Part I.

26 CFR 1.337(d)-7

T.D. 9862

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

Certain Transfers of Property to Regulated Investment Companies [RICs] and Real Estate Investment Trusts [REITs]

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

SUMMARY: This document contains final regulations effecting the repeal of the General Utilities doctrine by the Tax Reform Act of 1986 and preventing abuse of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). The final regulations impose corporate-level tax on certain transactions in which property of a C corporation becomes the property of a REIT. The final regulations affect RICs, REITs, C corporations the property of which becomes the property of a RIC or a REIT, and their shareholders.

DATES: Effective Date : These regulations are effective on June 7, 2019.

Applicability Dates : For dates of applicability, see §1.337(d)-7(g)(2)(ii).

FOR FURTHER INFORMATION CONTACT: Austin Diamond-Jones, (202) 3175363 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to 26 CFR part 1 under section 337(d) of the Internal Revenue Code (Code).

In General Utilities & Operating Co. v. Helvering, 296 U.S. 200 (1935), the Supreme Court held that corporations generally could distribute appreciated property to their shareholders without the recognition of any corporate-level gain ( General Utilities doctrine). Beginning with legislation in 1969 and culminating in the Tax Reform Act of 1986, Public Law 99-514 (100 Stat. 2085), Congress repealed the General Utilities doctrine by enacting section 336(a) to apply gain and loss recognition to liquidating distributions. Section 337(d) directs the Secretary of the Treasury (Secretary) to prescribe regulations that are necessary or appropriate to carry out the purposes of General Utilities repeal, including “regulations to ensure that such purposes may not be circumvented through the use of any provision of law or regulations (including . . . part III of this subchapter) or through the use of a regulated investment company, real estate investment trust, or tax exempt entity. . . .”

On June 8, 2016, the Department of the Treasury (Treasury Department) and the IRS published temporary regulations (TD 9770) under section 337(d) (Temporary Regulations) in the Federal Register (81 FR 36793) effecting the repeal of the Gen- eral Utilities doctrine as applied to certain transfers of property to RICs and REITs. A notice of proposed rulemaking (REG126452-15) was published in the Federal Register (81 FR 36816) on the same day (2016 Proposed Regulations). The text of the Temporary Regulations served as the text for part of the 2016 Proposed Regulations, which also included an amendment not included in the Temporary Regulations. A correction to the Temporary Regulations was published in the Federal Register (81 FR 41800) on June 28, 2016.

In response to the 2016 Proposed Regulations, the Treasury Department and the IRS received one written comment and a letter addressed to the Secretary by the Chairmen and Ranking Members of the Ways and Means Committee of the U.S. House of Representatives and the Finance Committee of the U.S. Senate (Letter). The comment requested a public hearing, which was held on November 9, 2016.

After consideration of the written comment, the Letter, and comments made at

the public hearing, the Treasury Department and the IRS adopted the 2016 Proposed Regulations, in part, in final regulations (TD 9810) published in the Federal Register (82 FR 5387) on January 18, 2017 (2017 Final Regulations). The 2017 Final Regulations adopted a definition of the term “recognition period” consistent with the definition used in section 1374(d), regarding S corporations, and amended and removed corresponding provisions in the Temporary Regulations. The preamble to the 2017 Final Regulations indicated that the Treasury Department and the IRS would continue to study other issues addressed in the Temporary Regulations and the 2016 Proposed Regulations.

Executive Order 13789 (E.O. 13789), issued on April 21, 2017, instructed the Secretary to review all significant tax regulations issued on or after January 1, 2016, and to take concrete action to alleviate the burdens of regulations that (i) impose an undue financial burden on U.S. taxpayers; (ii) add undue complexity to the Federal tax laws; or (iii) exceed the statutory authority of the IRS. E.O. 13789 further instructed the Secretary to submit to the President within 60 days an interim report identifying regulations that meet these criteria.