORMATION CONTACT: Gwendolyn A. Stanley (202) 622-3860 (not a toll free-call).

SUPPLEMENTARY INFORMATION:

Background

This document contains final regulations reflecting changes made by the Omnibus Budget Reconciliation Act of 1993 to the withholding rates on certain distributions and dispositions of U.S. real property interests. These regulations were not preceded by a Notice of Proposed Rulemaking because the withholding rates were changed by the Act. This document also updates the address of the Assistant Commissioner (International) to whom various forms must be sent.

Explanation of Provisions

The rate of withholding under section 1445(e)(1) and (2) of the Internal Revenue Code was increased from 34% to 35% by the Omnibus Budget Reconciliation Act of 1993. The existing regulations reflect the prior 34% withholding rate. These regulations reflect the increase in withholding to 35% (or the highest rate specified in section 1445(e)(1) or (2)) for dispositions occurring on or after August 10, 1993.

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 has also 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 final regulations were submitted to the Small Business Administration for comment on their impact on small business.

Drafting Information

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

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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. * * * Section 1.1445–5 also issued under 26 U.S.C. 1445(e)(6). Section 1.1445–8 also issued under 26 U.S.C. 1445(e)(6). * * * Par. 2. In section 1.1445–1, the section heading and paragraph (g)(10) are revised to read as follows:

§1.1445–1 Withholding on dispositions of U.S. real property interests by foreign persons: In general .

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(g) - * * (10) Address of the Assistant Com- missioner International . Any written communication directed to the Assistant Commissioner (International) is to be addressed as follows: Director, Philadelphia Service Center; 11601 Roosevelt Blvd.; Philadelphia, PA 19255; ATTN: Drop Point 543X.

Date Parcel sold

Par. 3. Section 1.1445–5 is amended as follows:

Paragraph (c)(1)(ii) is revised.
The third sentence and the last sentence of paragraph (c)(1)(iii)(A) are revised.
Paragraph (c)(1)(iii)(B) is removed.
Paragraph (c)(1)(iii)(C) is redesignated as (c)(1)(iii)(B) and revised.
Paragraph (c)(1)(iv) is revised.
Paragraph (c)(3)(ii) is revised.
The first sentence of paragraph (d)(1) is revised.
The second sentence of paragraph (d)(1) is removed.

The revisions read as follows:

§1.1445–5 Special rules concerning distributions and other transactions by corporations, partnerships, trusts, and estates .

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(c)(1) * * * (ii) Disposition by partnership . A partnership must withhold a tax equal to 35 percent (or the highest rate specified in section 1445(e)(1)) of each foreign partner’s distributive share of the gain realized by the partnership upon the disposition of each U.S. real property interest. Such distributive share of the gain must be determined

Gains or (loss) realized

pursuant to the principles of section 704 and the regulations thereunder. For the rules applicable to partnerships, interests in which are regularly traded on an established securities market, see §1.1445–8.

(iii) Disposition by trust or estate (A) In general . * * * The fiduciary must withhold 35 percent (or the highest rate specified in section 1445(e)(1)) of any distribution to a foreign beneficiary that is attributable to the balance in the U.S. real property interest account on the day of the distribution. * * * For rules applicable to trusts, interests in which are regularly traded on an established securities market and real estate investment trusts, see §1.1445–8.

(B) Example . The following example illustrates the rules of paragraph (c)(1)(iii)(A) of this section.

On January 1, 1994, A establishes a domestic trust (which has as its taxable year, the calendar year) for the benefit of B, a nonresident alien, and C, a U.S. citizen. The trust is not a trust subject to sections 671 through 679. Under the terms of the trust, the trustee, T, is given discretion to distribute income and corpus of the trust to provide for the reasonable needs of B and C. During the trust’s 1994 tax year, T disposes of three parcels of vacant land located in the United States. The following chart illustrates the computation of the amount subject to withholding under section 1445 with respect to distributions made by T to B and C during 1994.

Section 1445

withholding

35% rate

U.S. real

property

interest account

Distributions

to C

Distributions to B (before

withholding)

1/01/94 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -03/01/94 . . . . . . . . . . . . . . . . . . Parcel 1 140,000 140,000 3/05/94 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000 10,000 3,500 125,000 3/15/94 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000 5,000 1,750 110,000 5/01/94 . . . . . . . . . . . . . . . . . . Parcel 2 300,000 410,000 5/15/94 . . . . . . . . . . . . . . . . . . Parcel 3 (50,000) 360,000 12/01/94 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000 170,000 59,500 20,000 1/01/95 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0

(iv) Disposition by grantor trust . The trustee or equivalent fiduciary of a trust that is subject to the provisions of subpart E of part I of subchapter J (sections 671 through 679) must withhold a tax equal to 35 percent (or the highest rate specified in section 1445(e)(1)) of the gain realized from each disposition of a U.S. real property interest to the extent such gain is allocable to a portion of the trust treated

as owned by a foreign person under subpart E of part I of subchapter J.

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(3) - * * (ii) Amount to be withheld . A partnership or trust electing to withhold under this §1.1445–5(c)(3) shall withhold from each distribution to a foreign person an amount equal to 35 percent (or the highest rate specified in section

1445(e)(1)) of the amount attributable to section 1445(e)(1) transfers.

- - - - -

(d) Distributions of U.S. real prop- erty interests by foreign corporations (1) In general . A foreign corporation that distributes a U.S. real property interest must deduct and withhold a tax equal to 35 percent (or the rate specified in section 1445(e)(2)) of the

amount of gain recognized by the corporation on the distribution. * * *

Par. 4. Section 1.1445–8(c)(2)(i) is revised to read as follows:

§ 1.1445–8 Special rules regarding publicly traded partnerships, publicly traded trusts and real estate investment trusts (REITS) .

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(c) - * * (2) REITS —(i) In general . The amount to be withheld with respect to a distribution by a REIT, under this section shall be equal to 35 percent (or the highest rate specified in section 1445(e)(1)) of the amount described in paragraph (c)(2)(ii) of this section.

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Approved November 28, 1995.

Leslie Samuels, Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on

December 20, 1995, 8:45 a.m., and published in the issue of the Federal Register for December 21, 1995, 60 F.R. 66076)

Margaret Milner Richardson,

Commissioner of

Internal Revenue.