• If the taxpayer — Internal Revenue Bulletin 2006-37

agreement to the PCA and the IRS rejects the proposed installment agreement, the taxpayer may appeal the rejection to the IRS. If the IRS assigns a PCA to monitor an installment agreement and the PCA determines the taxpayer is in default, the taxpayer may appeal to the IRS if the installment agreement is terminated. In both situations, the taxpayer must first appeal to the IRS office supervising the PCA’s day-to-day work, but if not satisfied the taxpayer may continue the appeal to the IRS Office of Appeals, pursuant to the IRS’s contracts with the PCAs and the IRS’s implementation procedures for Code sections 6159(e) and 7122(d)(1).

WHAT A TAXPAYER SHOULD EXPECT FROM PRIVATE DEBT COLLECTION

After the IRS notifies the taxpayer that the taxpayer has an unpaid Federal tax debt, the IRS may refer the taxpayer’s account to a PCA for collection. When the IRS refers an unpaid tax debt to a PCA for collection, the IRS will mail the taxpayer

a letter enclosing the new IRS publication, “What You Can Expect When the IRS Assigns Your Account to a Private Collection Agency.” The IRS mailing will provide the taxpayer with the PCA’s name, address, and telephone number, and will address frequently asked questions on the private debt collection process. The mailing will also include telephone numbers if a taxpayer wants to contact the IRS office overseeing the PCA or the Taxpayer Advocate Service (TAS). The mailing will explain that a taxpayer may request in writing to work with the IRS instead of with a PCA to resolve the outstanding debt.

If a taxpayer requests TAS assistance or describes circumstances meeting TAS criteria to a PCA, the PCA must immediately complete an application for a taxpayer assistance order with the relevant facts and provide the form to an IRS employee who serves as a liaison between the PCA and TAS. Criteria for referring a taxpayer account to TAS include circumstances when a taxpayer has experienced a delay of more than 30 days to resolve a taxpayer account problem with the IRS or when a taxpayer is experiencing or is about to suffer economic harm.

Within ten days after the IRS refers an account, the PCA should send a letter to the taxpayer with copies to the taxpayer’s authorized representatives. The letter will introduce the PCA, provide information on the balance due to the IRS, and provide a scannable payment coupon for the taxpayer to make a payment to the IRS. Although the IRS may pay PCAs a fee for their collection efforts, a taxpayer will receive credit for the full amounts paid to the IRS.

The PCA may use techniques approved by the IRS and in compliance with the Fair Debt Collection Practices Act to locate and contact the taxpayer by telephone. A PCA employee will discuss payment options with the taxpayer. If the taxpayer cannot pay in full immediately, the PCA will discuss the option of payment by means of an installment agreement. Some types of installment agreements will require the PCA to obtain financial information from the taxpayer. Although installment payments will be made directly to the IRS, PCAs may be used to monitor a taxpayer’s compliance with installment agreements. PCAs are not authorized to discuss offers-in-compromise. PCA employees will

2006–37 I.R.B. 446 September 11, 2006

Guy Traynor, Chief, Publications and

Regulations Branch, Legal Processing Division,

Associate Chief Counsel (Procedure and Administration).

(Filed by the Office of the Federal Register on August 11, 2006, 8:45 a.m., and published in the issue of the Federal Register for August 14, 2006, 71 F.R. 46415)

Section 1248 Attribution Principles; Correction

Announcement 2006–65

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking; correction

SUMMARY: This document corrects a notice of proposed rulemaking (REG–135866–02, 2006–27 I.R.B. 34) that was published in the Federal Regis- ter on Friday, June 2, 2006 (71 FR 31985) providing guidance for determining the earnings and profits attributable to stock of controlled foreign corporations (or former controlled foreign corporations) that are (were) involved in certain nonrecognition transactions.

FOR FURTHER INFORMATION CONTACT: Michael Gilman, (202) 622–3850 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The notice of proposed rulemaking (REG–135866–02) that is the subject of this correction is under section 1248 of the Internal Revenue Code.

Need for Correction

As published, REG–135866–02 contains errors that may prove to be misleading and are in need of clarification.

- - - -

Correction of Publication

Accordingly, the notice of proposed rulemaking (REG–135866–02) that was the subject of FR Doc. EG–8551 is corrected as follows:

direct a taxpayer who wishes to discuss an offer-in-compromise to contact the IRS. Taxpayers who indicate that their financial situations make them unable to pay the amount of the debt may also be referred to the IRS.

IRS MONITORING AND OVERSIGHT

The IRS has created special units of IRS employees to provide monitoring and oversight for all PCA operations on behalf of the IRS. The IRS also has trained key personnel in each PCA concerning taxpayer privacy, other taxpayer rights and IRS procedures, and has provided the PCAs with videos, instructional materials and operational handbooks. Training programs delivered by key personnel with each PCA to other PCA employees, in turn, were reviewed and approved by the IRS. The IRS also carefully reviews and approves standard PCA correspondence, telephone scripts and checklists.

PCAs must keep telephone logs of all incoming and outgoing calls, and must make these logs available to the IRS. The IRS will randomly monitor PCA calls to assure that taxpayers are treated fairly and professionally.

Taxpayers may contact the PCA or the IRS concerning the conduct of any PCA employee. In the event of a complaint about a PCA, the IRS will direct the PCA to suspend collection activity on the account until the PCA and IRS have evaluated the complaint. Each PCA is required to keep a complaint log, accessible to the IRS, including employees of the TAS, and to the Treasury Inspector General for Tax Administration.

CONTACT INFORMATION

For further information regarding this announcement, contact Joyce Peneau at 202–283–0715 (not a toll-free number) or by email at PDC@irs.gov .

Section 1248 Attribution Principles; Correction

Announcement 2006–64

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking; correction

FOR FURTHER INFORMATION CONTACT: Michael Gilman, (202) 622–3850 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The notice of proposed rulemaking (REG–135866–02) that is the subject of this correction is under section 1248 of the Internal Revenue Code.

Need for Correction

As published, REG–135866–02 contains errors that may prove to be misleading and are in need of clarification.

Correction of Publication

Accordingly, the publication of the proposed regulations (REG–135866–02) which was the subject of FR. Doc. E6–8551, is corrected as follows:

On page 31990, column 1, in the preamble, under the paragraph heading “Explanations of Provisions”, following the second full paragraph of the column, the following language is added: “ F. Effective Date.

These regulations are proposed to apply to income inclusions that occur on or after the date that final regulations are published in the Federal Register .”

On page 31990, column 1, in the preamble, under the paragraph heading “Explanations of Provisions”, the language “ F. Request for Comments ” is corrected to read “ G. Request for Comments ”.

September 11, 2006 447 2006–37 I.R.B.

PART 1 — INCOME TAXES

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

Authority: 26 USC 7805 * * * Par. 2. On page 31991, instructional Par. 4. is amended by adding a new entry at the end of the amendatory instruction to read as follows:

Adding new paragraph (g).

§1.1248–1 [Corrected]

Par. 3. On page 31991, section 1.1248–1 is amended by adding a new paragraph (g) to read as follows:

§ 1.1248–1 Treatment of gain from certain sales or exchanges of stock in certain foreign corporations

- - - (g) Effective date . Paragraph (a)(4) and paragraph (a)(5), Example 4, of this section apply to income inclusions that occur on or after the date that paragraph and example are published as final regulations in the Federal Register .

Guy Traynor, Chief, Publications and

Regulations Branch, Legal Processing Division,

Associate Chief Counsel (Procedure and Administration).

(Filed by the Office of the Federal Register on August 11, 2006, 8:45 a.m., and published in the issue of the Federal Register for August 14, 2006, 71 F.R. 46416)

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

Announcement 2006–66

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendment.

SUMMARY: This document contains corrections to final regulations (T.D. 9254, 2006–13 I.R.B. 662) that were published in the Federal Register on Tuesday, March 14, 2006 (71 FR 13008) regarding guidance on suspension of losses on certain stock dispositions.

DATES: These corrections are effective March 14, 2006.

FOR FURTHER INFORMATION CONTACT: Theresa Abell (202) 622–7700 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

The final regulations (T.D. 9254) that are the subject of this correction are under section 1502 of the Internal Revenue Code.

Need for Correction

As published, final regulations (T.D. 9254) contains errors that may prove to be misleading and are in need of clarification.

- - - -

Correction of Publication

Accordingly, 26 CFR Parts 1 and 602 are corrected by making the following correcting amendments:

PART 1—INCOME TAXES

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

Authority: 26 U.S.C. 7805 * * *

§1.1502–35 [Corrected]

Par. 2. Section 1.1502–35 is amended as follows:

By revising the text of paragraph (d)(4)(i)(B)( 2 ).
By revising the text of paragraphs (d)(8) and (d)(9).
By revising the text of paragraph (e), Example 3 ., paragraph (v).
By revising the text of paragraph (e), Example 4 ., the first sentence of paragraph (iv) and paragraph (v).
By revising the text of paragraph (e), Example 6 ., paragraph (i).
By revising the text of paragraph (g)(5) Examples 1 . and 2, the first sentence of paragraph (i).
By revising the text of paragraph (g)(5) Example 3, the first three sentences of paragraphs (i) and paragraph (ii).
By revising the text of the first sentence of paragraph (j).

§1.1502–35 Transfers of subsidiary stock and deconsolidations of subsidiaries.

- - - (d) (4) - * (i) - - (B) * - * (2) Any liabilities of the subsidiary that have been taken into account for tax purposes.
- - - (8) Higher-tier. A subsidiary is higher-tier with respect to a member if or to the extent investment adjustments under §1.1502–32 with respect to the stock of the latter member would affect investment adjustments with respect to the stock of the former member.

(9) Lower-tier. A subsidiary is lowertier with respect to a member if or to the extent investment basis adjustments under §1.1502–32 with respect to the stock of the former member would affect investment adjustments with respect to the stock of the latter member.

(e) * - Example 3 . - * * (v) Effect of subsequent stock sale . P recognizes $0 gain/loss on the Year 6 sale of its remaining S common stock. No amount of suspended loss remains to be allowed under paragraph (c)(5) of this section.

Example 4 . - * * (iv) Effect of subsequent asset sale on suspended loss . Because P cannot establish that all or a portion of the loss recognized on the sale of Asset B was not reflected in the calculation of the duplicated loss of S2 on the date of the Year 4 stock sale and such loss is allocable to the period beginning on the date of the Year 4 disposition of the S2 stock and ending on the day before the first date on which S2 is not a member of the P group and is taken into account in determining consolidated taxable income (or loss) of the P group for a taxable year that includes a date on or after the date of the Year 4 disposition and before

2006–37 I.R.B. 448 September 11, 2006

the first date on which S2 is not a member of the P group, such asset loss reduces the suspended loss pursuant to paragraph (c)(4) of this section. - * *

(v) Effect of subsequent stock sale . In year 6, when S1 sells its remaining S2 stock for $100, it recognizes $0 gain/loss. Pursuant to paragraph (c)(5) of this section, the remaining $5 of the suspended loss is allowed on the P group’s return for Year 6 when S1 sells its remaining S2 stock.

- - - Example 6 . - * * (i) In Year 1. P forms S with a contribution of $80 in exchange for 80 shares of common stock of S which at that time represents all of the outstanding stock of S. S becomes a member of the P group. In Year 2, P contributes Asset A with a basis of $50 and a value of $20 in exchange for 20 shares of common stock of S in a transfer to which section 351 applies. In Year 4, in a transaction that is not part of a plan that includes the Year 1 and Year 2 contributions, P contributes the 20 shares of S common stock it acquired in Year 2 to PS, a partnership, in exchange for a 20 percent capital and profits interest in a transaction described in section 721. Immediately after the contribution to PS, S is a member of the P group. In Year 5, P sells its interest in PS for $20.
- - - (g) - * (5) - * Example 1. Transfers of property in the avoid- ance of basis redetermination rule —(i) Facts . In Year 1, P forms S with a contribution of $100 in exchange for 100 shares of common stock of S which at that time represents all of the outstanding stock of S. S becomes a member of the P group. In Year 2, P contributes 20 shares of common stock of S to PS, a partnership, in exchange for a 20 percent capital and profits interest in a transaction described in section 721. In Year 3, P contributes Asset A with a basis of $50 and a value of $20 to PS in exchange for an additional capital and profits interest in PS in a transaction described in section 721. Also in Year 3, PS contributes Asset A to S and P contributes an additional $80 to S in transfers to which section 351 applies. In Year 4, S sells Asset A for $20, recognizing a loss of $30. The P group uses that loss to offset income of P. In Year 5, P sells its entire interest in PS for $40. Example 2 . Transfers effecting a reimportation of loss —(i) Facts . In Year 1, P forms S with a contribution of Asset A with a value of $100 and a basis of $120, Asset B with a value of $50 and a basis of $70, and Asset C with a value of $90 and a basis of $100 in exchange for all of the common stock of S and S becomes a member of the P group. - * *
- - - Example 3 . Transfers to avoid recognition of gain —(i) Facts . P owns all of the stock of S1 and S2. The S2 stock has a basis of $400 and a value of

$500. S1 owns 50% of the S3 common stock with a basis of $150. - * *

(ii) Analysis . Pursuant to paragraph (b)(4) of this section, because S2 owns stock of S3 (another subsidiary of the same group) and, immediately after the sale of the S2 stock, S3 is a member of the group, then for purposes of applying paragraph (b) of this section, S2 is deemed to have transferred its S3 stock. Because S3 is a member of the group immediately after the transfer of the S2 stock and the S3 stock deemed transferred has a basis in excess of value, the group in the S3 stock is redetermined pursuant to paragraph (b)(1) of this section immediately prior to the sale of the S2 stock.

Accordingly, P would recognize only $1 of gain on the sale of its S2 stock. However, because the recapitalization of the S3 was structured with a view to, and has the effect of, avoiding the recognition of gain on a disposition of stock by invoking the application of paragraph (b) of this section, paragraph (g)(4)(i) of this section applies. Accordingly, paragraph (b) of this section does not apply upon P’s disposition of the S2 stock and P recognizes $100 gain on the disposition of the S2 stock.

- - - (j) Effective date . This section applies with respect to stock transfers, deconsolidations of subsidiaries, determinations of worthlessness, and stock dispositions on or after March 10, 2006. - * *

Guy R. Traynor, Branch Chief, Publications

and Regulations Branch, Legal Processing Division,

Associate Chief Counsel (Procedure and Administration).

(Filed by the Office of the Federal Register on August 18, 2006, 8:45 a.m., and published in the issue of the Federal Register for August 21, 2006, 71 F.R. 48473)

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

Announcement 2006–69

The Internal Revenue Service has revoked its determination that the organiza

tion listed below qualifies as an organization described in sections 501(c)(3) and 170(c)(2) of the Internal Revenue Code of 1986. 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 had a suite 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 September 11, 2006, 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.

Youth Ministries, Inc., d/b/a

Operation Rescue West Wichita, KS

September 11, 2006 449 2006–37 I.R.B.