Part I. Rulings — Internal Revenue Bulletin 1997-3

Section 25.—Interest on Certain Home Mortgages

26 CFR 1.25–3: Qualified mortgage credit certifi- cate.

T.D. 8692

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Reissuance of Mortgage Credit Certificates

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final regulations relating to the reissuance of mortgage credit certificates. Changes to the applicable law were made by the Tax Reform Act of 1984. The regulations provide guidance to issuers and holders of mortgage credit certificates.

EFFECTIVE DATE: These regulations are effective December 17, 1996.

FOR FURTHER INFORMATION CONTACT: L. Michael Wachtel, (202) 622– 3980 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document adds final regulations to the Income Tax Regulations (26 CFR part 1) to provide guidance under section 25(e)(4) of the Internal Revenue Code (Code) with respect to the reissuance of mortgage credit certificates. Section 25(e)(4) was added to the Code by section 612 of the Tax Reform Act of 1984, 98 Stat. 494, 905. On December 22, 1993, temporary regulations (TD 8502) relating to refinancing under section 25(e)(4) were published in the Federal Register (58 FR 67689). A notice of proposed rulemaking (REG–209574–92, previously FI–47–92) cross-referencing the temporary regulations was published in the Federal Register for the same day (58 FR 67744).

Written comments responding to these notices were received. There were no requests to appear in response to publication of a notice of a hearing in the Federal Register (61 FR 15204). Therefore, no public hearing was held. After consideration of all the comments, the

proposed regulations under section 25(e)(4) are adopted as revised by this Treasury decision, and the corresponding temporary regulations are removed. The comments and revisions are discussed below.

Explanation of provisions and summary of comments

The temporary regulations permit the reissuance of a mortgage credit certificate on or after December 22, 1992, but no later than 1 year after the date of the refinancing. Commentators thought this unnecessarily limited eligibility for the reissuance of a certificate and limited the flexibility of State and local governments. The final regulations, reflecting the goal of giving State and local governments maximum flexibility to administer mortgage credit certificate programs, remove these limits. A State or local government may reissue a certificate to any person who refinanced a mortgage for which a mortgage credit certificate was issued and who meets the other requirements for a reissued certificate. The credit for prior years is available to the extent that the certificate holder may file a claim for refund.

The temporary regulations provide that the certified mortgage indebtedness amount on the reissued certificate cannot exceed the remaining balance of the certified mortgage indebtedness amount on the existing certificate. Commentators suggested that the final regulations permit the indebtedness amount on the reissued certificate to include costs such as closing costs of the refinancing loan. This recommendation was not implemented in the final regulations because section 25(e)(4) of the Code limits the amount of the reissued certificate to the outstanding balance of the existing certificate.

The temporary regulations provide that the reissued certificate may not result in an increase in the credit that would otherwise have been allowable to the holder under the existing certificate for any taxable year. In the case of a series of refinancings, the amount allowable on the refinanced loan would be the amount allowable on the original loan, rather than the immediately preceding refinanced loan.

A holder of a mortgage credit certificate who refinances a fixed rate loan can determine the amount of interest that would have been paid for any taxable year on the refinanced loan from

an amortization schedule that projects interest and principal payments over the life of the loan. By applying the mortgage credit rate to the amount of interest, the holder can calculate the amount of tax credit that would have been allowable for the taxable year.

The amount of tax credit that would have been allowable for a taxable year is not as easily calculated by a holder of a mortgage credit certificate who refinances a variable rate loan because the holder cannot project an amortization schedule for the refinanced loan. Instead, each year the holder must calculate the amount of interest that would have been paid on the refinanced loan under the interest rate in effect for that year and then calculate the tax credit that would have been allowable. This procedure was described as burdensome by various commentators.

The final regulations continue to reflect the statutory requirement that the reissued certificate not result in an increase in the credit that would otherwise have been allowable to the certificate holder under the existing certificate for any taxable year. The final regulations, however, permit a certificate holder who refinances a variable rate loan with either a variable rate loan or a fixed rate loan to determine the amount of credit that would have been allowable by using an alternative method instead of calculating the amount based on the actual interest that would have been paid on the refinanced loan. Under the alternative method, the credit that would have been allowable is computed using an amortization schedule of a hypothetical self-amortizing loan with level payments projected to the final maturity date of the refinanced loan. The interest rate of the hypothetical loan is the annual percentage rate (APR) of the refinancing loan determined for purposes of the Federal Truth in Lending Act. The principal of the hypothetical loan is the remaining outstanding balance of the certified mortgage indebtedness specified on the existing certificate.

A certificate holder who refinances a variable rate loan may use the alternative method or may compute the actual amount of credit that would have been allowable. However, the method chosen must be consistently applied by the holder beginning with the first taxable year for which the tax credit based upon the reissued certificate is claimed.

The temporary regulations do not address whether a refinancing loan is a financing that is subject to the recapture provisions of section 143(m) if the refinanced loan was not subject to recapture. The final regulations provide that the refinancing loan underlying a reissued mortgage credit certificate that replaces a mortgage credit certificate issued on or before December 31, 1990, is not a federally subsidized indebtedness that is subject to the recapture provisions of section 143(m) of the Code.

Commentators asked for clarification of whether additional volume cap was required in order to reissue a mortgage credit certificate and whether additional reporting was required by the issuer of a reissued mortgage certificate. Reissuance of a mortgage credit certificate relates to refinancing by a mortgage credit certificate holder of a mortgage loan on the holder’s principal residence. Volume cap was required to be obtained in connection with the program under which the original certificate had been issued. Because the reissued certificate is replacing the existing certificate, it is treated as issued in connection with the original program, and additional volume cap is unnecessary for the reissuance. For similar reasons, no additional reporting is required by an issuer of a reissued mortgage credit certificate.

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866. It also has been determined that section 553(b) of the Administrative Procedures 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, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rule making preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal author of these regulations is L. Michael Wachtel, Office of the Assistant Chief Counsel (Financial Institutions and Products), IRS. However, other personnel from the IRS and Treasury Department participated in their development.

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 is amended by removing the entry ‘‘1.25–1T–1.25–8T’’ and adding entries in numerical order to read as follows:

Authority: 26 U.S.C. 7805 - - Section 1.25–1T also issued under 26 U.S.C. 25. Section 1.25–2T also issued under 26 U.S.C. 25. Section 1.25–3 also issued under 26 U.S.C. 25. Section 1.25–3T also issued under 26 U.S.C. 25. Section 1.25–4T also issued under 26 U.S.C. 25. Section 1.25–5T also issued under 26 U.S.C. 25. Section 1.25–6T also issued under 26 U.S.C. 25. Section 1.25–7T also issued under 26 U.S.C. 25. Section 1.25–8T also issued under 26 U.S.C. 25. - - Par. 2. Section 1.25–3 is added to read as follows:

§ 1.25–3 Qualified mortgage credit cer- tificate.

(a) through (g)(1)(ii) [Reserved] For further guidance, see § 1.25–3T(a) through (g)(1)(ii).

(g)(1)(iii) Reissued certificate excep- tion. See paragraph (p) of this section for rules regarding the exception in the case of refinancing existing mortgages.

(g)(2) through (o) [Reserved] For further guidance, see § 1.25–3T(g)(2) through (o).

(p) Reissued certificates for certain refinancings —(1) In general. If the issuer of a qualified mortgage credit certificate reissues a certificate in place of an existing mortgage credit certificate to the holder of that existing certificate, the reissued certificate is treated as satisfying the requirements of this section. The period for which the reissued certificate is in effect begins with the date of the refinancing (that is, the date on which interest begins accruing on the refinancing loan).

(2) Meaning of existing certificate. For purposes of this paragraph (p), a mortgage credit certificate is an existing certificate only if it satisfies the requirements of this section. An existing certifi

cate may be the original certificate, a certificate issued to a transferee under § 1.25–3T(h)(2)(ii), or a certificate previously reissued under this paragraph (p).

(3) Limitations on reissued certifi- cate. An issuer may reissue a mortgage credit certificate only if all of the following requirements are satisfied:

(i) The reissued certificate is issued to the holder of an existing certificate with respect to the same property to which the existing certificate relates.

(ii) The reissued certificate entirely replaces the existing certificate (that is, the holder cannot retain the existing certificate with respect to any portion of the outstanding balance of the certified mortgage indebtedness specified on the existing certificate).

(iii) The certified mortgage indebtedness specified on the reissued certificate does not exceed the remaining outstanding balance of the certified mortgage indebtedness specified on the existing certificate.

(iv) The reissued certificate does not increase the certificate credit rate specified in the existing certificate.

(v) The reissued certificate does not result in an increase in the tax credit that would otherwise have been allowable to the holder under the existing certificate for any taxable year. The holder of a reissued certificate determines the amount of tax credit that would otherwise have been allowable by multiplying the interest that was scheduled to have been paid on the refinanced loan by the certificate rate of the existing certificate. In the case of a series of refinancings, the tax credit that would otherwise have been allowable is determined from the amount of interest that was scheduled to have been paid on the original loan and the certificate rate of the original certificate.

(A) In the case of a refinanced loan that is a fixed interest rate loan, the interest that was scheduled to be paid on the refinanced loan is determined using the scheduled interest method described in paragraph (p)(3)(v)(C) of this section.

(B) In the case of a refinanced loan that is not a fixed interest rate loan, the interest that was scheduled to be paid on the refinanced loan is determined using either the scheduled interest method described in paragraph (p)(3)(v)(C) of this section or the hypothetical interest method described in paragraph (p)(3)(v)(D) of this section.

each taxable year that was scheduled to have been paid in the taxable year based on the terms of the refinanced loan including any changes in the interest rate that would have been required by the terms of the refinanced loan and any payments of principal that would have been required by the terms of the refinanced loan (other than repayments required as a result of any refinancing of the loan).

(D) The hypothetical interest method (which is available only for refinanced loans that are not fixed interest rate loans) determines the amount of interest treated as having been scheduled to be paid for a taxable year by constructing an amortization schedule for a hypothetical self-amortizing loan with level payments. The hypothetical loan must have a principal amount equal to the remaining outstanding balance of the certified mortgage indebtedness specified on the existing certificate, a maturity equal to that of the refinanced loan, and interest equal to the annual percentage rate (APR) of the refinancing loan that is required to be calculated for the Federal Truth in Lending Act.

(E) A holder must consistently apply the scheduled interest method or the hypothetical interest method for all taxable years beginning with the first taxable year the tax credit is claimed by the holder based upon the reissued certificate.

(4) Examples. The following examples illustrate the application of paragraph (p)(3)(v) of this section:

Example 1. A holder of an existing certificate that meets the requirements of this section seeks to refinance the mortgage on the property to which the existing certificate relates. The final payment on the holder’s existing mortgage is due on December 31, 2000; the final payment on the new mortgage would not be due until January 31, 2004. The holder requests that the issuer provide to the holder a reissued mortgage credit certificate in place of the existing certificate. The requested certificate would have the same certificate credit rate as the existing certificate. For each calendar year through the year 2000, the credit that would be allowable to the holder with respect to the new mortgage under the requested certificate would not exceed the credit allowable for that year under the existing certificate. The requested certificate, however, would allow the holder credits for the years 2001 through 2004, years for which, due to the earlier scheduled retirement of the existing mortgage, no credit would be allowable under the existing certificate. Under paragraph (p)(3)(v) of this section, the issuer may not reissue the certificate as requested because, under the existing certificate, no credit would be allowable for the years 2001 through 2004. The issuer may, however, provide a reissued certificate that limits the amount of the credit allowable in each year to the

amount allowable under the existing certificate. Because the existing certificate would allow no credit after December 31, 2000, the reissued certificate could expire on December 31, 2000.

Example 2. (a) The facts are the same as Example 1 except that the existing mortgage loan has a variable rate of interest and the refinancing loan will have a fixed rate of interest. To determine whether the limit under paragraph (p)(3)(v) of this section is met for any taxable year, the holder must calculate the amount of credit that otherwise would have been allowable absent the refinancing. This requires a determination of the amount of interest that would have been payable on the refinanced loan for the taxable year. The holder may determine this amount by—

(1) Applying the terms of the refinanced loan, including the variable interest rate or rates, for the taxable year as though the refinanced loan continued to exist; or

(2) Obtaining the amount of interest, and calculating the amount of credit that would have been available, from the schedule of equal payments that fully amortize a hypothetical loan with the principal amount equal to the remaining outstanding balance of the certified mortgage indebtedness specified on the existing certificate, the interest equal to the annual percentage rate (APR) of the refinancing loan, and the maturity equal to that of the refinanced loan.

(b) The holder must apply the same method for each taxable year the tax credit is claimed based upon the reissued mortgage credit certificate.

(5) Coordination with section 143(m)(3). A refinancing loan underlying a reissued mortgage credit certificate that replaces a mortgage credit certificate issued on or before December 31, 1990, is not a federally subsidized indebtedness for the purposes of section 143(m)(3) of the Internal Revenue Code.

§ 1.25–3T [Amended}

Par. 3. Section 1.25–3T is amended by removing paragraphs (g)(1)(iii) and (p).

Margaret Milner Richardson, Commissioner of Internal Revenue.

Approved November 27, 1996.

Donald C. Lubick, Acting Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on December 16, 1996, 8:45 a.m., and published in the issue of the Federal Register for December 17, 1996, 61 F.R. 66212)

Section 42.—Low-Income Housing Credit

Low-income housing tax credit. This revenue ruling clarifies that section 502(e)(3) of the Tax Reform Act of 1986 does not prevent a taxpayer from claiming a low-income housing tax credit under section 42 of the Code for

a building’s credit period beginning after 1995.

Rev. Rul. 97–4

ISSUE

Does § 502(e)(3) of the Tax Reform Act of 1986 (Act) prevent a taxpayer from claiming a low-income housing tax credit under § 42 of the Internal Revenue Code for a building whose credit period begins after 1995?

FACTS

On January 1, 1995, taxpayer, T, purchased a residential rental building (Building) from seller, S . S was allowed the transition-rule benefits under Act § 502(a). T intends to substantially rehabilitate the Building and qualify the Building for a low-income housing tax credit under § 42. The credit period for the Building will begin in 1996.

LAW AND ANALYSIS

Act § 502 contains a transition rule for taxpayers investing in certain lowincome housing properties that exempts them from the passive-loss rules under § 469. The rule applies for investments made after 1983 in housing property constructed or acquired pursuant to a binding written contract entered into by August 16, 1986. If a binding contract existed by that date, taxpayers who purchased an interest in the property by the close of 1986 (1988 if the interest was held through certain partnerships), and who had not contributed more than 50 percent of their capital obligation, could qualify for the transition rule. These taxpayers could claim passive losses on new low-income housing investments for a limited period of time if the properties were placed in service prior to January 1, 1989. After 1995, the transition-rule benefits of Act § 502 are no longer available to any taxpayer.

Section 42 provides a tax credit for investment in qualified low-income buildings placed in service after December 31, 1986.

A taxpayer may not claim a § 42 credit before the start of a building’s 10-year credit period. Section 42(f) provides that the 10-year credit period for a building begins with the taxable year the building is placed in service, or, at the election of the taxpayer, the succeeding taxable year.

Act § 502 and § 42 can apply to the same type of property. To prevent a

taxpayer from obtaining a simultaneous tax benefit under both sections, Act § 502(e)(3) provides that no lowincome housing credit under § 42 is available ‘‘with respect to any project with respect to which any person has been allowed any benefit under [Act § 502].’’

The transition-rule benefits under Act § 502 are not available to S in 1996 and future years. Thus, no simultaneous tax benefit under Act § 502 and § 42 is available after that date. Therefore, Act § 502(e)(3) does not prohibit T from claiming a § 42 low-income housing credit for the Building whose credit period begins after 1995.

HOLDING

Act § 502(e)(3) does not prevent a taxpayer from claiming a low-income housing tax credit under § 42 for a building whose credit period begins after 1995.

DRAFTING INFORMATION

The principal author of this revenue ruling is Christopher J. Wilson of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling contact Mr. Wilson on (202) 622–3040 (not a toll-free call).

Section 108.—Income From Discharge of Indebtedness

26 CFR 1.108(c)–1: Time and manner for making election under the Omnibus Budget Reconciliation Act of 1993.

T.D. 8688

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

Certain Elections Under the Omnibus Budget Reconciliation Act of 1993

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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 Of- fice 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): Act Code Section Section 13114 1044(a) 13150 108(c)(3)(C) 13206(d) 163(d)(4)(B)(iii) 13225 6655(e)(2)(C)

On December 27, 1993, the Federal Register published temporary regulations (T.D. 8509 [1994–1 C.B. 24]) and a cross-reference notice of proposed rulemaking (IA–62–93 [1994–1 C.B. 803]), 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 § 1.108(c)–1, and the corresponding temporary regulations are removed. The comments and a description of the modifications to proposed § 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 Omnibus Budget Reconciliation Act of 1993 (Public Law 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:

§ 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 (Public Law 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

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 § 301.9100–3T or any regulations that supersede § 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.

- - - -

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);

- § 1.108(c)–1T [Removed]

Par. 2. Section 1.108(c)–1T is removed. § 1.163(d)–1T [Removed]

Par. 3. Section 1.163(d)–1T is removed. § 1.1044(a)–1T [Removed]

Par. 4. Section 1.1044(a)–1T is removed. § 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:

§ 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 (Public Law 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 timelyfiled (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:

§ 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

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.

§ 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 (Public Law 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.

(d) Effective date. The rules set forth in this section are effective December 12, 1996.

PART 602—OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

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

- - - 1.108(c)–1. . . . . . . . . . 1545–1421
- - - 1.163(d)–1. . . . . . . . . . 1545–1421
- - - 1.1044(a)–1. . . . . . . . . 1545–1421
- - - 1.6655(e)–1. . . . . . . . . 1545–1421

Margaret Milner Richardson, Commissioner of Internal Revenue.

Approved November 1, 1996.

Donald C. Lubick, Acting, Assistant Secretary

of the Treasury.

(Filed by the Office of the Federal Register on December 11, 1996, 8:45 a.m., and published in the issue of the Federal Register for December 12, 1996, 61 F.R. 65321)

Authority: 26 U.S.C. 7805. Par. 11. In § 602.101, paragraph (c) is amended as follows:

The following entries are removed from the table:

§ 602.101 OMB Control numbers.

- - - -

CFR part or section where identified and described

Current OMB

control no.

- - - 1.108(c)–1T. . . . . . . . . 1545–1421
- - - 1.163(d)–1T . . . . . . . . 1545–1421
- - - 1.1044(a)–1T. . . . . . . . 1545–1421
- - - 1.6655(e)–1T. . . . . . . . 1545–1421

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

§ 602.101 OMB Control numbers.

- - - - (c) - -

CFR part or section where identified and described

Current OMB

control no.

Section 6695.—Other Assessable Penalties With Respect To the Preparation of Income Tax Returns for Other Persons

26 CFR 1.6695–1: Other assessable penalties with respect to the preparation of income tax returns for other persons. (Also Sec. 6061; 301.6061–1)

T.D. 8689

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 301

Methods of Signing

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to the methods of signing returns, statements, or other documents. The final regulations clarify that the IRS may prescribe a method other than pen and ink for signing any return, statement, or other document. This clarification will facilitate the IRS’ implementation of paperless filings.

EFFECTIVE DATE: These regulations are effective on December 12, 1996.

FOR FURTHER INFORMATION CONTACT: Celia Gabrysh (202) 622–4940 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Income Tax Regulations (26 CFR part 1) and the Procedure and Administration Regulations (26 CFR part 301) that relate to signing returns, statements, and other documents. Section 6061 provides in part that ‘‘. . . any return, statement, or other document required to be made under any provision of the internal revenue laws or regulations shall be signed in accordance with forms or regulations prescribed by the Secretary.’’ Traditionally, the IRS has accepted pento-paper signatures. The IRS will prescribe additional methods of signing to be used for electronically filed returns and other documents.

The final regulations clarify that the IRS may prescribe the specific method of signing any return, statement, or other document. The final regulations also provide that the IRS may require a return preparer to use a method of signing other than a pen-to-paper signa

ture or a facsimile signature stamp when signing a return, statement, or other document.

On July 21, 1995, temporary regulations (T.D. 8603 [1995–2 C.B. 281]) relating to the signing of returns, statements, and other documents were published in the Federal Register (60 FR 37589). A notice of proposed rulemaking (IA–10–95 [1995–2 C.B. 478]) cross-referencing the temporary regulations was published in the Federal Register for the same day (60 FR 37621). One comment responding to this notice was received. A public hearing was held on November 2, 1995. After consideration of the comment, the proposed regulations under sections 6061 and 6695 are adopted without change by this Treasury decision, and the corresponding temporary regulations are removed. The comment is discussed below.

Summary of Comments

The commentator suggested that the IRS prescribe by regulation any new method of signing any return, statement, or other document to allow the public to comment on the method’s feasibility. Also, the commentator suggested that a regulation would constitute substantial authority and would provide broader public exposure.

The final regulations did not adopt the commentator’s suggestion. The final regulations retain the full range of options for prescribing new methods of signing: forms, instructions, or other appropriate guidance. The final regulations provide the IRS with the flexibility to address the particular circumstances of any method of signing. The IRS will continue to inform the public about methods of signing.

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 Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Drafting Information

The principal author of these regulations is Celia Gabrysh, Office of Assistant Chief Counsel (Income Tax & Accounting). 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 301 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 1.6695–1 is amended by revising the first sentence of paragraph (b)(1) to read as follows:

§ 1.6695–1 Other assessable penalties with respect to the preparation of in- come tax returns for other persons.

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(b) - * * (1) Unless the Secretary has prescribed another method of signing pursuant to § 301.6061–1(b) on or after July 21, 1995, an individual who is an income tax return preparer with respect to a return of tax under subtitle A of the Internal Revenue Code (Code) or claim for refund of tax under subtitle A of the Code shall manually sign the return or claim for refund (which may be a photocopy) in the appropriate space provided on the return or claim for refund after it is completed and before it is

presented to the taxpayer (or nontaxable entity) for signature. - - - - - -
§ 1.6695–1T [Removed]

Par. 3. Section 1.6695–1T is removed.

PART 301—PROCEDURE AND ADMINISTRATION

Par. 4. The authority citation for part 301 is amended by removing the entry for § 301.6061–1T and adding an entry in numerical order to read as follows:

Authority: 26 U.S.C. 7805 - - Section 301.6061–1 also issued under 26 U.S.C. 6061; - - Par. 5. Section 301.6061–1 is revised to read as follows:

§ 301.6061–1 Signing of returns and other documents.

(a) In general. For provisions concerning the signing of returns and other documents, see the regulations relating to the particular tax.

(b) Method of signing. The Secretary may prescribe in forms, instructions, or other appropriate guidance the method of signing any return, statement, or other document required to be made under any provision of the internal revenue laws or regulations.

(c) Effective dates. The rule in paragraph (a) is effective December 12, 1996. The rule in paragraph (b) is effective on July 21, 1995.

§ 301.6061–1T [Removed]

Par. 6. Section 301.6061–1T is removed.

Margaret Milner Richardson, Commissioner of Internal Revenue.

Approved November 1, 1996.

Donald C. Lubick, Assistant Secretary of the Treasury.

(Filed by the Office of the Federal Register on December 11, 1996, 8:45 a.m., and published in the issue of the Federal Register for December 12, 1996, 61 F.R. 65319)