Part IV. Items — Internal Revenue Bulletin 2002-20

retain their tax records for as long as the contents may become material in the administration of any internal revenue law. This information is required for substantiation purposes. This information will be used to verify the information provided by the taxpayer. The likely respondents are individuals.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget.

Books or records relating to a collection of information must be retained as long as their contents may become material in the administration of any internal revenue law. Generally, tax returns and tax return information are confidential, as required by 26 U.S.C. 6103. The burden imposed in §§ 1.48–12T(d)(7), 1.152– 3T(c), 1.611–3T(h), 1.852–9T(c), and 301.6903–1T(b) will be reflected in Form 3468, Form 2120, Form T (Timber), Form 2439, and Form 56 respectively.

Background

Temporary regulations in this issue of the Bulletin contain amendments to the Income Tax Regulations (26 CFR part 1) and the Procedure and Administration Regulations (26 CFR part 301) designed to eliminate regulatory impediments to the electronic filing of the Form 1040. The text of those regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the temporary regulations and these proposed regulations. Generally, the regulations will be effective for taxable years beginning after December 31, 2001. Taxpayers may, however, rely on these proposed regulations to the extent that the impediments were removed in forms filed for taxable years beginning after December 31, 2000.

Special Analyses

Notice of Proposed Rulemaking by Cross- Reference to Temporary Regulations

Guidance Necessary to Facilitate Electronic Tax Administration

REG–107184–00

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary regulations.

SUMMARY: The IRS is proposing regulations designed to eliminate regulatory impediments to the electronic filing of the Form 1040, U.S. Individual Income Tax Return . The text of the temporary regulations (T.D. 8989) published in this issue of the Bulletin also serves as the text of these proposed regulations. These regulations generally affect taxpayers who file Form 1040 electronically and who are required to file any of the following forms: Form 56, Notice Concerning Fidu- ciary Relationship ; Form 2120, Multiple Support Declaration ; Form 2439, Notice to Shareholder of Undistributed Long- Term Capital Gains ; Form 3468, Invest- ment Credit ; and Form T (Timber), Forest Activities Schedules .

DATES: Written or electronically generated comments and requests for a public hearing must be received by July 23, 2002.

ADDRESSES: Send submissions to: CC:ITA:RU (REG–107184–00), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered between the hours of 8 a.m. and 5 p.m. to: CC:ITA:RU (REG–107184– 00), Courier’s Desk, Internal Revenue Service, 1111 Constitution Ave., NW, Washington, DC. Alternatively, taxpayers may submit comments electronically directly to the IRS internet site at www.irs.gov/regs .

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, James C. Gibbons, (202) 622–4910; concerning submissions of comments and/or requests for a hearing, LaNita Van Dyke, (202) 622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

PAPERWORK REDUCTION ACT

The collections of information contained in this notice of proposed rulemaking have been submitted to the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)). Comments on the collections of information should be sent to the Office of Man- agement and Budget, Attn: Desk Officer for the Department of the Treasury, Office of Information and Regulatory Affairs, Washington, DC 20503, with copies to the Internal Revenue Service, Attn: IRS Reports Clearance Officer, W:CAR: MP:FP:S, Washington, DC 20224. Comments on the collections of information should be received by June 24, 2002. Comments are specifically requested concerning:

Whether the proposed collections of information are necessary for the proper performance of the functions of the Internal Revenue Service, including whether the information will have practical utility;

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

How the quality, utility, and clarity of the information to be collected may be enhanced;

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

Estimates of capital or start-up costs and costs of operation, maintenance, and purchase of service to provide information.

The collections of information in this proposed regulation are in §§ 1.48– 12T(d)(7), 1.152–3T(c), 1.611–3T(h), 1.852–9T(c), and 301.6903–1T(b). The proposed regulations require taxpayers to

May 20, 2002 967 2002–20 I.R.B.

553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations. It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that the persons responsible for recordkeeping are principally individuals, and the burden is not significant as described earlier in the preamble. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7508(f) of the Internal Revenue Code, this notice will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any electronic or written comments (a signed original and eight (8) copies of written comments) that are submitted timely (in the manner described in the ADDRESSES caption) to the IRS. The IRS and Treasury request comments on the clarity of the proposed rules and how they may be made easier to understand. All comments will be available for public inspection and copying. A public hearing may be scheduled if requested by any person who timely submits comments. If a public hearing is scheduled, notice of the date, time, and place for the hearing will be published in the Federal Register .

Drafting Information

The principal author of these regulations is Sara Paige Shepherd, Office of Associate Chief Counsel (Procedure and Administration), Administrative Provisions and Judicial Practice Division. However, other personnel from the IRS and the Treasury Department participated in the development of the regulations.

- - - -

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301 are amended as follows:

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 - - Par. 2. Section 1.48–12, paragraph (d)(7)(iii) is revised to read as follows:

§ 1.48–12 Qualified rehabilitated build- ing; expenditures incurred after Decem- ber 31, 1981 .

- - - (d) - - (7)(iii) [The text of proposed paragraph (d)(7)(iii) is the same as the text of § 1.48–12T(d)(7)(iii) published elsewhere in this issue of the Federal Register ].

Par. 3. In § 1.152–3, paragraph (c) is revised to read as follows:

§ 1.152–3 Multiple support agreements .

- - - (c) [The text of proposed paragraph (c) is the same as the text of § 1.152–3T(c) published elsewhere in this issue of the Federal Register ].
- - - Par. 4. Section 1.611–3, paragraph (h) is revised to read as follows:

§ 1.611–3 Rules applicable to timber .

- - - (h)[The text of proposed paragraph (h) is the same as the text of § 1.611–3T(h) published elsewhere in this issue of the Federal Register ].

Par. 5. In § 1.852–9, paragraph (c)(1) is revised to read as follows:

§ 1.852–9 Special procedural require- ments applicable to designation under section 852(b)(3)(D) .

(c)(1) [The text of proposed paragraph (c)(1) is the same as the text of § 1.852– 9T(c)(1) published elsewhere in this issue of the Federal Register ].

PART 301—PROCEDURE AND ADMINISTRATION

Par. 6. The authority citation for part 301 continues to read in part as follows: Authority: 26 U.S.C. 7805 - - Par. 7. Section 301.6011–1 is revised to read as follows:

§ 301.6011–1 General Requirement of return, statement or list .

[The text of proposed section is the same as the text of §301.6011–1T published elsewhere in this issue of the Fed- eral Register ].

Par. 8. Section 301.6903–1(b) is added to read as follows:

§ 301.6903–1 Notice of fiduciary .

- - - (b)[The text of proposed paragraph (b) is the same as the text of §301.6903– 1T(b) published elsewhere in this issue of the Federal Register ].
- - - Robert E. Wenzel, Deputy Commissioner of

Internal Revenue .

(Filed by the Office of the Federal Register on April 23, 2002, 8:45 a.m., and published in the issue of the Federal Register for April 24, 2002, 67 F.R. 20072)

Withdrawal of Notice of Proposed Rulemaking and Notice of Proposed Rulemaking by Cross- Reference to Temporary Regulations

Guidance Under Section 355(e); Recognition of Gain on Certain Distributions of Stock or Securities in Connection With an Acquisition

REG–163892–01

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of notice of proposed rulemaking; and notice of proposed

2002–20 I.R.B. 968 May 20, 2002

rulemaking by cross-reference to temporary regulations.

SUMMARY: This document withdraws the notice of proposed rulemaking (REG– 107566–00, 2001–1 C.B. 346) published in the Federal Register on January 2, 2001. In this issue of the Bulletin, the IRS is issuing temporary regulations relating to recognition of gain on certain distributions of stock or securities of a controlled corporation in connection with an acquisition. The text of those regulations also serves as the text of these proposed regulations.

DATES: Written and electronic comments and requests for a public hearing must be received by July 25, 2002.

ADDRESSES: Send submissions to: CC:ITA:RU (REG–163892–01), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 5 p.m. to: CC:ITA:RU (REG–163892–01), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit electronic comments directly to the IRS Internet site at www.irs.gov/regs .

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Amber R. Cook at (202) 622–7530; concerning submissions, Treena Garrett, (202) 622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

On January 2, 2001, the IRS and Treasury published in the Federal Register (66 FR 66) a notice of proposed rulemaking (REG–107566–00) under section 355(e) of the Internal Revenue Code of 1986. Those proposed regulations are withdrawn.

Temporary regulations (T.D. 8988 on page 929 of this Bulletin) in the Rules and Regulations section of the Federal Register amend the Income Tax Regulations (26 CFR part 1) relating to section 355(e). The temporary regulations provide rules relating to recognition of gain

on certain distributions of stock or securities of a controlled corporation in connection with an acquisition. The text of those regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the amendments.

Special Analysis

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and, because these regulations do 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, this notice of proposed rulemaking will be submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written comments (a signed original and eight (8) copies) and electronic comments that are submitted timely to the IRS. The IRS and Treasury Department specifically request comments on the clarity of the proposed rules and how they may be made easier to understand. All comments will be available for public inspection and copying. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Reg- ister .

Drafting Information

The principal author of these regulations is Amber R. Cook, Office of Associate Chief Counsel (Corporate). Other personnel from the IRS and Treasury Department, however, participated in their development.

Withdrawal of Proposed Amendments to the Regulations and Proposed Amendments to the Regulations

Accordingly, under the authority of 26 U.S.C. 7805 and 26 U.S.C. 355(e)(5), the notice of proposed rulemaking (REG– 107566–00) that was published in the Federal Register on Tuesday, January 2, 2001, (66 FR 66) is withdrawn. In addition, 26 CFR part 1 is proposed to be amended as follows:

PART 1—INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding an entry in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 - - Section 1.355–7 also issued under 26 U.S.C. 355(e)(5). - - Par. 2. Section 1.355–0 is amended by revising the introductory text and adding an entry for § 1.355–7 to read as follows:

§ 1.355–0 Table of contents .

In order to facilitate the use of §§ 1.355–1 through 1.355–7, this section lists the major paragraphs in those sections as follows:

§ 1.355–7 Recognition of gain on certain distributions of stock or securities in con- nection with an acquisition .

(a) In general. (b) Plan. (1) In general. (2) Certain post-distribution acquisitions.

(3) Plan factors. (4) Non-plan factors. (c) Operating rules. (1) Internal discussions and discussions with outside advisors evidence of business purpose.

(2) Takeover defense. (3) Effect of distribution on trading in stock.

(4) Consequences of section 355(e) disregarded for certain purposes.

(5) Multiple acquisitions. (d) Safe harbors. (1) Safe Harbor I. (2) Safe Harbor II. (3) Safe Harbor III. (4) Safe Harbor IV. (5) Safe Harbor V.

May 20, 2002 969 2002–20 I.R.B.

Par. 3. Section 1.355–7 is added to read as follows:

§ 1.355–7 Recognition of gain on certain distributions of stock or securities in con- nection with an acquisition .

[The text of proposed § 1.355–7 is the same as the text of § 1.355–7T published elsewhere in this issue of the Bulletin].

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue .

(Filed by the Office of the Federal Register on April 23, 2002, 12:14 p.m., and published in the issue of the Federal Register for April 26, 2002, 67 F.R. 20711)

(i) In general. (ii) Special rules. (6) Safe Harbor VI. (i) In general. (ii) Special rule. (7) Safe Harbor VII. (i) In general. (ii) Special rule. (e) Stock acquired by exercise of options, warrants, convertible obligations, and other similar interests.

(1) Treatment of options. (i) General rule. (ii) Agreement, understanding, or arrangement to write an option.

(iii) Substantial negotiations related to options.

(2) Instruments treated as options. (3) Instruments generally not treated as options.

(i) Escrow, pledge, or other security agreements.

(ii) Compensatory options. (iii) Options exercisable only upon death, disability, mental incompetency, or separation from service.

(iv) Rights of first refusal. (v) Other enumerated instruments. (f) Multiple controlled corporations. (g) Valuation. (h) Definitions. (1) Agreement, understanding, arrangement, or substantial negotiations.

(2) Controlled corporation. (3) Controlling shareholder. (4) Coordinating group. (5) Discussions. (6) Established market. (7) Five-percent shareholder. (8) Similar acquisition. (9) Ten-percent shareholder. (i) [Reserved] (j) Examples. (k) Effective date.

2002–20 I.R.B. 970 May 20, 2002