Part I. Rulings — Internal Revenue Bulletin 1999-6

Section 42.—Low-Income Housing Credit

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 280G.—Golden Parachute Payments

Federal short-term, mid-term, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 382.—Limitation on Net Operating Loss Carryforwards and Certain Built-In Losses Following Ownership Change

The adjusted federal long-term rate is set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 411.—Minimum Vesting Standards

26 CFR 1.411(d)–4: Section 411(d)(6) protected benefits.

T.D. 8806

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Employee Stock Ownership Plans; Section 411(d)(6) Protected Benefits (Taxpayer Relief Act of 1997); Qualified Retirement Plan Benefits

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary regulations providing for changes to the rules regarding qualified retirement plan benefits that are protected from reduction by plan amendment, that have been made necessary by the Taxpayer Relief Act of 1997 (TRA ’97). The final regulations change the ex

isting final regulations to conform with the TRA ’97 rules regarding in-kind distribution requirements for certain employee stock ownership plans, and specify the time period during which certain plan amendments for which relief has been granted by TRA ’97 may be made without violating the prohibition against plan amendments that reduce accrued benefits. These final regulations affect sponsors of qualified retirement plans, employers that maintain qualified retirement plans, and qualified retirement plan participants. The amendments to the temporary regulations remove previously issued temporary regulations on the same subject.

DATES: These regulations are effective January 8, 1999.

FOR FURTHER INFORMATION CONTACT: Linda S. F. Marshall, (202) 6226030 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Income Tax Regulations (26 CFR part

under section 411(d)(6). These regulations change the rules under section 411(d)(6) regarding qualified retirement plan benefits that are protected from reduction by plan amendment, to take into account amendments made by the Taxpayer Relief Act of 1997 (TRA ’97), Public Law 105–34, 111 Stat. 788 (1997). On September 4, 1998, temporary regulations (T.D. 8781, 1998–40 I.R.B. 4) under section 411(d)(6) were published in the Fed- eral Register (63 F.R. 47172). A notice of proposed rulemaking (REG–101363– 98, 1998–40 I.R.B. 10), cross-referencing the temporary regulations, was published in the Federal Register (63 F.R. 47214) on the same day. The temporary regulations conform the regulations to the TRA ’97 amendments to section 409 regarding the general requirement that employee stock ownership plans offer distributions in the form of employer securities. In addition, the temporary regulations specify the time period during which certain plan amendments for which relief has been granted by TRA ’97 may be made without violating section 411(d)(6).

One written comment responding to the notice of proposed rulemaking was received. No public hearing was requested or held. The proposed regulations under section 411(d)(6) are adopted by this Treasury decision, and the corresponding temporary regulations are removed.

Explanation of Provisions

Section 411(d)(6) provides that a plan is not treated as satisfying the requirements of section 411 if the accrued benefit of a participant is decreased by a plan amendment. Under section 411(d)(6)(B), a plan amendment that eliminates an optional form of benefit is treated as reducing accrued benefits to the extent that the amendment applies to benefits accrued as of the later of the adoption date or the effective date of the amendment. Sections 1.411(d)–4, Q&A-1(b)(1) and 1.401(a)(4)– 4(e) specify that different optional forms of benefit within the meaning of section 411(d)(6)(B) result from differences in the medium of a distribution (e.g., cash or inkind) from a plan. Section 411(d)(6)(C) provides that any tax credit employee stock ownership plan or any employee stock ownership plan is not treated as failing to meet the requirements of section 411(d)(6) merely because it modifies distribution options in a nondiscriminatory manner.

Special Rules Regarding Medium of Distribution from ESOPs

Section 409(h) contains requirements relating to distributions from tax credit employee stock ownership plans. Section 4975(e)(7) extends the requirements of section 409(h) to other employee stock ownership plans as well, and section 401(a)(23) extends the requirements of section 409(h) to qualified plans that are stock bonus plans. Under section 409(h)(1)(A), an employee stock ownership plan or other stock bonus plan generally is required to make distributions available in the form of employer securities. Prior to its amendment by TRA ’97, section 409(h)(2) provided an exception to this rule in the case of an employer whose charter or bylaws restrict the ownership of substantially all outstanding employer se

February 8, 1999 4 1999–6 I.R.B.

curities to employees or to a trust described in section 401(a).

Under section 1361, certain small business corporations that do not have more than 75 shareholders are eligible to elect treatment as S corporations whose tax attributes generally flow through to shareholders in accordance with the rules of subchapter S of chapter 1 of subtitle A of the Internal Revenue Code. Prior to the Small Business Job Protection Act of 1996 (SBJPA), Public Law 104-188, 110 Stat. 1755 (1996), an S corporation could not maintain an employee stock ownership plan because an S corporation could not have a qualified trust described in section 401(a) as a shareholder. SBJPA amended the requirements for S corporations, effective for tax years beginning after December 31, 1996, to permit certain tax-exempt organizations, including qualified trusts described in section 401(a), to be S corporation shareholders. TRA ’97 made an additional change to the rules governing qualified plans holding securities of an S corporation employer, to make it easier for S corporation employers to facilitate employee ownership of employer securities through qualified plans. Section 1506 of TRA ’97 extends the exception of section 409(h)(2) to cover S corporations, effective for taxable years beginning after December 31, 1997. Pursuant to this change, tax credit employee stock ownership plans, employee stock ownership plans, and other stock bonus plans established and maintained by S corporation employers are not required to offer distributions in the form of employer securities.

Section 1.411(d)–4, Q&A-2(d)(2)(ii) provides an exception from the requirements of section 411(d)(6) for plan amendments that eliminate optional forms of benefit from a tax credit employee stock ownership plan, an employee stock ownership plan, or a stock bonus plan, for certain employers. Section 1.411(d)–4, Q&A-2(d)(2)(ii) applies to employers that become substantially employee-owned, if the employer otherwise meets the requirements of section 409(h)(2) with respect to restrictions on the ownership of outstanding employer stock. These regulations retain the provision in the temporary regulations to expand the exception of §1.411(d)–4, Q&A-2(d)(2)(ii) from the requirements of section 411(d)(6) to

apply to S corporations as well, to reflect the TRA ’97 changes to section 409(h).

Rules for Plan Amendments Pursuant to TRA ’97

Section 1541 of TRA ’97 contains provisions relating to plan amendments that are adopted as a result of TRA ’97. If section 1541 applies to a plan amendment, section 1541(a) provides that the plan will be treated as operated in accordance with its terms and will not fail to satisfy the requirements of section 411(d)(6) by reason of the amendment. Section 1541 applies to a plan amendment that is made pursuant to a legislative change in the pension and employee benefit provisions of TRA ’97, provided the following conditions are satisfied. First, the plan amendment must be adopted before the first day of the first plan year beginning on or after January 1, 1999 (2001, in the case of a governmental plan, as defined in section 414(d)). Second, the plan must be operated in accordance with the terms of the plan amendment, beginning on the date the legislative change takes effect, or, if the amendment is not required by the legislative change, the effective date of the amendment specified by the plan. Third, the plan amendment must be made retroactively effective.

The remedial amendment period for adopting plan amendments to which section 1541 of TRA ’97 applies was extended pursuant to the rules of section 401(b) in Rev. Proc. 98–14 (1998–4 I.R.B. 22). To provide a uniform time for plan amendment, these regulations add a new §1.411(d)–4, Q&A-11 to retain the rule of §1.411(d)–4T, Q&A-11 of the temporary regulations extending the time for the section 411(d)(6) relief provided by section 1541 of TRA ’97 to the end of the remedial amendment period for these plan amendments.

The sole commentator raised a concern regarding whether this extension of the time period for section 411(d)(6) relief originally provided under section 1541 of TRA ’97 restricts the time during which any plan amendment can be made to eliminate in-kind distributions of employer securities from employee stock ownership plans of S corporations. The extension of the time period for this section 1541 statutory relief pursuant to §1.411(d)–4, Q&A11 does not restrict the time period during

which a plan amendment can be made to eliminate these in-kind distributions as permitted under §1.411(d)–4, Q&A2(d)(2)(ii); to the contrary, the §1.411(d)4, Q&A-11 extension of this statutory relief period provides an additional time period for the adoption of certain plan amendments to eliminate these in-kind distributions after these in-kind distributions have been eliminated in operation. Under the ongoing rule of §1.411(d)–4, Q&A-2(d)(2)(ii), a plan amendment to eliminate these in-kind distributions that is effective with respect to distributions payable after the date the amendment is adopted can be made at any time during taxable years of the employer beginning after December 31, 1997.

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) does not apply to these regulations, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding these regulations was submitted to the Small Business Administration for comment on its impact on small businesses.

Drafting Information

The principal author of these regulations is Linda S. F. Marshall, Office of the Associate Chief Counsel (Employee Benefits and Exempt Organizations). 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

1999–6 I.R.B 5 February 8, 1999

Section 483.—Interest on Certain Deferred Payments

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 642.—Special Rules for Credits and Deductions

Federal short-term, mid-term, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 708.—Continuation of Partnership

26 CFR 1.708–1: Continuation of partnership. (Also sections 731, 732, 735, 741, 751, 1012; 1.741–1; 301.7701–2, 301.7701–3.)

Partnership to disregarded entity. This ruling describes the federal income tax consequences if one person purchases all of the ownership interests in a domestic limited liability company (LLC) that is classified as a partnership under section 301.7701–3 of the Procedure and Administration Regulations, causing the LLC’s status as a partnership to terminate under section 708(b)(1)(A) of the Code.

Rev. Rul. 99–6

ISSUE

What are the federal income tax consequences if one person purchases all of the ownership interests in a domestic limited liability company (LLC) that is classified as a partnership under § 301.7701–3 of the Procedure and Administration Regulations, causing the LLC’s status as a partnership to terminate under § 708(b)(1)(A) of the Internal Revenue Code?

FACTS

In each of the following situations, an LLC is formed and operates in a state which permits an LLC to have a single owner. Each LLC is classified as a partnership under § 301.7701–3. Neither of the LLCs holds any unrealized receivables or substantially appreciated inventory for purposes of § 751(b). For the sake of simplicity, it is assumed that neither LLC is liable for any indebtedness, nor are the assets of the LLCs subject to any indebtedness.

part 1 is amended by adding an entry in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * * §1.411(d)–4T also issued under 26 U.S.C. 411(d)(6). * * *

Par. 2. Section 1.411(d)-4 is amended by:

Revising Q&A-2(d)(2)(ii).
Removing the last sentence of Q&A-2(d)(3).
Adding Q&A-11. The additions and revisions read as follows:

§1.411(d)–4 Section 411(d)(6) protected benefits.

Q-2: * * * A-2: * * * (d) * * * (2) * * * (ii) Employer becomes substantially employee-owned or is an S corporation. The employer eliminates, or retains the discretion to eliminate, with respect to all participants, optional forms of benefit by substituting cash distributions for distributions in the form of employer stock with respect to benefits subject to section 409(h) in the circumstances described in paragraph (d)(1)(ii)(A) or (B) of this Q&A-2, but only if the employer otherwise meets the requirements of section 409(h)(2)— (A) The employer becomes substantially employee-owned; or

(B) For taxable years of the employer beginning after December 31, 1997, the employer is an S corporation as defined in section 1361.

Q-11: To what extent may a plan amendment that is made pursuant to the Taxpayer Relief Act of 1997 (TRA ’97) (Public Law 105–34, 111 Stat. 788), reduce or eliminate section 411(d)(6) protected benefits?

A-11: A plan amendment does not violate the requirements of section 411(d)(6) merely because the plan amendment reduces or eliminates section 411(d)(6) protected benefits as of the effective date of the plan amendment, provided that—

(a) The plan amendment is made pursuant to an amendment made by title XV, or subtitle H of title X, of TRA ’97; and

(b) The plan amendment is adopted no later than the last day of any remedial amendment period that applies to the plan pursuant to §§1.401(b)–1 and 1.401(b)– 1T for changes under TRA ’97.

§1.411(d)–4T [Removed]

Par. 3. Section 1.411(d)–4T is removed.

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue.

Approved January 7, 1999.

Donald C. Lubick, Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on January 7, 1999, 8:45 a.m., and published in the issue of the Federal Register for January 8, 1999, 64 F.R. 1125)

Section 412.—Minimum Funding Standards

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 467.—Certains Payments for the Use of Property or Services

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 468.—Special Rules for Mining and Solid Waste Reclamation and Closing Costs

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 482.—Allocation of Income and Deductions Among Taxpayers

Federal short-term, mid-term, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

February 8, 1999 6 1999–6 I.R.B.

ANALYSIS AND HOLDINGS

Situation 1. The AB partnership terminates under § 708(b)(1)(A) when B purchases A ’s entire interest in AB . Accordingly, A must treat the transaction as the sale of a partnership interest. Reg. § 1.741–1(b). A must report gain or loss, if any, resulting from the sale of A ’s partnership interest in accordance with § 741.

Under the analysis of McCauslen and Rev. Rul. 67–65, for purposes of determining the tax treatment of B, the AB partnership is deemed to make a liquidating distribution of all of its assets to A and B, and following this distribution, B is treated as acquiring the assets deemed to have been distributed to A in liquidation of A ’s partnership interest.

B ’s basis in the assets attributable to A ’s one-half interest in the partnership is $10,000, the purchase price for A ’s partnership interest. Section 1012. Section 735(b) does not apply with respect to the assets B is deemed to have purchased from A . Therefore, B ’s holding period for these assets begins on the day immediately following the date of the sale. See Rev. Rul. 66–7, 1966–1 C.B. 188, which provides that the holding period of an asset is computed by excluding the date on which the asset is acquired.

Upon the termination of AB, B is considered to receive a distribution of those assets attributable to B ’s former interest in AB. B must recognize gain or loss, if any, on the deemed distribution of the assets to the extent required by § 731(a). B ’s basis in the assets received in the deemed liquidation of B ’s partnership interest is determined under § 732(b). Under § 735(b), B ’s holding period for the assets attributable to B ’s one-half interest in AB includes the partnership’s holding period for such assets (except for purposes of § 735(a)(2)).

Situation 2. The CD partnership terminates under § 708(b)(1)(A) when E purchases the entire interests of C and D in CD. C and D must report gain or loss, if any, resulting from the sale of their partnership interests in accordance with § 741.

For purposes of classifying the acquisition by E, the CD partnership is deemed to make a liquidating distribution of its assets to C and D . Immediately following

Situation 1. A and B are equal partners in AB, an LLC. A sells A ’s entire interest in AB to B for $10,000. After the sale, the business is continued by the LLC, which is owned solely by B .

Situation 2. C and D are equal partners in CD, an LLC. C and D sell their entire interests in CD to E, an unrelated person, in exchange for $10,000 each. After the sale, the business is continued by the LLC, which is owned solely by E .

After the sale, in both situations, no entity classification election is made under § 301.7701–3(c) to treat the LLC as an association for federal tax purposes.

LAW

Section 708(b)(1)(A) and § 1.708– 1(b)(1) of the Income Tax Regulations provide that a partnership shall terminate when the operations of the partnership are discontinued and no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership.

Section 731(a)(1) provides that, in the case of a distribution by a partnership to a partner, gain is not recognized to the partner except to the extent that any money distributed exceeds the adjusted basis of the partner’s interest in the partnership immediately before the distribution.

Section 731(a)(2) provides that, in the case of a distribution by a partnership in liquidation of a partner’s interest in a partnership where no property other than money, unrealized receivables (as defined in § 751(c)), and inventory (as defined in § 751(d)(2)) is distributed to the partner, loss is recognized to the extent of the excess of the adjusted basis of the partner’s interest in the partnership over the sum of (A) any money distributed, and (B) the basis to the distributee, as determined under § 732, of any unrealized receivables and inventory.

Section 732(b) provides that the basis of property (other than money) distributed by a partnership to a partner in liquidation of the partner’s interest shall be an amount equal to the adjusted basis of the partner’s interest in the partnership, reduced by any money distributed in the same transaction.

Section 735(b) provides that, in determining the period for which a partner has

held property received in a distribution from a partnership (other than for purposes of § 735(a)(2)), there shall be included the holding period of the partnership, as determined under § 1223, with respect to the property.

Section 741 provides that gain or loss resulting from the sale or exchange of an interest in a partnership shall be recognized by the transferor partner, and that the gain or loss shall be considered as gain or loss from a capital asset, except as provided in § 751 (relating to unrealized receivables and inventory items).

Section 1.741–1(b) provides that § 741 applies to the transferor partner in a twoperson partnership when one partner sells a partnership interest to the other partner, and to all the members of a partnership when they sell their interests to one or more persons outside the partnership.

Section 301.7701–2(c)(1) provides that, for federal tax purposes, the term “partnership” means a business entity (as the term is defined in § 301.7701–2(a)) that is not a corporation and that has at least two members.

In Edwin E. McCauslen v. Commis- sioner, 45 T.C. 588 (1966), one partner in an equal, two-person partnership died, and his partnership interest was purchased from his estate by the remaining partner. The purchase caused a termination of the partnership under § 708(b)(1)(A). The Tax Court held that the surviving partner did not purchase the deceased partner’s interest in the partnership, but that the surviving partner purchased the partnership assets attributable to the interest. As a result, the surviving partner was not permitted to succeed to the partnership’s holding period with respect to these assets.

Rev. Rul. 67–65, 1967–1 C.B. 168, also considered the purchase of a deceased partner’s interest by the other partner in a two-person partnership. The Service ruled that, for the purpose of determining the purchaser’s holding period in the assets attributable to the deceased partner’s interest, the purchaser should treat the transaction as a purchase of the assets attributable to the interest. Accordingly, the purchaser was not permitted to succeed to the partnership’s holding period with respect to these assets. See also Rev. Rul. 55–68, 1955–1 C.B. 372.

1999–6 I.R.B 7 February 8, 1999

this distribution, E is deemed to acquire, by purchase, all of the former partnership’s assets. Compare Rev. Rul. 84–111, 1984–2 C.B. 88 (Situation 3), which determines the tax consequences to a corporate transferee of all interests in a partnership in a manner consistent with McCauslen, and holds that the transferee’s basis in the assets received equals the basis of the partnership interests, allocated among the assets in accordance with § 732(c).

E ’s basis in the assets is $20,000 under § 1012. E ’s holding period for the assets begins on the day immediately following the date of sale.

DRAFTING INFORMATION

The principal author of this revenue ruling is Matthew Lay of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling contact Mr. Lay at (202) 622-3050 (not a toll-free call).

Section 721.—Nonrecognition of Gain or Loss on Contribution

26 CFR 1.721–1: Nonrecognition of gain or loss on contribution. (Also sections 722, 723, 1001, 1012, 1223, 7701; 1.1223–1, 301.7701–3.)

Disregarded entity to partnership. This ruling describes the federal income tax consequences when a single member limited liability company that is disregarded as an entity separate from its owner under section 301.7701–3 of the Procedure and Administration Regulations becomes an entity with more than one owner that is classified as a partnership for federal tax purposes.

Rev. Rul. 99–5

ISSUE

What are the federal income tax consequences when a single member domestic limited liability company (LLC) that is disregarded for federal tax purposes as an entity separate from its owner under § 301.7701–3 of the Procedure and Administration Regulations becomes an entity with more than one owner that is classified as a partnership for federal tax purposes?

FACTS

In each of the following two situations, an LLC is formed and operates in a state which permits an LLC to have a single owner. Each LLC has a single owner, A, and is disregarded as an entity separate from its owner for federal tax purposes under § 301.7701–3. In both situations, the LLC would not be treated as an investment company (within the meaning of § 351) if it were incorporated. All of the assets held by each LLC are capital assets or property described in § 1231. For the sake of simplicity, it is assumed that neither LLC is liable for any indebtedness, nor are the assets of the LLCs subject to any indebtedness.

Situation 1. B, who is not related to A, purchases 50% of A ’s ownership interest in the LLC for $5,000. A does not contribute any portion of the $5,000 to the LLC. A and B continue to operate the business of the LLC as co-owners of the LLC.

Situation 2. B, who is not related to A, contributes $10,000 to the LLC in exchange for a 50% ownership interest in the LLC. The LLC uses all of the contributed cash in its business. A and B continue to operate the business of the LLC as co-owners of the LLC.

After the sale, in both situations, no entity classification election is made under § 301.7701–3(c) to treat the LLC as an association for federal tax purposes.

LAW AND ANALYSIS

Section 721(a) generally provides that no gain or less shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership.

Section 722 provides that the basis of an interest in a partnership acquired by a contribution of property, including money, to the partnership shall be the amount of the money and the adjusted basis of the property to the contributing partner at the time of the contribution increased by the amount (if any) of gain recognized under § 721(b) to the contributing partner at such time.

Section 723 provides that the basis of property contributed to a partnership by a partner shall be the adjusted basis of the property to the contributing partner at the

time of the contribution increased by the amount (if any) of gain recognized under § 721(b) to the contributing partner at such time.

Section 1001(a) provides that the gain or loss from the sale or other disposition of property shall be the difference between the amount realized therefrom and the adjusted basis provided in § 1011.

Section 1223(1) provides that, in determining the holding period of a taxpayer who receives property in an exchange, there shall be included the period for which the taxpayer held the property exchanged if the property has the same basis in whole or in part in the taxpayer’s hands as the property exchanged, and the property exchanged at the time of the exchange was a capital asset or property described in § 1231.

Section 1223(2) provides that, regardless of how a property is acquired, in determining the holding period of a taxpayer who holds the property, there shall be included the period for which such property was held by any other person if the property has the same basis in whole or in part in the taxpayer’s hands as it would have in the hands of such other person.

HOLDING(S)

Situation 1. In this situation, the LLC, which, for federal tax purposes, in disregarded as an entity separate from its owner, is converted to a partnership when the new member, B, purchases an interest in the disregarded entity from the owner, A . B ’s purchase of 50% of A ’s ownership interest in the LLC is treated as the purchase of a 50% interest in each of the LLC’s assets, which are treated as held directly by A for federal tax purposes. Immediately thereafter, A and B are treated as contributing their respective interests in those assets to a partnership in exchange for ownership interests in the partnership.

Under § 1001, A recognizes gain or loss from the deemed sale of the 50% interest in each asset of the LLC to B .

Under § 721(a), no gain or loss is recognized by A or B as a result of the conversion of the disregarded entity to a partnership.

Under § 722, B ’s basis in the partnership interest is equal to $5,000, the amount paid by B to A for the assets

February 8, 1999 8 1999–6 I.R.B.

which B is deemed to contribute to the newly-created partnership. A ’s basis in the partnership interest is equal to A ’s basis in A ’s 50% share of the assets of the LLC.

Under § 723, the basis of the property treated as contributed to the partnership by A and B is the adjusted basis of that property in A ’s and B ’s hands immediately after the deemed sale.

Under § 1223(1), A ’s holding period for the partnership interest received includes A ’s holding period in the capital assets and property described in § 1231 held by the LLC when it converted from an entity that was disregarded as an entity separate from A to a partnership. B ’s holding period for the partnership interest begins on the day following the date of B ’s purchase of the LLC interest from A . See Rev. Rul. 66–7, 1966–1 C.B. 188, which provides that the holding period of a purchased asset is computed by excluding the date on which the asset is acquired. Under § 1223(2), the partnership’s holding period for the assets deemed transferred to it includes A ’s and B ’s holding periods for such assets.

Situation 2. In this situation, the LLC is converted from an entity that is disregarded as an entity separate from its owner to a partnership when a new member, B, contributes cash to the LLC. B ’s contribution is treated as a contribution to a partnership in exchange for an ownership interest in the partnership. A is treated as contributing all of the assets of the LLC to the partnership in exchange for a partnership interest.

Under § 721(a), no gain or loss is recognized by A or B as a result of the conversion of the disregarded entity to a partnership.

Under § 722, B ’s basis in the partnership interest is equal to $10,000, the amount of cash contributed to the partnership. A ’s basis in the partnership interest is equal to A ’s basis in the assets of the LLC which A was treated as contributing to the newly-created partnership.

Under § 723, the basis of the property contributed to the partnership by A is the adjusted basis of that property in A ’s hands. The basis of the property contributed to the partnership by B is $10,000, the amount of cash contributed to the partnership.

Under § 1223(1), A ’s holding period for the partnership interest received includes A ’s holding period in the capital and § 1231 assets deemed contributed when the disregarded entity converted to a partnership. B ’s holding period for the partnership interest begins on the day following the date of B ’s contribution of money to the LLC. Under § 1223(2), the partnership’s holding period for the assets transferred to it includes A ’s holding period.

DRAFTING INFORMATION

The principal authors of this revenue ruling are Matthew Lay of the Office of Assistant Chief Counsel (Passthroughs and Special Industries) and Mark D. Harris of the Office of Associate Chief Counsel (International). For further information regarding this revenue ruling contact Mr. Lay at 202-622-3050 (not a toll-free call).

Section 722.—Basis of Contributing Partner’s Interest

26 CFR 1.722–1: Basis of contributing partner’s interest.

Tax consequences when a single member domestic limited liability company that is disregarded as an entity separate from its owner becomes an entity with more than one owner that is classified as a partnership. See Rev. Rul. 99–5, page 8.

Section 723.—Basis of Property Contributed to Partnership

26 CFR 1.723–1: Basis of property contributed to partnership.

Section 731.—Extent of Recognition of Gain or Loss on Distribution

26 CFR 1.731–1: Extent of recognition of gain or loss on distribution.

Tax consequences if one person purchases all of the ownership interests in a domestic limited liability company that is classified as a partnership. See Rev. Rul. 99–6, page 6.

Section 732.—Basis of Distributed Property Other Than Money

26 CFR 1.732–1: Basis of distributed property other than money.

Tax consequences if one person purchases all of the ownership interests in a domestic limited liability company that is classified as a partnership. See Rev. Rul. 99–6, page 6.

Section 735.—Character of Gain or Loss on Disposition of Distributed Property

26 CFR 1.735–1: Character of gain or loss on disposition of distributed property.

Tax consequences if one person purchases all of the ownership interests in a domestic limited liability company that is classified as a partnership. See Rev. Rul. 99–6, page 6.

Section 741.—Recognition and Character of Gain or Loss on Sale or Exchange

26 CFR 1.741–1: Recognition and character of gain or loss on sale or exchange.

Tax consequences if one person purchases all of the ownership interests in a domestic limited liability company that is classified as a partnership. See Rev. Rul. 99–6, page 6.

Section 751.—Unrealized Receivables and Inventory Items

26 CFR 1.751–1: Unrealized receivables and inventory items.

Tax consequences if one person purchases all of the ownership interests in a domestic limited liability company that is classified as a partnership. See Rev. Rul. 99–6, page 6.

Section 807.—Rules for Certain Reserves

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 846.—Discounted Unpaid Losses Defined

The adjusted applicable federal short-term, mid

1999–6 I.R.B 9 February 8, 1999

sections of the Code, tables set forth the rates for February 1999.

Rev. Rul. 99–8

This revenue ruling provides various prescribed rates for federal income tax purposes for February 1999 (the current month.) Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(2) for buildings placed in service during the current month. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.

term, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 1001.—Determination of Amount of and Recognition of Gain or Loss

26 CFR 1.1001–1: Computation of gain or loss.

Section 1012.—Basis of Property—Cost

26 CFR 1.1012–1: Basis of property.

Tax consequences if one person purchases all of the ownership interests in a domestic limited liabil

ity company that is classified as a partnership. See Rev. Rul. 99–6, page 6.

Section 1223.—Basis Period of Property

26 CFR 1.1223–1: Determination of period for which capital assets are held.

Section 1274.—Determination of Issue Price in the Case of Certain Debt Instruments Issued for Property

(Also sections 42, 280G, 382, 412, 467, 468, 482, 483, 642, 807, 846, 1288, 7520, 7872.)

Federal rates; adjusted federal rates; adjusted federal long-term rate, and the long-term exempt rate. For purposes of sections 1274, 1288, 382, and other

REV. RUL. 99–8 TABLE 1

Applicable Federal Rates (AFR) for February 1999

Period for Compounding

Annual Semiannual Quarterly Monthly Short-Term

AFR 4.62% 4.57% 4.54% 4.53% 110% AFR 5.09% 5.03% 5.00% 4.98% 120% AFR 5.56% 5.48% 5.44% 5.42%

130% AFR 6.03% 5.94% 5.90% 5.87%

Mid-Term

AFR 4.71% 4.66% 4.63% 4.62% 110% AFR 5.20% 5.13% 5.10% 5.08% 120% AFR 5.67% 5.59% 5.55% 5.53% 130% AFR 6.15% 6.06% 6.01% 5.98% 150% AFR 7.11% 6.99% 6.93% 6.89% 175% AFR 8.33% 8.16% 8.08% 8.02%

Long-Term

AFR 5.24% 5.17% 5.14% 5.12% 110% AFR 5.77% 5.69% 5.65% 5.62% 120% AFR 6.30% 6.20% 6.15% 6.12% 130% AFR 6.83% 6.72% 6.66% 6.63%

February 8, 1999 10 1999–6 I.R.B.

REV. RUL. 99–8 TABLE 2

Adjusted AFR for February 1999

Period for Compounding

Annual Semiannual Quarterly Monthly Short-term adjusted AFR 3.13% 3.11% 3.10% 3.09%

Mid-term adjusted AFR 3.87% 3.83% 3.81% 3.80%

Long-term adjusted AFR 4.71% 4.66% 4.63% 4.62%

REV. RUL. 99–8 TABLE 3

Rates Under Section 382 for February 1999

Adjusted federal long-term rate for the current month 4.71%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal long-term rates for the current month and the prior two months.) 4.71%

REV. RUL. 99–8 TABLE 4

Appropriate Percentages Under Section 42(b)(2) for February 1999

Appropriate percentage for the 70% present value low-income housing credit 8.16%

Appropriate percentage for the 30% present value low-income housing credit 3.50%

REV. RUL. 99–8 TABLE 5

Rate Under Section 7520 for February 1999

Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest 5.6%

1999–6 I.R.B 11 February 8, 1999

a. Capital Losses

Section 7704(d)(1)(F) provides that, except as otherwise provided, the term qualifying income includes any gain from the sale or disposition of a capital asset (or property described in section 1231(b)) held for the production of income described in section 7704(d). Several commentators requested clarification as to how capital losses incurred by the partnership are treated in determining gross income of the partnership for purposes of section 7704(c)(2). The final regulations clarify that, in general, all losses are ignored in the computation of gross income.

b. Straddles

The proposed regulations requested comments on the appropriate way to compute the gross income for a partnership that makes a mixed straddle account election under §1.1092(b)–4T. The final regulations provide that, for purposes of applying the general rule that a capital gain on an investment is taken into account but a capital loss is not, certain rules shall apply that generally net capital gains and losses recognized in a taxable year with respect to a straddle. This treatment applies to all straddles, not just mixed straddle accounts, and to other interests in property that produce a substantial diminution of the partnership’s risk of loss similar to that of straddles. In addition, the final regulations contain a wash sale rule for gains in certain straddle and straddle-like transactions. This rule provides that, for purposes of section 7704(c)(2), if a partnership recognizes gain with respect to the disposition of one or more positions of a straddle or similar arrangement, and the partnership acquires a substantially similar position or positions within a period beginning 30 days before and ending 30 days after the date of the disposition, then the gain shall not be taken into account to the extent of the amount of unrecognized loss (as of the close of the taxable year) in one or more offsetting positions of the straddle or similar arrangement.

c. Mark-to-Market

The proposed regulations provide that qualifying income includes capital gain from the sale of stock. The final regulations clarify that gain recognized with re

Section 1288.—Treatment of Original Issue Discount on Tax- Exempt Obligations

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 7520.—Valuation Tables

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

Section 7701.—Definitions

26 CFR 7701–3: Classification of certain business entities.

Tax consequences if one person purchases all of the ownership interests in a domestic limited liability company that is classified as a partnership. See Rev. Rul. 99–6, page 6.

Section 7704.—Certain Publicly Traded Partnerships Treated as Corporations

26 CFR 1.7704–3: Qualifying income.

T.D. 8799

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Certain Investment Income Under the Qualifying Income Provisions of Section 7704 and the Application of the Passive Activity Loss Rules to Publicly Traded Partnerships

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to the treatment of certain investment income under the qualifying income provisions of section

7704 and the application of the passive activity loss rules to publicly traded partnerships. These regulations provide guidance on calculating a publicly traded partnership’s qualifying income under section 7704. The regulations will affect the classification of certain partnerships for federal tax purposes and also will affect the passive activity loss limitations with respect to items attributable to publicly traded partnerships.

DATES: Effective Date: These regulations are effective, December 17, 1998.

Applicability Dates: See Effective Dates under SUPPLEMENTARY INFORMATION of the preamble.

FOR FURTHER INFORMATION CONTACT: Christopher Kelley or Terri Belanger at (202) 622-3080 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations add §1.7704–3 to the Income Tax Regulations (26 CFR part

relating to the definition of qualifying income for publicly traded partnerships under section 7704(d) of the Internal Revenue Code (Code). The final regulations also amend §1.469-10 of the Income Tax Regulations relating to the application of section 469 to publicly traded partnerships.

On December 19, 1997, proposed regulations (REG–105163–97, 1998–8 I.R.B. 31) were published in the Federal Register (62 F.R. 66575). A number of written comments were received on the proposed regulations under section 7704(d). Two speakers provided testimony at a public hearing held on April 28, 1998. After consideration of all the comments, the proposed regulations under section 7704 are adopted, as revised by this Treasury decision.

No comments were received on the proposed regulations under section 469. The proposed regulations under section 469 are adopted without revision by this Treasury decision.

Explanation of Revisions and Summary of Comments

Determination of Gross Income for Purposes of Section 7704(c)(2)

February 8, 1999 12 1999–6 I.R.B.

income before entering into the transaction. Because passive-type investments evolve constantly and rapidly, the commentators suggested that a requirement that a type of investment generates qualifying income only to the extent determined by the Commissioner creates uncertainty for partnerships considering new investments. Thus, these commentators requested that the final regulations not include this restriction in the definition of qualifying income.

The IRS and Treasury Department do not believe that the language in the proposed regulations creates significant uncertainty in the definition of qualifying income. Instead, the standard in the proposed regulations provides necessary flexibility to consider the effect of new types of financial investments as such investments evolve. The IRS and Treasury Department do not believe that it would be appropriate to create a broader and more generic rule that would allow taxpayers to determine for themselves whether new types of investments generate qualifying income. Thus, the final regulations do not adopt this comment.

List of Specific Items Generating Qualifying Income

Several commentators requested that the final regulations expand the list of specific investments that generate qualifying income. The IRS and Treasury Department do not believe that it is appropriate to expand the list of specific investments enumerated in the proposed regulations. Therefore, the final regulations do not adopt this comment.

Partnership Reporting Requirements

Several commentators indicated that the current reporting requirements for partnerships do not specifically compel a lowertier partnership to provide the data necessary for an upper-tier partnership to determine whether it meets the gross income requirement of section 7704(c)(2). These commentators requested that the final regulations specifically require a lower-tier partnership to report in a level of detail that would permit an upper-tier partnership to make the necessary calculations.

The final regulations do not adopt this comment. The current reporting requirements for a partnership in §1.6031(b)–

spect to a position that is marked to market (for example, under section 475(f), section 1256, section 1259, or section 1296) will not fail to be qualifying income solely because there is no sale or disposition.

d. Certain Ordinary Income

Under certain provisions of the Code, capital gain or loss with respect to certain transactions is recharacterized as ordinary income or loss. However, such gain or loss may be recognized with respect to a capital asset in a manner that is consistent with section 7704(d)(1)(F). Accordingly, the final regulations provide that gain will not fail to be qualifying income solely because it is characterized as ordinary income under section 475(f), section 988, section 1258, or section 1296.

Income Derived from Securities Lending Activities

Several commentators requested that the final regulations clarify that income from securities lending activities of a trader is qualifying income. Section 7704(d)(4) provides that qualifying income includes income that qualifies under section 851(b)(2). Section 851(b)(2), which includes income from security loans, does not specifically state that it applies to the business of trading, as opposed to the business of investing. Thus, commentators have suggested that there is uncertainty under section 7704 as to whether income from security loans from the business of trading is qualifying income.

The IRS and Treasury Department believe that section 851(b)(2) generally encompasses income from the business of trading as well as investing. Thus, income from the securities lending activities of a trader will be qualifying income under section 7704. A special provision in these final regulations for this income is not necessary and could create a negative implication as to the qualification of trading income under section 851(b)(2) generally. Accordingly, the final regulations do not adopt this comment.

Income Derived from Investments in Foreign Corporations

One commentator requested that the final regulations clarify that income from investments in foreign corporations is qualifying income. Because taxable in

come may arise with respect to an investment in a foreign corporation that may not literally constitute a dividend, the commentator suggested that it is unclear whether these investments generate qualifying income under section 7704(d). Specifically, the commentator requested clarification regarding whether a U.S. shareholder would have qualifying income from an inclusion under (1) section 551 (foreign personal holding company income); (2) section 951(a)(1)(A) or (B)(subpart F income or a section 956 amount); (3) section 1291 (excess distributions of a passive foreign investment company (PFIC)); and (4) section 1293 (earnings of a PFIC that is a qualified electing fund). The commentator requested that the final regulations clarify that income realized under these tax regimes with respect to stock ownership in a foreign corporation is included in the definition of qualifying income under section 7704(d).

Section 551(b) characterizes amounts included in gross income under section 551(a) as dividends for federal tax purposes. Thus, an inclusion under section 551 is qualifying income under section 7704(d)(1)(B). No clarification is necessary in the final regulations.

Section 851(b)(2), which is cross-referenced in section 7704(d), provides rules on the extent to which certain inclusions of subpart F income under section 951(a)(1)(A)(i) and certain inclusions under section 1293(a) are treated as dividends and, thus, qualifying income for purposes of section 851(b)(2). Any expansion of qualifying income with respect to investments in foreign corporations should be addressed under section 851(b)(2) and the regulations thereunder. Accordingly, the final regulations do not adopt this comment.

Limitation on the Definition of Qualifying Income

The proposed regulations provide that qualifying income includes capital gain from the sale of stock, income from holding annuities, income from notional principal contracts, and other substantially similar income from ordinary and routine investments to the extent determined by the Commissioner. Several commentators stated that partnerships must know that an investment generates qualifying

1999–6 I.R.B 13 February 8, 1999

for taxable years of a partnership beginning on or after, December 17, 1998.

Par. 3. Section 1.7704–3 is added to read as follows:

§1.7704–3 Qualifying income.

(a) Certain investment income —(1) In general. For purposes of section 7704(d)(1), qualifying income includes capital gain from the sale of stock, income from holding annuities, income from notional principal contracts (as defined in §1.446–3), and other substantially similar income from ordinary and routine investments to the extent determined by the Commissioner. Income from a notional principal contract is included in qualifying income only if the property, income, or cash flow that measures the amounts to which the partnership is entitled under the contract would give rise to qualifying income if held or received directly by the partnership.

(2) Limitations. Qualifying income described in paragraph (a)(1) of this section does not include income derived in the ordinary course of a trade or business. For purposes of the preceding sentence, income derived from an asset with respect to which the partnership is a broker, market maker, or dealer is income derived in the ordinary course of a trade or business; income derived from an asset with respect to which the taxpayer is a trader or investor is not income derived in the ordinary course of a trade or business.

(b) Calculation of gross income and qualifying income —(1) Treatment of losses. Except as otherwise provided in this section, in computing the gross income and qualifying income of a partnership for purposes of section 7704(c)(2) and this section, losses do not enter into the computation.

(2) Certain positions that are marked to market. Gain recognized with respect to a position that is marked to market (for example, under section 475(f), 1256, 1259, or 1296) shall not fail to be qualifying income solely because there is no sale or disposition of the position.

(3) Certain items of ordinary income. Gain recognized with respect to a capital asset shall not fail to be qualifying income solely because it is characterized as ordinary income under section 475(f), 988, 1258, or 1296.

1T(a)(3)(ii) require a partnership to furnish its partners with statements that include, to the extent provided by form or the accompanying instructions, any additional information that a partner may need to apply particular provisions of the Code with respect to items related to the partnership. The instructions to Form 1065, “U.S. Partnership Return of Income,” specifically require a partnership to include on a Schedule K-1 any information a partner may need to file its return that is not shown anywhere else on the schedule. The information that an upper-tier partnership needs to make its gross income calculations must be provided by the lower-tier partnership under the current reporting requirements. An additional reporting requirement in these final regulations is not necessary.

Private Placement Safe Harbor under §1.7704–1(h)(1)(ii)

Several commentators requested that the final regulations amend the requirements of the private placement safe harbor under §1.7704–1(h)(1) to reflect the adoption of new rules by the Securities and Exchange Commission regarding knowledgeable employees. Specifically, the commentators requested that the private placement safe harbor be amended to provide that knowledgeable employees are not counted for purposes of the 100 partner limitation. This issue is beyond the scope of these final regulations. Therefore, the final regulations do not adopt this comment.

Effective Dates

The proposed regulations provide that the regulations will be effective for taxable years of a partnership beginning on or after the date final regulations are published in the Federal Register. Commentators stated that this effective date would preclude taxpayers from relying upon the revised definition of qualifying income in the proposed regulations until the regulations are final. These commentators requested that the effective date of the regulations be changed so that a partnership may rely upon the revised definition of qualifying income for taxable years beginning on or after the date the regulations were published as proposed regulations in the Federal Register.

The final regulations provide that these regulations apply to taxable years of a partnership beginning on or after, December 17, 1998. However, in response to the comments, the final regulations also include a provision that allows a partnership to apply the regulations retroactively.

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) does not apply to these regulations, and because the regulations do not impose a collection of information on small entities, 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 authors of these regulations are Christopher Kelley and Terri Belanger, Office of Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and Treasury Department participated in their development.

- - - -

Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

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

Authority: 26 U.S.C. 7805 * * *. Par. 2. Section 1.469–10 is revised to read as follows:

§1.469–10 Application of section 469 to publicly traded partnerships.

(a) [Reserved]. (b) Publicly traded partnership —(1) In general. For purposes of section 469(k), a partnership is a publicly traded partnership only if the partnership is a publicly traded partnership as defined in §1.7704–1.

(2) Effective date. This section applies

February 8, 1999 14 1999–6 I.R.B.

(B) The partnership acquires a substantially similar position or positions within a period beginning 30 days before the date of the disposition and ending 30 days after such date.

(c) Effective date. This section applies to taxable years of a partnership beginning on or after, December 17, 1998. However, a partnership may apply this section in its entirety for all of the partnership’s open taxable years beginning after any earlier date selected by the partnership.

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue.

Approved December 7, 1998.

(4) Straddles. In computing the gross income and qualifying income of a partnership for purposes of section 7704(c)(2) and this section, a straddle (as defined in section 1092(c)) shall be treated as set forth in this paragraph (b)(4). For purposes of the preceding sentence, two or more straddles that are part of a larger straddle shall be treated as a single straddle. The amount of the gain from any straddle to be taken into account shall be computed as follows:

(i) Straddles other than mixed straddle accounts. With respect to each straddle (whether or not a straddle during the taxable year) other than a mixed straddle account, the amount of gain taken into account shall be the excess, if any, of gain recognized during the taxable year with respect to property that was at any time a position in that straddle over any loss recognized during the taxable year with respect to property that was at any time a position in that straddle (including loss realized in an earlier taxable year).

(ii) Mixed straddle accounts. With respect to each mixed straddle account (as defined in §1.1092(b)–4T(b)), the amount of gain taken into account shall be the annual account gain for that mixed straddle account, computed pursuant to §1.1092(b)–4T(c)(2).

(5) Certain transactions similar to straddles. In computing the gross income and qualifying income of a partnership for purposes of section 7704(c)(2) and this

section, related interests in property (whether or not personal property as defined in section 1092(d)(1)) that produce a substantial diminution of the partnership’s risk of loss similar to that of a straddle (as defined in section 1092(c)) shall be combined so that the amount of gain taken into account by the partnership in computing its gross income shall be the excess, if any, of gain recognized during the taxable year with respect to such interests over any loss recognized during the taxable year with respect to such interests.

(6) Wash sale rule —(i) Gain not taken into account. Solely for purposes of section 7704(c)(2) and this section, if a partnership recognizes gain in a section 7704 wash sale transaction with respect to one or more positions in either a straddle (as defined in section 1092(c)) or an arrangement described in paragraph (b)(5) of this section, then the gain shall not be taken into account to the extent of the amount of unrecognized loss (as of the close of the taxable year) in one or more offsetting positions of the straddle or arrangement described in paragraph (b)(5) of this section.

(ii) Section 7704 wash sale transaction. For purposes of this paragraph (b)(6), a section 7704 wash sale transaction is a transaction in which—

(A) A partnership disposes of one or more positions of a straddle (as defined in section 1092(c)) or one or more related positions described in paragraph (b)(5) of this section; and

Donald C. Lubick, Assistant Secretary of

the Treasury,

(Tax Policy).

(Filed by the Office of the Federal Register on December 16, 1998, 8:45 a.m., and published in the issue of the Federal Register for December 17, 1998, 63 F.R. 69551)

Section 7872.—Treatment of Loans with Below-Market Interest Rates

The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of February 1999. See Rev. Rul. 99–8, page 10.

1999–6 I.R.B 15 February 8, 1999