Part IV. Items of General Interest

Notice of Proposed Rulemaking by Cross-Reference to Temporary Regulations

Assumption of Liabilities

REG–106736–00

AGENCY: Internal Revenue Service (IRS), Treasury

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

SUMMARY: In this issue of the Bulletin, the IRS is issuing final and temporary regulations (T.D. 9207) relating to the assumption of liabilities under section 752 of the Internal Revenue Code (Code). Those temporary regulations contain rules related to the assumption of certain liabilities under section 358(h). The text of those temporary regulations also serves as the text of these proposed regulations.

DATES: Written or electronic comments and requests for a public hearing must be received by August 24, 2005.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–106736–00), room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG–106736–00), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or sent electronically, via the IRS Internet site at www.irs.gov/regs or via the Federal eRulemaking Portal at www.regulations.gov (IRS–REG–106736–00).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, Doug Bates, at (202) 622–7550; concerning submissions of comments and/or requests for a public hearing, Sonya Cruse, (202) 622–7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Explanation of Provisions

Temporary regulations in this issue of the Bulletin amend 26 CFR Part 1 relating to section 358(h)(1). The temporary regulations make unavailable the exception to section 358(h)(1) that is set forth in section 358(h)(2)(B) (which applies where substantially all of the assets with which the liability is associated are transferred to the person assuming the liability as part of the exchange). The text of those temporary regulations also serves as the text of these proposed regulations. The preamble to the temporary regulations explains the amendments.

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 is hereby certified that 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 only impact of the regulations is to require taxpayers to calculate the basis of stock received in certain transactions more accurately. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. Chapter 6) is not required. Pursuant to section 7805(f) of the 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 regulations are adopted as final regulations, consideration will be given to any written comments (a signed original with eight (8) copies) or electronic comments that are submitted timely to the IRS. All comments will be made available for public inspection and copying. A public hearing may be scheduled. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register .

Drafting Information

The principal author of these regulations is Douglas Bates, Office of the Associate Chief Counsel (Corporate), IRS. However, other personnel from the IRS and Treasury Department 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 is amended by adding an entry in numerical order to read, in part, as follows:

Authority: 26 U.S.C. 7805 * * * §1.358–5 also issued under 26 U.S.C. 358(h)(2). - * Par. 2. Section 1.358–5 is added to read as follows:

§1.358–5 Special rules for assumption of liabilities.

[The text of proposed §1.358–5 is the same as the text of §1.358–5T published elsewhere in this issue of the Bulletin].

Mark E. Matthews, Deputy Commissioner for Services and Enforcement.

(Filed by the Office of the Federal Register on May 23, 2005, 11:17 a.m., and published in the issue of the Federal Register for May 26, 2005, 70 F.R. 30380)

New Procedure for Filing Form 8693, Low-Income Housing Credit Disposition Bond

Announcement 2005–43

Form 8693, Low-Income Housing Credit Disposition Bond, is to be filed with the Internal Revenue Service within 60 days after the date of disposition of the building or interest therein.

Effective upon publication of this announcement, Form 8693 (original and one

June 27, 2005 1376 2005–26 I.R.B.

(3) If the child receives an IR4 visa and enters the United States under a guardianship or legal custody arrangement, the adoption will be treated as final in the taxable year in which a home state court enters a decree of adoption.

The Service requested comments on the proposed revenue procedure. Several comments were received.

COMMENTS

Time of finality and alternative provisions

Commentators disagreed that the adoption of a foreign-born child who receives an IR2 visa or who receives an IR4 visa and enters the United States under a decree of simple adoption should be final only upon action of the home state. The commentators suggested that the credit should be available earlier, when the foreign-sending country enters a decree of adoption. The final revenue procedure adopts this suggestion and provides alternative dates of finality for the adoption of a child who receives an IR2 or an IR3 visa, or who receives an IR4 visa and enters the United States under a decree of simple adoption. Taxpayers may treat these adoptions as final for federal income tax purposes:

(a) In the taxable year in which the competent authority enters a decree of adoption; or

(b) In the taxable year in which a home state enters a decree of re-adoption or otherwise recognizes the decree of the foreign-sending country, if that taxable year is one of the next two taxable years after the taxable year in which the competent authority enters the decree.

Retroactivity

A commentator expressed concern that the proposed revenue procedure, if applied retroactively, would require taxpayers who had taken positions inconsistent with the proposed revenue procedure to file amended returns. Specifically, the commentator asserted that many taxpayers whose children received IR4 visas and entered the United States under a decree of simple adoption had claimed the credit in the year the competent authority of the foreign-sending country entered the decree of adoption, rather than in the year that a state court re-adoption occurred. The final

copy) is to be filed at the following address:

Internal Revenue Service P.O. Box 331 Attn: LIHC Unit, DP 607 South Philadelphia Campus Bensalem, PA 19020

The IRS will return a copy of the approved form. However, taxpayers are no longer required to attach that copy to their income tax return. Instead, taxpayers should keep the returned copy in their records. This treatment supersedes the current revision (February 1997) of Form 8693, which instructs taxpayers to attach the approved copy to their income tax return.

Deletions From Cumulative List of Organizations Contributions to Which are Deductible Under Section 170 of the Code

Announcement 2005–44

The name of an organization that no longer qualifies as an organization described in section 170(c)(2) of the Internal Revenue Code of 1986 is listed below.

Generally, the Service will not disallow deductions for contributions made to a listed organization on or before the date of announcement in the Internal Revenue Bulletin that an organization no longer qualifies. However, the Service is not precluded from disallowing a deduction for any contributions made after an organization ceases to qualify under section 170(c)(2) if the organization has not timely filed a suit for declaratory judgment under section 7428 and if the contributor (1) had knowledge of the revocation of the ruling or determination letter, (2) was aware that such revocation was imminent, or (3) was in part responsible for or was aware of the activities or omissions of the organization that brought about this revocation.

If on the other hand a suit for declaratory judgment has been timely filed, contributions from individuals and organizations described in section 170(c)(2) that are otherwise allowable will continue to be deductible. Protection under section 7428(c) would begin on June 27, 2005, and

would end on the date the court first determines that the organization is not described in section 170(c)(2) as more particularly set forth in section 7428(c)(1). For individual contributors, the maximum deduction protected is $1,000, with a husband and wife treated as one contributor. This benefit is not extended to any individual, in whole or in part, for the acts or omissions of the organization that were the basis for revocation.

E.N.Y.P. Charity Fund

Brooklyn, NY

Finality of Foreign Adoptions

Announcement 2005–45

The Internal Revenue Service has issued Rev. Proc. 2005–31, 2005–26 I.R.B. 1374, which finalizes, with modifications, a revenue procedure proposed in Notice 2003–15, 2003–1 C.B. 540 (the proposed revenue procedure). This announcement discusses issues raised by comments received in response to Notice 2003–15 and the modifications to the proposed revenue procedure.

BACKGROUND

Section 23 of the Internal Revenue Code provides a credit for qualified adoption expenses (QAE) paid or incurred in connection with the adoption of an eligible child. Section 137 provides an exclusion from income for employer-provided adoption assistance. Notice 2003–15 proposed a revenue procedure to establish certain safe harbors for determining the finality of the adoption of a foreign-born child who has received an “immediate relative” (IR) visa from the Department of State. The proposed revenue procedure provided:

(1) If the child receives an IR2 or an IR4 visa and enters the United States under a decree of simple adoption, the adoption will be treated as final in the taxable year in which a home state court enters a decree of re-adoption or otherwise recognizes the adoption decree of the foreign-sending country;

(2) If the child receives an IR3 visa, the adoption will be treated as final in the taxable year in which the competent authority enters the decree of adoption; and

2005–26 I.R.B. 1377 June 27, 2005

Effective date

Notice 2003–15 proposed that the final revenue procedure would be effective for expenses paid or incurred after the date of its publication. The final revenue procedure is effective for QAE paid or incurred after the date of its publication. However, the Service will not challenge the time of finality of adoptions by taxpayers who apply the final revenue procedure or Notice 2003–15 to QAE paid or incurred on or before June 15, 2005, in a taxable year for which the period of limitation under § 6511 has not expired.

DRAFTING INFORMATION

The principal author of this notice is Marilyn E. Brookens of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this notice, contact Ms. Brookens at (202) 622–4920 (not a toll-free call).

revenue procedure permits taxpayers to treat these adoptions as final in the year the competent authority enters the decree of adoption, and permits taxpayers to apply Notice 2003–15 or the final revenue procedure to prior taxable years.

The Intercountry Adoption Act

A commentator questioned whether the proposed revenue procedure would apply after the Intercountry Adoption Act of 2000 (IAA), Pub. L. 106–279, 114 Stat. 825, 42 U.S.C. §§ 14901–14954, implements the 1993 Hague Convention on Protection of Children and Co-operation in Respect of Intercountry Adoption (the Convention). See Senate Treaty Doc. 105–51 (Sept. 20, 2000). In response to this comment, the final revenue procedure states that it does not apply to adoptions for which the Convention and the IAA determine finality.

OTHER MODIFICATIONS TO THE PROPOSED REVENUE PROCEDURE

Treatment of re-adoption expenses as QAE

Section 23(d)(1) and Notice 97–9 define QAE to include reasonable and necessary expenses relating to the legal adoption of an eligible child. In most adoptions of foreign-born children, the foreign-sending country has entered a decree of adoption before the child has been issued a visa. Many adoptive parents pay or incur expenses in connection with home state re-adoptions of their foreign-born children for practical reasons, such as obtaining a birth certificate issued in English, rather than because re-adoption is required by law. Therefore, the revenue procedure clarifies that otherwise qualified expenses paid or incurred in connection with a re-adoption do not fail the requirement that QAE must be “reasonable and necessary.”

June 27, 2005 1378 2005–26 I.R.B.