SECTION 9. CONTACT

INFORMATION

The principal authors of this announcement are Dale Veer, Appeals, Tax Policy and Procedure (Collection & Processing), and Sarah Sheldon, Office of Associate Chief Counsel (Procedure & Administration). For further information regarding this announcement, contact Dale Veer at (651) 726–7430 or Sarah Sheldon at (202) 622–7950 (not toll-free calls).

Unified Rule for Loss on Subsidiary Stock; Correction

Announcement 2008–114

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Correcting amendment.

SUMMARY: This document contains corrections to final regulations (T.D. 9424, 2008–44 I.R.B. 1012) that were published in the Federal Register on Wednesday, September 17, 2008 (73 FR 53934) under sections 358, 362(e)(2), and 1502 of the Internal Revenue Code. The final regulations apply to corporations filing consolidated returns, and corporations that enter into certain tax-free reorganizations. The final regulations provide rules for determining the tax consequences of a member’s transfer (including by deconsolidation and worthlessness) of loss shares of subsidiary stock. In addition, the final regulations provide that section 362(e)(2) generally does not apply to transactions between members of a consolidated group. Finally, the final regulations conform or clarify various provisions of the consolidated return regulations, including those relating to adjustments to subsidiary stock basis.

EFFECTIVE DATE: This correction is effective October 20, 2008, and is applicable on September 17, 2008.

FOR FURTHER INFORMATION CONTACT: Marcie P. Barese, (202) 622–7790, Sean P. Duffley,

December 1, 2008 1226 2008–48 I.R.B.

(i)(A) of this Example 3, M transferred its S share to X in a fully taxable transaction and, as permitted under paragraph (b)(1)(ii)(B) of this section, P elected to redetermine basis under this paragraph (b).

• • • • (c) * - (8) - * Example 6. - * * (iii) * - (A) * * * After taking into account the effects of all applicable rules of law, M’s basis in the S share at the end of year 5 is $100 (M’s original $100 basis decreased under §1.1502–32 by $40 at the end of the year 1 and then increased under §1.1502–32 by $40 at end of the year 5 (the net of the $100 tax exempt income from the excluded COD applied to reduce attributes and the $60 noncapital, nondeductible expense from the reduction of S’s portion of the CNOL)).* * *
• • • • (d) - * (3) - * (i) - - (B) S’s aggregate inside loss (as defined in paragraph (d)(3)(iii) of this section).
• • • • (5) - * (ii) * * * S’s attribute reduction amount is allocated proportionately (by basis) between (among) the non-stock Category D asset and S’s deemed single share(s) of subsidiary stock. (See paragraphs (d)(4)(ii)(B)( 2 ) and (d)(4)(ii)(C) of this section regarding the portion of S’s attribute reduction amount allocated to the Category D assets other than lower-tier subsidiary stock.) For allocation purposes, S’s basis in each deemed single share of S1 stock is its deemed basis (determined under paragraphs (d)(5)(i)(B) and (d)(5)(i)(C) of this section), reduced by—
• • • • (8) - * Example 6. - * * (ii) - - (B) * * * However, S’s gain recognized on the transfer of Share E is computed and immediately adjusts members’ bases in subsidiary stock under §1.1502–32 (because M and S are not members of the same group immediately after the transaction, the sale is not an intercompany transaction subject to §1.1502–13).

(202) 622–7770, or Theresa Abell (202) 622–7700 (none of the numbers are toll-free).

SUPPLEMENTARY INFORMATION:

Background

The final regulations that are the subjects of this document are under sections 337, 358, 362, 1502 of the Internal Revenue Code.

Need for Correction

As published, final regulations (T.D. 9424) contain errors that may prove to be misleading and are in need of clarification.

- - - -

Correction of Publication

Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments:

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 1.358–6(f)(3) is amended by revising the last sentence to read as follows:

§1.358–6 Stock basis in certain triangular reorganizations.

• • • • (f) - - (3) * * * However, taxpayers may apply paragraph (b)(2)(v) of this section to triangular reorganizations occurring before September 17, 2008 and on or after December 23, 1994.

Par. 3. Section 1.1502–13(l)(1) is amended by revising the last sentence to read as follows:

§1.1502–13 Intercompany transactions.

• • • • (l) - - (1) - - - However, taxpayers may apply paragraph (j)(5)(i)(A) of this section to transactions that occurred prior to September 17, 2008.

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Par. 4. Section 1.1502–19(h)(1) is amended by revising the second sentence to read as follows:

§1.1502–19 Excess loss accounts.

• • • • (h) - * (1) - - - However, taxpayers may apply paragraph (c)(3)(i)(A) of this section to transactions that occurred prior to September 17, 2008.
• • • • Par. 5. Section 1.1502–33(j)(1) is amended by revising the last sentence to read as follows:

§1.1502–33 Earnings and profits.

• • • • (j) - - (1) * * * However, taxpayers may apply paragraph (e)(2)(i)(A) of this section with respect to determinations of the earnings and profits of a member in consolidated return years beginning prior to September 17, 2008.
• • • • Par. 6. Section 1.1502–36 is amended by revising the last sentence of the paragraph (b)(3) Example 3 .(i)(D); the fourth sentence of the paragraph (c)(8) Exam- ple 6 .(iii)(A); the only sentence of the paragraph (d)(3)(i)(B); the third through fifth sentences of the paragraph (d)(5)(ii); the third sentence of the paragraph (d)(8) Example 6 .(ii)(B); the second sentence of the paragraph (d)(8) Example 6 .(ii)(D)( 3 ); the fifth sentence of the paragraph (d)(8) Example 8 .(i)(F); the first sentence of the paragraph (d)(8) Example 8 .(ii)(E); the first sentence of the paragraph (d)(8) Example 8 .(ii)(F); the first sentence of the paragraph (d)(8) Example 9 .(ii); the second sentence of the paragraph (g)(2) Example 5 .(i); and the third sentence of the paragraph (g)(2) Example 5 .(iii) to read as follows:

§1.1502–36 Unified loss rule.

• • • • (b) - - (3) - - Example 3. - * * (i) - - (D) * * * The results would be the same if, in addition to the facts in paragraph

2008–48 I.R.B. 1227 December 1, 2008

• • • • (D) - * ( 3 ) * * * See paragraph (d)(5)(v)(A) of this section.
• • • • Example 8. - * * (F) - - - Under §1.1502–32(c)(1)(ii)(A)( 1 ) this $90 expense is allocated to the transferred loss shares of S stock in proportion to the loss in the shares, or $.90 per share.
• • • • (ii) * - (E) - - - The facts are the same as in paragraph (ii)(A) of this Example 8, except that P elects under paragraph (d)(6) of this section to reduce M’s basis in the S shares by the full attribute reduction amount of $22, in lieu of S reducing its attributes.* * *

(F) - - - The facts are the same as in paragraph (ii)(A) of this Example 8 .

Example 9 . - * * (ii) * * * However, S1’s gain recognized on the transfer of the S2 share is computed and immediately adjusts members’ bases in subsidiary stock under §1.1502–32.

• • • • (g) - - (2) - - Example 5 . - * * (i) * * * S owns Asset 1 with a basis of $100 and a value of $20.* * *

(iii) - - - However, because all the shares are transferred, the group’s income is clearly reflected.

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LaNita Van Dyke, Chief, Publications and

Regulations Branch, Legal Processing Division,

Associate Chief Counsel (Procedure and Administration).

(Filed by the Office of the Federal Register on October 17, 2008, 8:45 a.m., and published in the issue of the Federal Register for October 20, 2008, 73 F.R. 62204)

Infrastructure Improvements Under Section 897

Announcement 2008–115

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Advanced notice of proposed rulemaking.

SUMMARY: This document describes issues that the IRS and the Treasury Department are considering addressing, in a notice of proposed rulemaking (REG–130342–08), under section 897 of the Internal Revenue Code (Code) regarding the definition of an interest in real property. The notice of proposed rulemaking would address certain rights granted by a governmental unit that are related to the lease, ownership, or use of real property. This document also invites comments from the public regarding these contemplated rules. All materials submitted will be available for public inspection and copying.

DATES: Written and electronic comments must be submitted by January 29, 2009.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG–130342–08), 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–130342–08), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or sent electronically via the Federal eRulemaking Portal at www.regulations.gov (IRS and REG–130342–08).

FOR FURTHER INFORMATION CONTACT: Concerning the proposals, Jeffrey P. Cowan at (202) 622–3850; concerning submissions, Richard A. Hurst at (202) 622–7180 (TDD Telephone) (not toll-free numbers) and his e-mail address is Richard.A.Hurst@irscounsel.treas.gov .

SUPPLEMENTARY INFORMATION:

Overview

This document describes issues that the IRS and the Treasury Department are considering addressing, in a notice of proposed rulemaking, regarding the definition of an interest in real property within the meaning of section 897(c) of the Code. The notice of proposed rulemaking would address certain rights granted by a governmental unit that are related to the

lease, ownership, or use of toll roads, toll bridges, and certain other physical infrastructure. The proposed regulations would amend the § 1.897–1 regulations.

Transactions at Issue

In a typical transaction at issue, a domestic partnership (DP) leases or purchases from an unrelated party infrastructure assets and any land underlying these infrastructure assets (together, specified infrastructure) within the United States. The DP’s partners include domestic corporations with foreign shareholders. Examples of specified infrastructure include a toll road or toll bridge.

Often, as a condition to operating the specified infrastructure and to collecting tolls for its use, DP is also required to obtain a governmental license, permit, franchise, or other similar right (governmental permit). The DP may also own or acquire property that would be used in the trade or business of operating the specified infrastructure, such as signs, snow plows, and electronic sensors.

The physical attributes of the specified infrastructure, for example, a relatively narrow roadway, and terms and conditions related to the specified infrastructure, for example, that the lessee is required to maintain and operate a roadway, mean that in many cases there may practically be no potential alternative commercial uses for the specified infrastructure. In those cases, the value of the leasehold interest in the specified infrastructure derives from the right to charge and collect tolls.

Background

Section 897(a)(1) of the Code treats the gain or loss of a nonresident alien or foreign corporation from the disposition of a U.S. real property interest (USRPI) as if the taxpayer were engaged in a trade or business in the United States, and as if such gain or loss were effectively connected with such trade or business under sections 871(b) or 882. In general, a USRPI includes an interest in real property located in the United States or the Virgin Islands, and any interest (other than an interest solely as a creditor) in a domestic corporation unless the taxpayer establishes that the corporation was at no time a U.S. real property holding

December 1, 2008 1228 2008–48 I.R.B.

mestic corporation to which such a right was attributed under section 897(c)(4)(B) would be treated as a USRPHC under section 897(c)(2).

The IRS and the Treasury Department, however, are of the view that in some of the transactions at issue the governmental permit may properly be characterized as a USRPI. Accordingly, the IRS and the Treasury Department are considering issuing proposed regulations regarding the definition of an interest in real property that would address certain licenses, permits, franchises, or other similar rights granted by a governmental unit (including, for purposes of section 897, an agency or instrumentality thereof) that are related to the value of the use or ownership of an interest in real property. The proposed regulations would address how the fair market value of such licenses, permits, franchises, or other similar rights should be taken into account when determining the fair market value of a corporation’s USRPIs and interests in real property located outside the United States under section 897(c)(2).

Proposed Effective Date

The IRS and the Treasury Department anticipate that the proposed regulations would apply for transactions occurring on or after the date of publication in the Federal Register as final or temporary regulations. No inference is intended as to how these arrangements are treated or characterized under current law.

Request for Comments

Before the notice of proposed rulemaking is issued, consideration will be given to any written comments (a signed original and eight (8) copies) or electronic comments that are timely submitted to the IRS. All comments will be available for public inspection and copying.

The IRS and Treasury Department specifically request comments on:

1. The scope of this regulatory project, the types of licenses, permits, franchises, or other similar rights granted by a governmental unit with respect to specified infrastructure that might be treated as related to the value of the lease, ownership, or use of an interest in real property, and what character

corporation (USRPHC) within the period described in section 897(c)(1)(A)(ii). Section 897(c)(1)(A).

Real property includes land and unsevered natural products of the land, improvements, and personal property associated with the use of real property. Section 1.897–1(b)(1). Section 1.897–1(b)(1) provides that local law definitions will not be controlling for purposes of determining the meaning of the term “real property” as it is used under section 897 and the regulations thereunder. The regulations define an “improvement” as a building, any other inherently permanent structure, or the structural components of either. Section 1.897–1(b)(3). For this purpose, an inherently permanent structure includes any property not otherwise described in § 1.897–1(b)(3) that is affixed to real property and that will ordinarily remain affixed for an indefinite period of time. Further, § 1.897–1(b)(3)(iii)(B) provides that an inherently permanent structure includes, for example, pavements and bridges.

The Code defines an “interest in real property” to include fee ownership and co-ownership of land or improvements thereon, leaseholds of land or improvements thereon, options to acquire land or improvements thereon, and options to acquire leaseholds of land or improvements thereon. Section 897(c)(6)(A). Section 1.897–1(c)(1) further provides that the term USRPI also includes any interest, other than an interest solely as a creditor, in real property located in the United States or the Virgin Islands. Section 1.897–1(d)(2)(i) provides that an interest in real property other than an interest solely as a creditor includes any direct or indirect right to share in the appreciation in the value, or in the gross or net proceeds or profits generated by, the real property.

A USRPHC is generally defined as a corporation the fair market value of whose USRPIs equals or exceeds 50 percent of the fair market value of its worldwide interests in real property, including its USRPIs, plus its other assets which are used or held for use in a trade or business. Section 897(c)(2). For this purpose, assets used or held for use in a trade or business include, among other things, certain intangible property described in § 1.897–1(f)(1)(ii).

For purposes of determining whether any corporation is a USRPHC, assets

held by a partnership, trust, or estate are generally treated as held proportionately by its partners or beneficiaries. Section 897(c)(4)(B) and § 1.897–2(e)(2). The interest in the entity itself is disregarded when a proportionate share of the entity’s assets are attributed to the interest-holder. Section 1.897–2(e)(2). Further, any asset treated as held by a partner or beneficiary by reason of this rule which is used or held for use by the partnership, trust, or estate in a trade or business is treated as so used or held by the partner or beneficiary. Section 897(c)(4)(B) and § 1.897–2(e)(2). The proportionate ownership rules of Section 897(c)(4)(B) and § 1.897–2(e)(2) apply successively upward through a chain of ownership. Section 1.897–2(e)(2).

Explanation of Contemplated Regulations

The IRS and the Treasury Department are aware that in the transactions at issue taxpayers may be taking the position that for purposes of section 897 the governmental permit is not a USRPI within the meaning of section 897(c). Instead, these taxpayers may take the position that the governmental permit is an asset used or held for use in a trade or business. Further, these taxpayers may take the position that a significant portion of the fair market value of a DP’s assets is allocable to the governmental permit rather than to the assets comprising the specified infrastructure.

As noted in the Background section, under section 897(c)(2), a corporation is a USRPHC only if the fair market value of its USRPIs equals or exceeds 50 percent of the fair market value of its USRPIs plus its interests in real property located outside the United States, plus any other of its assets which are used or held for use in a trade or business. Therefore, if the fair market value of the governmental permit were treated as an asset used or held for use in a trade or business, and not a USRPI, the governmental permit would be taken into account in the denominator, but not the numerator, of the calculation provided for in section 897(c)(2) in order to determine whether any domestic corporation that is a partner in a DP is a USRPHC. Accounting for the governmental permit in this manner for purposes of the section 897(c)(2) calculation reduces the likelihood that a do

2008–48 I.R.B. 1229 December 1, 2008

istics should be taken into account in making that determination. 2. Whether this regulatory project should address the allocation of the consideration paid for the lease or purchase of a specified infrastructure and the license, permit, franchise, or other similar right to operate that specified infrastructure for purposes of determining the fair market value of such property.

In regard to the allocation of purchase price, comments are also sought as to whether, for purposes of allocating the consideration paid for a lease of the specified infrastructure and the license, permit, franchise, or other similar right to operate that specified infrastructure, the length of the lease (including whether the lease is for the useful life of the property) should be taken into account.

Linda E. Stiff, Deputy Commissioner for Services and Enforcement.

(Filed by the Office of the Federal Register on October 30, 2008, 8:45 a.m., and published in the issue of the Federal Register for October 31, 2008, 73 F.R. 64901)

Section 108 Reduction of Tax Attributes for S Corporations; Hearing Cancellation

Announcement 2008–116

AGENCY: Internal Revenue Service (IRS), Treasury

ACTION: Cancellation of notice of public hearing on proposed rulemaking.

SUMMARY: This document cancels a public hearing on proposed rulemaking (REG–102822–08, 2008–38 I.R.B. 744) that provides guidance on the manner in which an S corporation reduces its tax attributes under section 108(b) for taxable years in which the S corporation has discharge of indebteness income that is excluded from gross income under section 108(a).

DATES: The public hearing, originally scheduled for December 8, 2008 at 10 a.m. is cancelled.

FOR FURTHER INFORMATION CONTACT: Funmi Taylor of the Publications and Regulations Branch, Legal Processing Division, Associate Chief Counsel (Procedure and Administration) at (202) 622–7180 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

A notice of proposed rulemaking and a notice of public hearing that appeared in the Federal Register on Wednesday, August 6, 2008 (73 FR 45656) announced that a public hearing was scheduled for December 8, 2008, at 10 a.m. in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, NW, Washington, DC. The subject of the public hearing is under section 108 of the Internal Revenue Code.

The public comment period for the proposed rulemaking expired on November 4, 2008. The notice of proposed rulemaking and notice of public hearing instructed those interested in testifying at the public hearing to submit an outline of the topics to be addressed. As of Thursday, November 13, 2008, no one has requested to speak. Therefore, the public hearing scheduled for December 8, 2008, is cancelled.

LaNita Van Dyke, Chief, Publications and

Regulations Branch, Legal Processing Division,

Associate Chief Counsel (Procedure and Administration).

(Filed by the Office of the Federal Register on November 19, 2008, 8:45 a.m., and published in the issue of the Federal Register for November 20, 2008, 73 F.R. 70289)

December 1, 2008 1230 2008–48 I.R.B.