Part IV. Items of General Interest

ing on the date of distribution and would have been subject to section 864(c)(7) had it been disposed. The final regulations include an exception to this gain recognition rule in certain circumstances where the property is distributed to a foreign corporation that uses such property in a U.S. trade or business for the ten-year period following the distribution, provided that certain requirements are satisfied.

§ 1.367(e)–2(c)(2).

The final regulations included an antiabuse rule providing that the Commissioner may require a foreign or domestic liquidating corporation to recognize gain (or treat the liquidating corporation as if it had recognized a loss) on a liquidating distribution if a principal purpose of the liquidation is the avoidance of U.S. tax. The final regulations further provide that a liquidation may have a principal purpose of tax avoidance even though the tax avoidance purpose is outweighed by other purposes (taken together or separately).

The preamble to the final regulations states that the anti-abuse rule would apply, for example, if a principal purpose of a liquidation is the distribution of a domestic liquidating corporation’s earnings and profits without a U.S. withholding tax. The preamble to the final regulations also states that, in certain circumstances, the IRS is also concerned about a liquidation of a domestic corporation into a U.S. branch of a foreign corporation in a manner that facilitates the avoidance of U.S. tax, including the inappropriate use of attributes such as net operating losses. The preamble does not address the potential application of the anti-abuse rule to foreign-to-foreign liquidations.

Explanation of Provisions

Since the final regulations were issued, various commentators have expressed concern that the anti-abuse rule is overly broad because it is not limited by its express terms to outbound liquidations. Specifically, it has been brought to the attention of Treasury and the IRS that uncertainty regarding the potential application of the anti-abuse rule is preventing taxpayers from engaging in legitimate business transactions involving foreign-to-foreign liquidations. Although the preamble to the final regulations does not

Notice of Proposed Rulemaking and Notice of Public Hearing

Outbound Liquidations to Foreign Corporations

REG–127380–02

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains proposed regulations that provide guidance regarding the application of section 367(e)(2) to certain outbound liquidations. The regulations amend the anti-abuse rule of § 1.367(e)–2(d) by narrowing the scope of the rule to apply only to outbound transfers to a foreign corporation in a complete liquidation of a domestic corporation in which a principal purpose of the liquidation is the avoidance of U.S. tax. This document also provides a notice of a public hearing on these proposed regulations.

DATES: Written or electronic comments must be received by February 18, 2003. Requests to speak and outlines of topics to be discussed at the public hearing scheduled for March 3, 2003, at 10 a.m. must be received by February 11, 2003.

ADDRESSES: Send submissions to: CC:ITA:RU (REG–127380–02), room 5226, Internal Revenue Service, P.O. Box 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–127380–02), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20044. Alternatively, taxpayers may submit comments electronically directly to the IRS Internet site at www.irs.gov/regs . The public hearing will be held in room 4718, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regu

lations, Aaron A. Farmer (202) 622–3860; concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Lanita Van Dyke, (202) 622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

Generally, a liquidating corporation does not recognize gain or loss under section 337(a) on a distribution of any property to an 80-percent distributee (as defined in section 337(c)) in a complete liquidation to which section 332 applies. Section 367(e)(2) provides that, in the case of any liquidation to which section 332 applies, section 337(a) and (b)(1) shall not apply where the 80-percent distributee is a foreign corporation except as provided in regulations. The purpose of section 367(e)(2) generally is to prevent the removal of appreciated assets from U.S. taxing jurisdiction without the imposition of a U.S. corporate level tax. See H.R. Conf. Rep. No. 99–841, at II–202 (1986).

On August 9, 1999, the IRS and Treasury published final regulations (T.D. 8834, 1999–2 C.B. 251 [64 FR 43072]) under section 367(e)(2) regarding distributions of property in a complete liquidation under section 332 by a domestic corporation to a foreign parent corporation (outbound liquidation) and by a foreign corporation to a foreign parent corporation (foreign-toforeign liquidations).

With regard to foreign-to-foreign liquidations, § 1.367(e)–2(c) generally provides that nonrecognition treatment applies under section 337(a) and (b)(1) when a foreign corporation (foreign liquidating corporation) makes a distribution of property in complete liquidation under section 332 to a foreign corporation that meets the ownership requirements of section 332(b). The regulations require gain to be recognized in a foreign-to-foreign liquidation if the foreign liquidating corporation makes a distribution of property which either is used by the foreign liquidating corporation in the conduct of a trade or business within the United States (a U.S. trade or business) at the time of the distribution or which ceased to be used in the conduct of a U.S. trade or business within the ten-year period end

2002–50 I.R.B. 969 December 16, 2002

gether or separately)” and adding “when taken together” in its place.

2. Paragraph (d) is revised. The revision reads as follows:

§ 1.367(e)–2 Distributions described in section 367(e)(2).

* * * * * (d) Anti-abuse rule. The Commissioner may require a domestic liquidating corporation to recognize gain on a distribution in liquidation described in paragraph (b) of this section (or treat the liquidating corporation as if it had recognized loss on a distribution in liquidation), if a principal purpose of the liquidation is the avoidance of U.S. tax (including, but not limited to, the distribution of a liquidating corporation’s earnings and profits with a principal purpose of avoiding U.S. tax). A liquidation may have a principal purpose of tax avoidance even though the tax avoidance purpose is outweighed by other purposes when taken together.

* * * * *

Robert E. Wenzel, Deputy Commissioner of

Internal Revenue.

(Filed by the Office of Federal Register on November 19, 2002, 8:45 a.m., and published in the issue of the Federal Register for November 20, 2002, 67 F.R. 70031)

Extension of Application Per- iod for Rev. Proc. 2002–67

Announcement 2002–110

The Internal Revenue Service has extended the time to apply to participate in the settlement initiative for Contingent Liability Transactions, the procedures for which were prescribed in Rev. Proc. 2002– 67, 2002–43 I.R.B. 733.

BACKGROUND

The settlement initiative in Rev. Proc. 2002–67 prescribed two optional methodologies for resolving cases involving Contingent Liability Transactions that are the same as or substantially similar to those described in Notice 2001–17, 2001–1 C.B. 730. Section 4.01 of Rev. Proc. 2002–67 provides that eligible taxpayers who want

address any circumstances in which the antiabuse rule would apply to a foreign-toforeign liquidation, the rule by its express terms could so apply. Application of this rule to require gain recognition in a foreignto-foreign liquidation is not consistent with the approach of the final regulations that require gain recognition in the case of a foreign-to-foreign liquidation only in particular and limited circumstances. Accordingly, these proposed regulations would amend the anti-abuse rule to limit its application only to outbound liquidations.

The proposed regulations also would clarify what constitutes a principal purpose of tax avoidance for purposes of the anti-abuse rule. The proposed regulations similarly would clarify the anti-abuse rule in § 1.367(e)–2(b)(2)(iii)(C)(1).

Effective Date

These regulations are proposed to apply to distributions occurring on or after September 7, 1999, or to distributions in taxable years ending after August 8, 1999, if the taxpayer has elected to apply the final regulations to such distributions. The IRS intends that, prior to the publication of these regulations in final form, the Commissioner will exercise its authority under the anti-abuse rules in § 1.367(e)– 2(b)(2)(iii)(C)(1) and (d) in a manner that is consistent with these proposed regulations.

Special Analyses

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. 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 on small business.

Comments and 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) that are submitted timely to the IRS. Alternatively, taxpayers may submit comments electronically directly to the IRS Internet site at www.irs.gov/regs. The IRS and Treasury Department request comments on the clar

ity of the proposed rules and how they can be made easier to understand. All comments will be available for public inspection and copying.

A public hearing has been scheduled for March 3, 2003, beginning at 10:00 a.m. in room 4718, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building. Because of access restrictions, visitors will not be admitted beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT portion of this preamble.

The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who wish to present oral comments must submit written comments and an outline of the topics to be discussed and the time to be devoted to each topic (a signed original and eight (8) copies) by February 11, 2003. A period of 10 minutes will be allotted to each person for making comments. An agenda showing the scheduling of the speakers will be prepared after the deadline for reviewing outlines has passed. Copies of the agenda will be available free of charge at the hearing.

Drafting Information

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

* * * * *

Proposed Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be 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 1.367(e)–2, is amended as follows:

1. Paragraph (b)(2)(iii)(C)( 1 ) is amended by removing the parenthetical “(taken to

December 16, 2002 970 2002–50 I.R.B.

Because of the controlled access restrictions, attendees are not admitted beyond the lobby on the Internal Revenue Service Building until 9:30 a.m. The IRS will prepare an agenda showing the scheduling of the speakers after the outlines are received from the persons testifying and make copies available free of charge at the hearing.

Cynthia E. Grigsby, Chief, Regulations Unit, Associate Chief Counsel (Income Tax and Accounting).

(Filed by the Office of the Federal Register on November 26, 2002, 8:45 a.m., and published in the issue of the Federal Register for November 27, 2002, 67 F.R. 70891)

Obligations of States and Political Subdivisions; Correction

Announcement 2002–112

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correction to final regulations.

SUMMARY: This document contains corrections to final regulations (T.D. 9016, 2002–40 I.R.B. 628) that were published in the Federal Register on Monday, September 23, 2002 (67 FR 59756) relating to the definition of private activity bonds applicable to tax-exempt bonds issued by state and local governments for output facilities.

DATES: This correction is effective November 22, 2002.

FOR FURTHER INFORMATION CONTACT: Rose M. Weber (202) 622– 3880 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the subject of these corrections is under section 141 of the Internal Revenue Code.

to participate in one of the resolution methodologies provided under the revenue procedure must mail or deliver a written application to the Service on or before January 2, 2003. Taxpayers must include with their application a form stating which resolution methodology they have selected and information about their contingent liability transaction.

EXTENSION OF APPLICATION PERIOD

The Internal Revenue Service has received a number of questions regarding this initiative and intends to issue public responses to the questions posed. In order to permit taxpayers time to consider the responses, in conjunction with considering the settlement initiative, and for assembling the necessary information, the Internal Revenue Service has extended the application deadline for the settlement initiative from January 2, 2003, to March 5, 2003.

CONTACT INFORMATION

For information regarding this announcement, call Jo Ann Prager, Manager, at (202) 283–8445 (not a toll-free call). Ms. Prager may also be reached by fax at (202) 283– 8406 or electronically at the following email address: otsa@irs.gov . Please include “Revenue Procedure 2002–67” in the subject line of any electronic communication.

Information Reporting Relating to Taxable Stock Transactions; Hearing

Announcement 2002–111

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Change of date for public hearing on proposed rulemaking.

SUMMARY: This document changes the date of a public hearing on proposed regulations (REG–143321–02, 2002–48 I.R.B. 922) relating to information reporting relating to taxable stock transactions.

DATES: The public hearing originally scheduled for Wednesday, March 5, 2003, at 10 a.m., in room 4718, is rescheduled for

Tuesday, March 25, 2003, at 10 a.m., in room 4718. Written or electronic outlines of oral comments must be received by Tuesday, March 4, 2003.

ADDRESSES: The public hearing is being held in room 4718 of the Internal Revenue Service Building, 1111 Constitution Avenue, NW, Washington, DC. Due to building security procedures, visitors must enter Main entrance, located at Constitution Avenue, NW. In addition, all visitors must present photo identification to enter the building.

Mail outlines to: CC:ITA:RU (REG– 143321–02), 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–143321– 02), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC. Alternatively, taxpayers may submit electronic outlines of oral comments directly to the IRS Internet site at www.irs.gov/regs.

FOR FURTHER INFORMATION CONTACT: Concerning submissions of comments, the hearing, and/or to be placed on the building access list to attend the hearing, Treena Garrett at (202) 622–7180 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

A notice of proposed rulemaking by cross-reference to temporary regulations and notice of public hearing (REG–143321– 02), that was published in the Federal Reg- ister on Monday, November 18, 2002 (67 FR 69496), announced that a public hearing on proposed regulations relating to information reporting relating to taxable stock transactions under sections 6043(c) and 6045 of the Internal Revenue Code would be held on Wednesday, March 5, 2003, beginning at 10 a.m. in room 4718 of the Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC.

The date of the public hearing has changed. The hearing is scheduled for Tuesday, March 25, 2003, beginning at 10 a.m. in room 4718, Internal Revenue Service Building, 1111 Constitution Avenue, NW, Washington, DC. We must receive outlines of oral comments by Tuesday, March 4, 2003.

2002–50 I.R.B. 971 December 16, 2002

umn, the language “U.S.C. 791a through 821(c) (does not” is corrected to read “U.S.C. 791a through 825r) (or by a state regulatory authority under comparable provisions of state law) does not”.

Cynthia E. Grigsby, Chief, Regulations Unit, Associate Chief Counsel (Income Tax and Accounting).

(Filed by the Office of the Federal Register on November 26, 2002, 8:45 a.m., and published in the issue of the Federal Register for November 27, 2002, 67 F.R. 70845)

Need for Correction

As published, the final regulations contain errors that may prove to be misleading and are in need of clarification.

Correction of Publication

Accordingly, the publication of final regulations (T.D. 9016), that were the subject of FR Doc. 02–24137, is corrected as follows:

1. On page 59758, column 2, in the preamble under the paragraph heading “Ex

planation of Provisions”, first line, the language “through 821(c) (or by a state authority” is corrected to read “through 825r (or by a state authority”.

§ 1.141–7 [Corrected]

2. On page 59761, column 2, § 1.141– 7(g)(1)(ii)(B), line 5, the language “Act (16 U.S.C. 791a through 821c) (or by” is corrected to read “Act (16 U.S.C. 791a through 825r) (or by”.
3. On page 59761, column 3, § 1.141– 7(g)(3), fifth line from the top of the col

December 16, 2002 972 2002–50 I.R.B.