98-1817. Continuity of Interest

[Federal Register Volume 63, Number 18 (Wednesday, January 28, 1998)]
[Proposed Rules]
[Pages 4204-4205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1817]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-120882-97]
RIN 1545-AV81


Continuity of Interest

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations and notice of public hearing.

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SUMMARY: The IRS is issuing temporary regulations published elsewhere 
in this issue of the Federal Register providing guidance regarding 
satisfaction of the continuity of interest requirement for corporate 
reorganizations. The temporary regulations affect corporations and 
their shareholders. The text of those temporary regulations also serves 
as the text of these proposed regulations. In addition, this document 
provides notice of a public hearing on these proposed regulations.

DATES: Written comments and outlines of topics to be discussed at the 
hearing scheduled for Tuesday, May 26, 1998, must be received by 
Tuesday, May 5, 1998.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-120882-97), room 
5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered between the 
hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG-120882-97), Courier's 
Desk, Internal Revenue Service, 1111 Constitution Avenue NW., 
Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the Internet by selecting the ``Tax Regs'' option on 
the IRS Home Page, or by submitting comments directly to the IRS 
Internet site at http://www.irs.ustreas.gov/prod/tax__regs/
comments.html. The public hearing will be held in room 2615, Internal 
Revenue Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Phoebe 
Bennett, [phone]; concerning submissions and the hearing, LaNita 
Van Dyke, [phone] (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    Temporary regulations published elsewhere in this issue of the 
Federal Register amend the Income Tax Regulations (26 CFR part 1) under 
section 368. The temporary regulations provide that in determining 
whether the continuity of interest requirement for corporate 
reorganizations is satisfied with respect to a potential 
reorganization, a proprietary interest in the target corporation is not 
preserved if, in connection with a potential reorganization, it is 
redeemed or acquired by a person related to the target corporation, or 
to the extent that, prior to and in connection with a potential 
reorganization, an extraordinary distribution is made with respect to 
it.
    The text of the temporary regulations also serves as the text of 
these proposed regulations. The preamble to the temporary regulations 
describes the temporary regulations.
    The temporary regulations do not provide guidance on the 
determination of whether a distribution will be treated as an 
extraordinary distribution, except that the rules of section 1059 do 
not apply for this purpose. The IRS and Treasury Department invite 
comments on whether the regulations should provide more specific 
guidance in this area.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in EO 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 the 
regulation does not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. 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.

[[Page 4205]]

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any comments that are submitted timely 
to the IRS. All comments will be available for public inspection and 
copying.
    A public hearing has been scheduled at 10 a.m. on Tuesday, May 26, 
1998, in room 2615, Internal Revenue Service, 1111 Constitution Avenue 
NW., Washington, DC. Because of access restrictions, visitors will not 
be admitted beyond the Internal Revenue Building lobby more than 15 
minutes before the hearing starts.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing.
    Persons that wish to present oral comments at the hearing must 
submit written comments by Tuesday, May 5, 1998 and submit an outline 
of the topics to be discussed and the time to be devoted to each topic 
(a signed original and eight (8) copies) by Tuesday, May 5, 1998.
    A period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

Proposed Effective Date

    These regulations are proposed to apply to transactions occurring 
after January 28, 1998, except that they do not apply to any 
transaction occurring pursuant to a written agreement which is (subject 
to customary conditions) binding on January 28, 1998, and at all times 
thereafter.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

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 continues to read in 
part as follows:

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

    Par. 2. Section 1.368-1 is amended as follows:
    1. Revising paragraphs (e)(1)(ii)(A), (e)(1)(ii)(B), (e)(2)(ii), 
and (f).
    2. Adding paragraph (e)(6) Example 10 and Example 11.
    The addition and revisions read as follows:


Sec. 1.368-1  Purpose and scope of exception of reorganization 
exchanges.

    [The text of proposed paragraphs (e)(1)(ii)(A) and (B), (e)(2)(ii), 
(e)(6) Example 10 and Example 11, and (f) is the same as the text of 
Sec. 1.368-1T published elsewhere in this issue of the Federal 
Register].
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 98-1817 Filed 1-23-98; 12:15 pm]
BILLING CODE 4830-01-U