Part IV. Items — Internal Revenue Bulletin 2003-16

Notice of Proposed Rulemaking

Excise Taxes; Communications Services, Distance Sensitivity

REG–141097–02

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains proposed regulations relating to the definition of toll telephone service for purposes of the communications excise tax. These regulations affect providers and purchasers of communications services.

DATES: Written and electronic comments and requests for a public hearing must be received by June 30, 2003.

ADDRESSES: Send submissions to: CC:ITA:RU (REG–141097–02), 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– 141097–02), 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 submissions, LaNita Van Dyke, (202) 622–7180; concerning the regulations, Cynthia McGreevy (202) 622– 3130 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

This document contains proposed amendments to the Facilities and Services Excise Tax Regulations (26 CFR part 49) relating to the definition of toll telephone service.

Section 4251 imposes tax on amounts paid for certain communications services, including local and toll telephone service. Section 4252(b)(1) provides that toll telephone service means a telephonic quality communication for which there is a toll charge that varies in amount with the distance and elapsed transmission time of each individual communication.

Section 4252(b)(1), as enacted in 1965, describes the long distance telephone service sold to residential and most business subscribers under the 1965 Federal Communications Commission rules. At that time, the charge for a long distance telephone call increased as the duration of the call increased and generally increased as the distance between the originating telephone station and the terminating telephone station increased. By the late 1990’s, most carriers had moved toward a fee structure that includes a flat per-minute rate for domestic calls.

In 1979, the Treasury Department published Rev. Rul. 79–404, 1979–2 C.B. 382, which stands for the principle that a long distance telephone call for which the charge varies with elapsed transmission time but not with distance is toll telephone service described in section 4252(b)(1).

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. 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 these regulations do not impose on small entities a collection of information requirement, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Therefore, a Regulatory Flexibility Analysis 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 Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations, consideration will be given to any written and electronic comments that are submitted timely to the IRS. The IRS and Treasury Department specifically request comments on the clarity of the proposed regulations 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 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 hearing will be published in the Federal Register .

Drafting Information

The principal author of these regulations is Cynthia McGreevy, Office of Associate Chief Counsel (Passthroughs and Special Industries). However, other personnel from the IRS and Treasury Department participated in their development.

* * * * *

Proposed Amendments to the Regula- tions

Accordingly, 26 CFR part 49 is proposed to be amended as follows:

PART 49—FACILITIES AND SERVICES EXCISE TAXES

The authority citation for part 49 continues to read in part as follows:

Authority: 26 U.S.C. 7805. * * * 2. Section 49.4252–0 is added to read as follows:

§49.4252–0 Section 4252(b)(1); distance sensitivity.

(a) In general. For a communications service to constitute toll telephone service described in section 4252(b)(1), the charge for the service need not vary with the distance of each individual communication.

April 21, 2003 807 2003–16 I.R.B.

ryback period for such losses for which the corporation was a member of another group, provided that any other corporation joining the acquiring group that was affiliated with the member immediately before it joined the acquiring group is also included in the waiver and that the conditions of this paragraph are satisfied. The acquiring group cannot make the election described in this paragraph with respect to any consolidated net operating losses arising in a particular taxable year if any carryback is claimed, as provided in paragraph (b)(3)(ii)(C)( 4 ) of this section, with respect to any such losses on a return or other filing by a group of which the acquired member was previously a member and such claim is filed on or before the date the election described in this paragraph is filed. The election must be made in a separate statement entitled “THIS IS AN ELECTION UNDER SECTION 1.1502–21T (b)(3)(ii)(C)( 2 ) TO WAIVE THE PRE- [insert first day of the first taxable year for which the member (or members) was a member of the acquiring group] CARRYBACK PERIOD FOR THE CNOLS ATTRIBUTABLE TO THE [insert taxable year of losses] TAXABLE YEAR(S) OF [insert names and employer identification numbers of members].” Such statement must be filed as provided in paragraph (b)(3)(ii)(C)( 5 ) of this section.

( 3 ) Partial waiver of pre-acquisition ex- tended carryback period. If one or more members of a consolidated group become members of another consolidated group, then, with respect to all consolidated net operating losses attributable to the member for the taxable year ending during either 2001 or 2002, or both, the acquiring group may make an irrevocable election to relinquish the portion of the carryback period for such losses for which the corporation was a member of another group to the extent that such carryback period includes one or more taxable years that are prior to the taxable year that is 2 taxable years preceding the taxable year of the loss, provided that any other corporation joining the acquiring group that was affiliated with the member immediately before it joined the acquiring group is also included in the waiver and that the conditions of this paragraph are satisfied. The acquiring group cannot make the election described in this paragraph with respect to any consolidated net operating

(b) Effective date. This section applies to amounts paid on and after the date of publication of these regulations in the Fed- eral Register as final regulations.

David A. Mader, Assistant Deputy Commissioner of

Internal Revenue.

(Filed by the Office of the Federal Register on March 31, 2003, and published in the issue of the Federal Register for April 1, 2003, 68 F.R. 15690)

Guidance Under Section 1502; Suspension of Losses on Certain Stock Dispositions; Correction

Announcement 2003–23

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Corrections to final and temporary regulations.

SUMMARY: This document corrects final and temporary regulations (T.D. 9048, 2003–13 I.R.B. 644 [68 FR 12287]) published in the Federal Register on March 14, 2003. The final and temporary regulations redetermine the basis of stock of a subsidiary member of a consolidated group immediately prior to certain transfers of such stock and certain deconsolidations of a subsidiary member and also suspend certain losses recognized on the disposition of stock of a subsidiary member.

DATES: This document is effective on March 14, 2003.

FOR FURTHER INFORMATION CONTACT: Aimee K. Meacham, (202) 622– 7530 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final and temporary regulations that are the subject of these corrections are under section 1502 of the Internal Revenue Code.

Need for Correction

As published, the final and temporary regulations contain errors that may prove

to be misleading and are in need of clarification. In particular, this document supplies text omitted from §1.1502– 35T(b)(3)(i)(C) and (b)(3)(ii)(C), and clarifies §1.1502–35T(f)(1). In addition, the final and temporary regulations inadvertently removed the text for §§1.1502– 21T(b)(3)(ii)(C) and 1.1502–32T(b)(4)(v). The missing text is supplied.

Correction of Publication

Accordingly, the publication of the final and temporary regulations (T.D. 9048) that were the subject of FR Doc. 03–6119, is corrected as follows:

On page 12288, column 3, second full paragraph, in the preamble under the paragraph heading “ Basis Reduction Rule for Worthless Stock and Stock of a Subsid- iary With No Separate Return Year ”, second full paragraph, lines 17 and 18 from the bottom of the paragraph, the language “as expired, but not as absorbed by the group, as of the beginning of the group’s” is corrected to read “as expired, but not as a noncapital, nondeductible expense for purposes of §1.1502–32,” .
On page 12291, column 2, §1.1502– 21T, paragraphs (b)(2) through (b)(3)(iv) is corrected to read as follows:

§1.1502–21T Net operating losses (temporary).

* * * * * (b)(2) through (b)(3)(ii)(B) [Reserved]. For further guidance, see §1.1502–21(b)(2) through (b)(3)(ii)(B).

(b)(3)(ii)(C) Partial waiver of carry- back period for 2001 and 2002 losses ( 1 ) Application . The acquiring group may make the elections described in paragraphs (b)(3)(ii)(C)( 2 ) and ( 3 ) of this section with respect to an acquired member or members only if it did not file a valid election described in §1.1502–21(b)(3)(ii)(B) with respect to such acquired member or members on or before May 31, 2002.

( 2 ) Partial waiver of entire pre- acquisition carryback period. If one or more members of a consolidated group become members of another consolidated group after June 25, 1999, then, with respect to all consolidated net operating losses attributable to the member for the taxable year ending during either 2001 or 2002, or both, the acquiring group may make an irrevocable election to relinquish the portion of the car

2003–16 I.R.B. 808 April 21, 2003

must be filed with the group’s original return for the taxable year in which S receives the notification described in §1.1502– 20T(i)(3)(iv). (C) Effective date. This paragraph (b)(4)(v) is applicable on and after March 7, 2002.

* * * * *

§1.1502–35T [Corrected]

On page 12293, column 1, §1.1502– 35T, paragraph (b)(3)(i)(C), line 2 from the bottom of the paragraph, the language “distributee), section 351, or section 361” is corrected to read “distributee), section 351, section 354, or section 361”.
On page 12293, column 1, §1.1502– 35T, paragraph (b)(3)(ii)(B), line 3 from the bottom of the paragraph, the language “of subsidiary member stock that they” is corrected to read “of the subsidiary member stock that they”.
On page 12293, column 1, §1.1502– 35T, paragraph (b)(3)(ii)(C) is correctly designated paragraph (b)(3)(ii)(D).
On page 12293, column 1, §1.1502– 35T, new paragraph (b)(3)(ii)(C) is added to read as follows.
On page 12293, column 2, §1.1502– 35T, paragraph (b)(6)(ii), line 2 from the bottom of the paragraph, the language “and paragraph (c) of this section are” is corrected to read “and paragraphs (c) and (f) of this section are”.
On page 12295, column 2, §1.1502– 35T, paragraph (e), the first sentence is revised to read as follows.
On page 12297, column 2, §1.1502– 35T, paragraph (f)(1), lines 4 and 5 from the bottom of the paragraph, the language “as expired, but not as absorbed by the group, as of the beginning of the group’s” is corrected to read “as expired, but shall not be treated as a noncapital, nondeductible expense for purposes of §1.1502– 32(b)(3)(iii), as of the beginning of the group’s”.

§1.1502–35T Transfers of subsidiary member stock and deconsolidations of subsidiary members (temporary).

* * * * * (b) * * * (3) * * * (ii) * * *

losses arising in a particular taxable year if a carryback to one or more taxable years that are prior to the taxable year that is 2 taxable years preceding the taxable year of the loss is claimed, as provided in paragraph (b)(3)(ii)(C)( 4 ) of this section, with respect to any such losses on a return or other filing by a group of which the acquired member was previously a member and such claim is filed on or before the date the election described in this paragraph is filed. The election must be made in a separate statement entitled “THIS IS AN ELECTION UNDER SECTION 1.1502–21T (b)(3)(ii)(C)( 3 ) TO WAIVE THE PRE [insert first day of the first taxable year for which the member (or members) was a member of the acquiring group] EXTENDED CARRYBACK PERIOD FOR THE CNOLS ATTRIBUTABLE TO THE

[insert taxable year of losses] TAXABLE YEAR(S) OF [insert names and employer identification numbers of members].” Such statement must be filed as provided in paragraph (b)(3)(ii)(C)( 5 ) of this section.

( 4 ) Claim for a carryback. For purposes of paragraphs (b)(3)(ii)(C)( 2 ) and ( 3 ) of this section, a carryback is claimed with respect to a consolidated net operating loss if there is a claim for refund, an amended return, an application for a tentative carryback adjustment, or any other filing that claims the benefit of the net operating loss in a taxable year prior to the taxable year of the loss, whether or not subsequently revoked in favor of a claim based on a 5-year carryback period.

( 5 ) Time and manner for filing state- ment. A statement described in paragraph (b)(3)(ii)(C)( 2 ) or ( 3 ) of this section that relates to consolidated net operating losses attributable to a taxable year ending during 2001 must be filed with the acquiring consolidated group’s timely filed (including extensions) original or amended return for the taxable year ending during 2001, provided that such original or amended return is filed on or before October 31, 2002. A statement described in paragraph (b)(3)(ii)(C)( 2 ) or ( 3 ) of this section that relates to consolidated net operating losses attributable to a taxable year ending during 2002 must be filed with the acquiring consolidated group’s timely filed (including extensions) original or amended return for the taxable year ending during 2001 or 2002, pro

vided that such original or amended return is filed on or before September 15, 2003.

(b)(3)(iii) and (b)(3)(iv) [Reserved]. For further guidance, see §1.1502–21(b)(3)(iii) and (b)(3)(iv).

* * * * * 3. On page 12292, column 1, §1.1502– 32T, paragraphs (b)(4) through (b)(4)(v) is corrected to read as follows:

§1.1502–32T Investment adjustments (temporary).

* * * * * (b)(4) through (b)(4)(iv) [Reserved]. For further guidance, see §1.1502–32(b)(4) through (b)(4)(iv).

(b)(4)(v) Special rule for loss carry- overs of a subsidiary acquired in a trans- action for which an election under §1.1502– 20T(i)(2) is made —(A) Expired losses. Notwithstanding §1.1502–32(b)(4)(iv), to the extent that S’s loss carryovers are increased by reason of an election under §1.1502–20T(i)(2) and such loss carryovers expire or would have been properly used to offset income in a taxable year for which the refund of an overpayment is prevented by any law or rule of law as of the date the group files its original return for the taxable year in which S receives the notification described in §1.1502–20T(i)(3)(iv) and at all times thereafter, the group will be deemed to have made an election under §1.1502–32(b)(4) to treat all of such expired loss carryovers as expiring for all federal income tax purposes immediately before S became a member of the consolidated group.

(B) Available losses. Notwithstanding §1.1502–32(b)(4)(iv), to the extent that S’s loss carryovers are increased by reason of an election under §1.1502–20T(i)(2) and such loss carryovers have not expired and would not have been properly used to offset income in a taxable year for which the refund of an overpayment is prevented by any law or rule of law as of the date the group files its original return for the taxable year in which S receives the notification described in §1.1502–20T(i)(3)(iv) and at all times thereafter, the group may make an election under §1.1502–32(b)(4) to treat all or a portion of such loss carryovers as expiring for all federal income tax purposes immediately before S became a member of the consolidated group. Such election

April 21, 2003 809 2003–16 I.R.B.

third line from the bottom of the caption, the language “regulations. This document also” is corrected to read “regulations. Elsewhere in this issue of the Federal Regis- ter are technical corrections to §1.1502– 35T. The technical corrections supply text omitted from § 1.1502–35T(b)(3)(i)(C), (b)(3)(ii)(C), and clarify § 1.1502–35T(f)(1). This document”.

Cynthia E. Grigsby, Chief, Regulations Unit, Associate Chief Counsel (Procedure and Administration).

(Filed by the Office of the Federal Register on April 3, 2003, 8:45 a.m., and published in the issue of the Federal Register for April 4, 2003, 68 F.R. 16462)

(C) The members of the group are allowed a worthless stock loss under section 165(g) with respect to all of the shares of the subsidiary member stock that they own immediately before the deconsolidation; or

* * * * * (e) Examples. For purposes of the examples in this section, unless otherwise stated, all groups file consolidated returns on a calendar-year basis, the facts set forth the only corporate activity, all transactions are between unrelated persons, and tax liabilities are disregarded. * * *

* * * * *

Cynthia E. Grigsby, Chief, Regulations Unit, Associate Chief Counsel (Procedure and Administration).

(Filed by the Office of the Federal Register on April 3, 2003, 8:45 a.m., and published in the issue of the Federal Register for April 4, 2003, 68 F.R. 16430)

Guidance Under Section 1502: Suspension of Losses on Certain Stock Dispositions; Correction

Announcement 2003–24

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correction to notice of proposed rulemaking.

SUMMARY: This document corrects a notice of proposed rulemaking (REG–131478– 02, 2003–13 I.R.B. 669 [68 FR 12324]) published in the Federal Register March 14, 2003. The proposed regulations redetermine the basis of stock of a subsidiary member of a consolidated group immediately prior to certain transfers of such stock and certain deconsolidations of a subsidiary member and suspend certain losses recognized on the disposition of stock of a subsidiary member.

FOR FURTHER INFORMATION CONTACT: Aimee K. Meacham, (202) 622– 7530 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The proposed regulations that are the subject of these corrections are under section 1502 of the Internal Revenue Code.

Need for Correction

As published, the proposed regulation contains an error that may prove to be misleading and is in need of clarification.

Correction of Publication

Accordingly, the publication of the proposed regulations (REG–131478–02) that were the subject of FR Doc. 03–6118, is corrected to read as follows:

On page 12325, column 1, in the preamble under the caption “SUMMARY”,

2003–16 I.R.B. 810 April 21, 2003