Lawyer Seeks Moderation of Basis Reporting Deadline in Estate Regs

June 29, 2018

Catherine V. Hughes, Esquire
Department of the Treasury
Office of Tax Policy
1500 Pennsylvania Avenue Northwest
Suite 4212
Washington, D.C. 20220-0001

Thirty-Day Deadline in Proposed Reg. § 1.6035-1(c)(3) and (d)(1)(REG-127923-15)

Dear Cathy:

I write in support of moderating the requirement in Proposed Reg. § 1.6035-1(c)(3) and (d)(1) that within 30 days after filing an estate tax return an executor must provide basis information to beneficiaries about assets they have not received and may never receive.

A. INTRODUCTION

Section 6035 (Basis information to persons acquiring property from decedent) was enacted July 31, 2015, as part of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, Public Law 114-41. A Notice of Proposed Rulemaking was released on March 2, 2016, and published in the Federal Register on March 4, 2016 (81 Fed. Reg. 11486-11496). Comments were received from the public, including a letter of May 27, 2016, submitted by The American College of Trust and Estate Counsel (ACTEC). I participated in the preparation of ACTEC's comments, and I spoke on ACTEC's behalf at the public hearing on June 27, 2016. A transcript of my remarks at the hearing, annotated with footnotes, is attached to this letter.

The proposed section 6035 regulations are now item 4 in Part 3 (captioned "Near-Term Burden Reduction") of the 2017-2018 Priority Guidance Plan (as updated). I write this letter in my individual capacity to elaborate on my remarks at the 2016 hearing in urging that the very burdensome 30-day due date in the proposed regulations be replaced by requirements that are more reasonable and more suited to the administration of decedents' estates.

B. THE PROBLEM

Section 6035(a)(1) requires that:

The executor of any estate required to file a return under section 6018(a) shall furnish to the Secretary and to each person acquiring any interest in property included in the decedent's gross estate for Federal estate tax purposes a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the Secretary may prescribe.

Proposed Reg. § 1.6035-1(d)(1) would require the information to be provided within 30 days after the estate tax return was filed (or, if earlier, within 30 days after the return was due). But in an estate large enough to require the filing of an estate tax return, it is unusual for the executor to have distributed the estate assets, or to know for sure who will get what, within 30 days after filing the estate tax return. That makes specific, relevant, and helpful compliance with the 30-day due date impossible.

Proposed Reg. § 1.6035-1(c)(3) acknowledges that dilemma when it states:

If, by the due date provided in paragraph (d) of this section, the executor has not determined what property will be used to satisfy the interest of each beneficiary, the executor must report on the Statement for each such beneficiary all of the property that the executor could use to satisfy that beneficiary's interest. Once the exact distribution has been determined, the executor may, but is not required to, file and furnish a supplemental Information Return and Statement as provided in paragraph (e)(3) of this section.

Given the consistent-basis policy judgment Congress has made in section 1014(f) for certain cases, it seems reasonable that for reasons of enforcement and compliance, respectively, both the IRS and each beneficiary should be given information about the estate tax value. But, as I said in my attached remarks at the June 2016 hearing, the "duplicate reporting" (as the Preamble to the Proposed Regulations calls it) to beneficiaries of tedious lists of assets they will never receive, merely because here and there on the lists there may be assets they will receive, is wasteful, and, at best, will confuse or frustrate beneficiaries. At worst, it could create or aggravate tensions among beneficiaries and between beneficiaries and executors, as beneficiaries see what they might be receiving, what others might be receiving, and the relative values. This risk is present even if the estate has only one beneficiary, because, for example, the executor may have discretion over what assets to sell to pay debts and expenses, including estate taxes, or there may even be a possibility that the estate is insolvent. The executor may have a fiduciary duty under applicable law or the governing instrument to keep beneficiaries informed about such things, but there is no need or reason for federal tax law to try to second-guess, influence, or augment that fiduciary duty. And, again, all of this is entirely needless, because neither compliance by a beneficiary nor enforcement by the IRS is helped one bit by compiling and delivering information about an asset the beneficiary will never receive.

C. THE OBVIOUS SOLUTION

The solution is to require that beneficiaries receive information only about assets they have received, as and when they receive them. Not only is this the obviously sensible solution, but I am aware of no one, in or out of the Government, who would disagree that this solution would make sense.

D. THE STATUTE

To achieve clarity on this subject, it is necessary to look past the surface of the statute to analyze the words used in the statute in the context Congress evidently contemplated and assumed.

Section 6035(a)(1)

Section 6035(a)(1) states (emphasis added):

The executor of any estate required to file a return under section 6018(a) shall furnish to the Secretary and to each person acquiring any interest in property included in the decedent's gross estate for Federal estate tax purposes a statement identifying the value of each interest in such property as reported on such return and such other information with respect to such interest as the Secretary may prescribe.

It is important to carefully note who, besides the Service, is to receive the required statement. It is "each person acquiring any interest in property [the value of which is] included in the decedent's gross estate." The statute does not say "each person who might acquire the property"; it does not say "each beneficiary of the estate." It says "each person acquiring any interest." "Acquiring." In other words, getting something. A recipient. This is crucial.

It is also important to carefully note what information the statute requires to be identified on the required statement. The statute does not ask for the identification of the property or the interest in property that the recipient of the statement has acquired. It assumes that — it takes that for granted. The statute's description of what the required statement must identify is "the value of each interest in such property" as well as "such other information with respect to such interest as the Secretary may prescribe." In other words, "such property" and "such interest" are the property or the interest in property the statute assumes the recipient of the statement has acquired.

Section 1014(a) itself, which is the rule that Congress explicitly modified when it added section 1014(f) in 2015, applies to "the basis of property in the hands of a person acquiring the property from a decedent . . ." Thus, the entire universe of basis determinations under section 1014 is defined as property "in the hands of" the recipient. It is hard to imagine a more graphic description of actual distribution, receipt, and possession of the property to which section 1014 applies. When Congress amended section 1014 by adding section 1014(f) and buttress it with the reporting requirement in section 6035, nothing could be more natural and logical than to assume that Congress contemplated beneficiaries holding in their hands the property to which the legislation applies.

This interpretation is supported by Congress's use of the word "acquiring" in the 64 other sections of the Internal Revenue Code where the word is used. These uses are summarized in an attachment to this letter. With only ten exceptions, in which timing of ownership is not an issue (as shown in the attachment), every other use of "acquiring" in the Code refers to a transaction that has already occurred and for which the current and subsequent income tax treatment is being determined and, as appropriate, reported. Nowhere has Congress used the word "acquiring" to refer to an acquisition that is expected to occur in the future, much less something that might never happen at all.

Section 6035(a)(2)

Similarly, section 6035(a)(2) states:

Each person required to file a return under section 6018(b) shall furnish to the Secretary and to each other person who holds a legal or beneficial interest in the property to which such return relates a statement identifying the information described in paragraph (1).

Again, this provision, applicable when an executor unable to complete the estate tax return with respect to an asset defers to the recipient of that asset to do so, assumes that it is known and understood who "holds a legal or beneficial interest in the property to which such return relates." Again, like paragraph (1), the only information it requires the statement to identify is the same information described in paragraph (1) with respect to "such property" and "such interest."

Section 6035(a)(3)(A)

Section 6035(a)(3)(A), which is at the heart of the issue addressed by this letter, states:

Each statement required to be furnished under paragraph (1) or (2) shall be furnished at such time as the Secretary may prescribe, but in no case at a time later than the earlier of —

(i) the date which is 30 days after the date on which the return under section 6018 was required to be filed (including extensions, if any), or

(ii) the date which is 30 days after the date such return is filed.

The first thing to note about this provision is that it does not create or impose a reporting requirement. That is done only by paragraphs (1) and (2). This provision addresses only the due date of "[e]ach statement required to be furnished under paragraph (1) or (2)" — in other words, a statement to a person "acquiring" (receiving) or "who holds" property or an interest in property.

The second thing to note about this provision is that it gives discretion to Treasury and the Service to determine a due date, discretion that this letter is urging Treasury and the Service to exercise.

The third notable feature of this provision is that it emphatically — using the phrase "in no case" — expresses an intent that Treasury and the Service not allow an executor to wait very long before providing the required information. Congress said "30 days," which is perhaps about the shortest time that is reasonably provided under the Internal Revenue Code to do anything. But while Congress said "30 days," by tying it to the due date and filing date of the estate tax return, Congress has really allowed 10 months, or 16 months in the case of the extension referred to in section 6035(a)(3)(A)(i), from the date of the decedent's death. For example, if a decedent dies in July, and a person, perhaps a joint owner with right of survivorship, who received property when the decedent died engages in a transaction such as the sale of that property in December, that seller might not receive the information about estate tax value required by section 6035 until the following November, if the due date of the estate tax return is extended. That is later than the seller's income tax return reporting the December transaction would be due, even with an extension, in most cases.

Why would Congress allow that? The reason is pretty clear on the face of the statute. The information to be identified on the statement is "value" as reported on the estate tax return. That value can't be known until the estate tax return is completed. For Congress to have insisted on the furnishing to beneficiaries of values as reported on the estate tax return before the due date or filing date of the estate tax return would have been absurd, because it would require the executor to provide information the executor doesn't know yet. But Congress goes on to provide that, while it necessarily must tolerate a lapse of 9 or 15 months, during which a beneficiary may even have filed an income tax return affected by this information, it cannot tolerate any further delay longer than 30 days.

Isn't it obvious what Congress had in mind? It must have contemplated the transfer of property literally at death, for which the delay of 9 or 15 months may have already been material — but unavoidable because the value may not be known until the estate tax return is filed. So it did the best it could and allowed only an additional 30 days in the case it contemplated.

So the question is: If Congress was at such pains to permit even a material delay in providing the information required by section 6035 because it is unreasonable to expect the executor to furnish information about value the executor doesn't know yet, isn't it just as reasonable to conclude that, if Congress had contemplated distributions made by an executor after, perhaps long after, the estate tax return is filed, it would also have realized that it is unreasonable to expect the executor to furnish conjectural information to recipients when the recipients are not known yet because distributions have not been made? Indeed, that case for waiting is even stronger because the wait will never be material. Unlike the beneficiary in the example who received the property in July and sold it in December, the beneficiary who has not yet received the property cannot do anything with the property for which income tax basis is relevant anyway.

Section 6035(a)(3)(B)

But the lessons from section 6035(a) do not end there. Section 6035(a)(3)(B) states (emphasis added):

In any case in which there is an adjustment to the information required to be included on a statement filed under paragraph (1) or (2) after such statement has been filed, a supplemental statement under such paragraph shall be filed not later than the date which is 30 days after such adjustment is made.

Again it is relevant that the "information" required to be included under paragraph (1) or (2), confirmed by the reference in paragraph (1) to "such other information" and the reference in paragraph (2) to "the information described in paragraph (1)," is the estate tax value of an asset (supplemented by "such other information . . . as the Secretary may prescribe"). It is not an adjustment to the identity of the person acquiring the asset, as mentioned in the last sentence of Proposed Reg. § 1.6035-1(c)(3). And how could there be an "adjustment" to estate tax value? By an agreement or adjudication pursuant to the Service's examination of the estate tax return, of course. That is likely to take a while. In fact, more time is likely to elapse between the filing of the estate tax return and the finalizing of such an adjustment than between the decedent's death and the filing of the return. Although distributions, especially final distributions that close an estate or terminate a trust, may often be deferred until an estate tax audit is concluded, an audit may also result in a change to the estate tax value of an asset that has been distributed. Be that as it may, Congress, consistently with its apparent preoccupation with assets acquired immediately upon the decedent's death, addressed that concern in section 6035(a)(3)(B) by requiring such a change to be reported to the recipient of the property immediately — that is, within 30 days.

E. THE BACKGROUND OF THE STATUTE

As I pointed out at the June 2016 hearing (repeated with footnote citations in the attached transcript), there is no 2015 legislative history of the consistent basis legislation as such. But section 6035 was drawn verbatim from section 1422 of the "Discussion Draft" introduced by Ways and Means Committee Chairman Dave Camp on February 21, 2014, as an encouragement of comprehensive tax reform. The summary accompanying Chairman Camp's draft stated (emphasis added) that "[t]he estate would be required to report the value of the property to the IRS and to the beneficiary receiving the property." The accompanying Joint Committee Staff explanation stated (emphasis added) that the executor "is required to report to both the recipient and the IRS" — not, for example, "all the possible recipients and the IRS."

The statutory language is traceable to the identical language in the "Sensible Estate Tax Act of 2011" (H.R. 3467), introduced by Congressman McDermott in November 2011, described in the accompanying Congressional Research Service summary as requiring disclosure "to recipients of any interest in an estate or a gift, information identifying the value of each interest received" That in turn derives from similar language in section 6 of the "Responsible Estate Tax Act" introduced by Senator Sanders in June 2010, with the CRS description of "acquiring property." The next two sections of Senator Sanders' bill addressed valuation rules for certain transfers of nonbusiness assets and a minimum 10-year term for grantor retained annuity trusts. Those three sections are the same three estate and gift tax proposals included in Treasury's 2009 and 2010 General Explanations of the Administration's Revenue Proposals ("Greenbooks"). The clear origin of those proposals, not in original congressional ideas but in efforts by some in Congress to implement the Greenbook proposals, ought to reassure Treasury that it is in a unique position to interpret what had to have been contemplated (property received on the date of death) and to tailor the reporting requirement to the time subsequent to the date of death some assets might be received.

F. SUMMARY OF PRINCIPLES

To summarize, the text of section 6035, informed and confirmed by the context of its evolution over six years from proposals in Treasury's Greenbooks and the context of the Internal Revenue Code itself, points to these principles:

G. SPECIFIC RECOMMENDATIONS

Even though Congress apparently wrote section 6035 only with a view to assets received on the date of the decedent's death, it did not leave Treasury and the Service without recourse in the case of an asset distributed after the estate tax return is filed. In section 6035(b), Congress provided that Treasury "shall prescribe such regulations as necessary to carry out this section. . . ." In section 6035(b)(1) and (2) Congress offered two examples, which are not helpful for purposes of this letter. But because Congress seems not to have focused on assets distributed after the estate tax return is filed, it should not have been expected to expressly refer to such distributions in section 6035(b), and, in any event, the examples it does offer are explicitly nonexclusive, introduced by the word "including."

Here are the elements of the regulations under section 6035(b) that I believe would appropriately reflect the principles identified in Part F above:

H. CONCLUSION

With reference to the due date for an executor to provide information to beneficiaries about the assets they receive from a decedent, section 6035(a)(3)(A) uses the words "in no case at a time earlier than" the due date or filing date of the related estate tax return. It is understandable that on the surface those words could imply a literal 30-day deadline applicable to all property that might ever be affected by the statute. But a more thorough and thoughtful reading of the entire statute indicates that Congress probably did not mean that. An appropriate approach is to apply that inflexible deadline only to property actually acquired by the date the estate tax return is filed, and to allow an executor to report property distributed after that date on a Schedule A filed and delivered by January 31 of the following year.

Section 6035(b) authorizes regulations that adopt such an approach. Such an approach would be thoughtful and statesmanlike and would certainly be "near-term burden reduction." I heartily recommend it, and would be happy to answer any questions or provide any other assistance necessary to achieve it.

Sincerely,

Ronald D. Aucutt
McGuire Woods, LLP
Tysons, VA

Attachments:

Remarks on Behalf of ACTEC at the June 27, 2016, Hearing (annotated)

Survey of the Use of the Word "Acquiring" in the Internal Revenue Code

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Statement of Ronald D. Aucutt

On Behalf of The American College of Trust and Estate Counsel
At the Public Hearing on June 27,2016
Consistent Basis Reporting Between Estate and Person Acquiring Property From Decedent
(REG-127923-15)
(with footnotes added)

Good morning. I am Ronald Aucutt. I am a partner in the Tysons Corner office of the law firm of McGuire Woods. I am also a member of the Washington Affairs Committee of The American College of Trust and Estate Counsel (ACTEC) and was the representative of the Washington Affairs Committee primarily involved in finalizing ACTEC's comments on these proposed regulations and in recommending approval of those comments to ACTEC's president, Cynda Ottaway. President Ottaway has asked me to represent ACTEC at this hearing, as well as my colleague Gregg Simon, who chaired the ACTEC task force that drafted the comments. Lora Davis, who is here today on behalf of the Tax Section of the State Bar of Texas, was also an active participant on that task force.

I am going to focus on the reporting requirement under section 6035, particularly the requirement in the proposed regulations that property not yet distributed be reported within 30 days after the estate tax return is filed.

The reporting requirements are elaborate and burdensome well out of proportion to any apparent value in enforcing section 1014(f). The estate planning community's acceptance will be crucial to making those rules work. And ACTEC believes that the biggest element of the proposed regulations that currently denies them that acceptance is the wasteful reporting of the estate tax value of assets long before those assets are in the hands of the beneficiaries who have any need or reason to care about basis. In an estate large enough and complex enough to require the filing of a federal estate tax return, there will almost certainly be few if any distributions within 30 days after that estate tax return is filed, other than certain assets like jointly held assets that pass by operation of law or contract at the time of death.

The futility of reporting information about the basis (in other words, value) of an asset to a beneficiary who has not received the asset and who may never receive it goes without saying. Moreover, providing beneficiaries with tedious lists of assets they never received, lists that here and there have a value that is relevant, will never encourage compliance with section 1014(f); it will frustrate compliance. I won't labor these points any further, but will assume there's simply no question about the desirability of tying reporting to distributions.

The problem then has to be a concern about Treasury's authority to reach a sensible result under the statute. And it's easy to see the problem. Section 6035(a)(3) says that "[each statement required to be furnished under paragraph (1) or (2) shall be furnished at such time as the Secretary may prescribe, but in no case at a time later than the earlier of" — basically 30 days after the estate tax return is filed. I get it that the words "in no case" might seem to be restrictive. But in context what these words apply to — looking now at paragraphs (1) and (2) just as the statute does — is the requirement that "[t]he executor of any estate required to file a return under section 6018(a) shall furnish to the Secretary and to each person acquiring any interest in property included in the decedent's gross estate . . . a statement identifying the value of each interest in such property." Now it probably shouldn't say "property included in the decedent's gross estate"; it should say "property the value of which is included in the decedent's gross estate." Since it doesn't say that, I suppose the proposed regulations could have taken the position that because there really is no such thing as a "gross estate" that includes "property," the statute doesn't apply to anything, and there is no reporting requirement at all. That would have been silly; everyone knows what Congress meant, or would have meant if it had focused on the difference. So we all interpret the statute to say something that makes sense in addressing what Congress must have had in mind.

But it is also silly to go to the other extreme and require reporting about property that has not been distributed when what the statute requires to be identified is each interest in property acquired by a person. In this case what Congress apparently had in mind was that the acquisition of property from a decedent happens at death when the decedent happens. So the statute likewise should be construed with reference to that as the paradigm. So construed, the seemingly rigid deadline of 30 days after filing the estate tax return makes sense, but it would apply only to assets received at death, or before the estate tax return is filed. Assets distributed after that would have to be reported on supplemental statements — perhaps within 30 days after the distribution, which would respect the idea of 30 days contained in the statute and treat the identification of the recipient in effect as an "adjustment" for purposes of section 6035(a)(3)(B). In fact, distribution is already treated as an "adjustment" in the proposed regulations,¹ although supplemental reporting is only optional. But recognizing that the statutory period from the decedent's death is really 10 months, or 16 months if there is an extension (as there often is), then the idea the AICPA has suggested of requiring just one filing each calendar year — say, January 31 — would make a lot of sense too, especially if early filing was permitted when the executor wanted to close the estate. Either rule would certainly serve the obvious purpose of the statute by giving beneficiaries information they need as and when they need it. Just as the statute ties the time of reporting to the filing of the estate tax return when values are at least preliminarily known, on the apparent assumption that distribution has already occurred, the approach ACTEC proposes will also tie the time of reporting to the actual distribution when the recipient acquiring the asset is known, information that obviously is equally important to the Service.

In fact, simply letting "acquiring" mean "acquiring" is less of a textual stretch than supplying the words "the value of which" that Congress didn't use, in order to make sense of the statute at all. But no one would fault either interpretation.

Although there is no 2015 legislative history as such, section 6035 was drawn verbatim from section 1422 of the "Discussion Draft" introduced by Ways and Means Committee Chair Dave Camp on February 21, 2014, as an encouragement of comprehensive tax reform. The accompanying summary stated that "[t]he estate would be required to report the value of the property to the IRS and to the beneficiary receiving the property."² The accompanying Joint Committee Staff explanation stated that the executor "is required to report to both the recipient and the IRS"³ — not, for example, "all the possible recipients and the IRS."

The statutory language is traceable to the identical language in the "Sensible Estate Tax Act of 2011," introduced by Congressman McDermott in November 2011, described in the accompanying CRS summary as requiring disclosure "to recipients of any interest in an estate or a gift, information identifying the value of each interest received."⁴ That in turn derives from similar language in the "Responsible Estate Tax Act" introduced by Senator Sanders in June 2010, with the CRS description of "acquiring property."⁵ The next two sections of Senator Sanders' bill provided legislative language regarding valuation rules for certain transfers of nonbusiness assets⁶ and requiring a minimum 10-year term for GRATs,⁷ which happen to be the same three estate and gift tax proposals included in the 2009 and 2010 Treasury Greenbooks (except that the statutory language on valuation drew from proposals from the Clinton Administration).⁸ Now that's not a coincidence, and the clear origin of these proposals not in original congressional ideas after all, but in efforts by some in Congress to implement the Greenbook proposals ought to reassure the Treasury Department all the more that it's in a good position to interpret what had to have been contemplated and to tie the reporting requirement to the receipt of the property.

It is true that the statute refers not just to acquiring property, but to acquiring "any interest in property." Except for assets that do pass at death or are specifically bequeathed — not the assets ACTEC is concerned about — the question whether a beneficiary has an interest in undistributed property itself has been debated for centuries, especially in the context of a trust, usually in the form of a highly theoretical debate over whether a beneficial interest is "in rem" or "in personam." Suffice it to say that the practical result under modem estate administration rules and procedures is there is no such interest in undistributed property unless perhaps it is specifically bequeathed and the estate is solvent.

Finally, ACTEC believes, as its written comments elaborate, that two significant positions taken in the proposed regulations clearly exceed the regulatory authority granted by the statute. These are the so-called "zero basis rule" for certain property after-discovered or otherwise inadvertently omitted from an estate tax return (because section 1014(f) by its terms applies only to a final determination that begins with a return⁹ or a Schedule A furnished under section 603 5¹⁰) and the requirement to report so-called "subsequent transfers" (because section 6035 by its terms applies only to "executors"). ACTEC's comments also make more technical suggestions in case you disagree. I'll conclude by saying again that ACTEC's suggestion that the final regulations construe the statutory word "acquiring" to mean "acquiring," for the convenience of both taxpayers and the Service, would be much less of a textual stretch than the zero-basis and subsequent-transfer rules that will only frustrate taxpayers and their advisers. Thus I return to the point I started with that such action in response to ACTEC's proposal is crucial to the public acceptance of these rules.

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Survey of the Use of the Word "Acquiring" in the Internal Revenue Code

(Prepared by Ronald D. Aucutt, June 29, 2018)

A reasonable and workable interpretation of section 6035(a) of the Internal Revenue Code depends significantly on the interpretation of the word "acquiring" as demanding that there be an actual known recipient — someone who has "gotten something." This interpretation is supported by its obvious meaning in the 64 other sections of the Internal Revenue Code where the word "acquiring" is used:

• In section 36(c)(3)(A)(i) and (ii) it refers to the tax credit allowed for a taxable year in which the taxpayer bought a principal residence — a past act.

• In section 41(f)(3)(A)(i) it is used in the phrase "acquiring person" to refer to someone who has acquired a business or business unit or major portion thereof.

• In section 42(d)(2)(C), (d)(2)(D)(i)(I), and (e)(2)(B) it refers acquiring a building that meets the requirements of a "qualified low-income building."

• In section 45A(d)(3)(B)(i) it applies to the continued application of the Indian employment credit when an employee continues to work for an "acquiring corporation" to which the carryover rules of section 381 apply.

• In section 45F(d)(3)(B)(ii) it is used to prevent recapture of an employer-provided child care credit in certain cases where a child care facility is acquired by another owner.

• In section 47(c)(2)(B)(ii) it is used to disqualify the cost of acquiring a building from a rehabilitation credit.

• In section 56(e)(1) it defines "qualified housing interest" for purposes of the alternative minimum tax with reference to acquiring a principal residence or other qualified dwelling.

• In section 72(t)(8)(C) it defines "qualified acquisition costs," which, if paid by an early distribution from a qualified retirement plan, qualifies that distribution for an exemption from the 10-percent tax on early distributions.

• In section 141(d)(3)(A)(i), (d)(3)(B)(i), (d)(3)(B)(ii), and (d)(6) it refers to acquisition of property by a governmental unit for purposes of the qualification of a private activity bond.

• In section 143(g)(2)(B)(ii)(II) it refers to a hypothetical acquisition of property as the standard for measuring costs borne by the mortgagor in the arbitrage limitations applicable to mortgage revenue bonds, and in section 143(k)(3)(A) it refers to the cost of acquiring a completed residential unit in the definition of "acquisition cost."

• In section 147(d)(2)(B) and (3)(A) it refers to the cost of acquiring a building in determining eligibility for private activity bond financing.

• In section 150(d)(2)(A) it refers to a not-for-profit corporation established and operated exclusively for the purpose of acquiring student loan notes.

• In section 163(h)(3)(B)(i)(I) it refers to indebtedness that is incurred in acquiring a residence for purposes of the exception of qualified residence interest from the disallowance of a deduction for personal interest.

• In section 167(g)(8)(A)(i) it refers to the acquisition of musical property for purposes of eligibility for five-year amortization.

• Section 178 bears the heading "Amortization of cost of acquiring a lease" and provides a special rule for taking renewal options into account in determining the period for amortizing a lease.

• In section 179(d)(2)(A), (2)(C), and (3) it refers to an acquisition cost that may be expensed.

• In section 263(f) it refers to the acquisition of railroad ties.

• In section 269(a)(2) and (b)(1)(D) it refers to an "acquiring corporation" that participates in an acquisition made to evade or avoid income tax.

• Throughout section 304 it refers to an "acquiring corporation" in the context of a redemption through the use of tiered or otherwise related corporations.

• In section 312(h)(2) it refers to an "acquiring corporation" in a "C" or "D" reorganization.

• In section 337(b)(2)(B)(ii) it refers to an organization's disposition of property after the organization has acquired the property.

• In section 338(h)(1) and (3)(A)(iii) it applies when "stock was acquired in an acquisition which is a purchase."

• In section 355(e)(3)(B) it applies to assets that have been acquired by a corporation.

• In section 358(e) it refers to an "acquiring corporation" that has acquired property by the exchange of stock or securities.

• Throughout section 368(a) and (b) it applies to a corporation that has acquired stock or property of another corporation in a reorganization.

• Throughout section 381(c) it applies after a corporation has acquired assets of another corporation.

• In section 384(c)(1)(A) it refers to assets that have been acquired by a corporation in a reorganization.

• In section 401(a)(22)(B) it refers to the status of a retirement plan "after acquiring securities of the employer."

• In section 404(a)(9)(A) and (B) it refers to payments on a loan incurred for the purpose of acquiring qualifying employer securities.

• In section 409(d)(2) it applies to employer securities in a tax credit employee stock ownership plan after a sale of assets by a selling corporation to an acquiring corporation.

• In section 453(e)(6)(C)(ii) it refers to a transfer after the death of a person acquiring property in an installment sale, and in section 453(f)(3) it refers to evidences of indebtedness of a person acquiring property in an installment sale.

• In section 469(g)(1)(B) it refers to the treatment of the disposition of an interest in a passive activity to a related person.

• In section 501(c)(25)(A)(iii)(I) it refers to a corporation or trust organized for the exclusive purposes of acquiring real property and remitting the net income therefrom to certain charitable organizations or other entities, and in section 501(c)(25)(E)(iii) it applies if a corporation has ceased to meet the requirements to be a qualified subsidiary.

• In section 514(c)(2)(A) it applies where property is acquired subject to a mortgage or other similar lien, and in section 514(c)(9)(A) it refers to indebtedness incurred by a qualified organization to acquire or improve real property.

• In section 528(c)(1)(D) it refers to the acquisition of homeowner association property as an exception to a private inurement prohibition.

• In section 593(g)(4)(C) it refers to the acquisition of property for which a loan qualifies as a "residential loan."

• The caption for section 679(b) is "Trusts acquiring United States beneficiaries," referring to a trust that has a U.S. beneficiary in the current taxable year but not in the immediately preceding taxable year.

• Section 751(b)(3)(B) excludes inventory property in determining the treatment of partnership distributions as sales or exchanges "if a principal purpose for acquiring such property was to avoid the provisions of this subsection relating to inventory items."

• In section 852(f)(1)(A) and (2)(A) it refers to stock in a regulated investment company acquired and already disposed of.

• In section 856(c)(5)(K)(i) it refers to assets acquired by a real estate investment trust, and in section 856(i)(3) it describes a hypothetical acquisition of asset by a new corporation as the measure of the tax consequences when a REIT subsidiary ceases to be wholly-owned by the REIT.

• In section 864(d)(7)(A) it refers to a receivable transferred between related persons doing business in the same foreign country.

• In section 877(d)(2)(C) it refers to the acquisition of property that is subsequently disposed of.

• In section 877A(h)(1)(A) it refers to the termination of the period for acquiring certain replacement property, for example in the case of a like-kind exchange or involuntary conversion, upon the taxpayer's expatriation.

• In section 988(c)(1)(B)(iii) it is part of the definition of a "section 988 transaction" that generates ordinary income or loss.

• Section 1014(a), discussed in Part D of the accompanying letter, refers vividly to "the basis of property in the hands of a person acquiring the property from a decedent."

• In section 1042(e)(3)(A) it refers to the "acquiring" corporation in a reorganization.

• In section 1223(9) it refers to "a person acquiring property from a decedent" for purposes of providing a deemed one-year holding period for capital gain purposes, obviously upon a sale of the property by someone who has already received it.

• In section 1245(b)(6)(B) it refers to the disposition of property acquired by a tax-exempt organization.

• In section 1250(b)(2) it refers to the treatment of the cost of acquiring a lease in determining the depreciation deduction for a building erected or improved on the leased property, and section 1250(d)(6)(B) is identical to section 1245(b)(6)(B).

• In section 1271(a)(3)(E)(i) it refers to the determination of the ordinary income realized on the sale or exchange of a short-term Government security.

• In section 1283(b)(2)(A)(i) it refers to the determination of the acquisition discount of a short-term obligation held by the taxpayer.

• In section 1296(i) it refers to the basis of stock in a passive foreign investment company "inthe hands of the person" acquiring the stock from a decedent.

• In section 1361(b)(3)(C)(i) it refers to a deemed acquisition by a new corporation of all the assets of a corporation that ceases to be a qualified subchapter S subsidiary.

• In section 1388(j)(2) it refers to the allocation of patronage gains and losses after a cooperative acquires the assets of another cooperative.

• In section 1396(d)(3)(B)(i) it refers to circumstances in which employment is not treated as terminated when an employee continues to be employed by a corporation that acquires the employee's previous employer.

• In section 2031(c)(4)(B)(ii)(I) it refers to indebtedness incurred to acquire property that limits the availability of the estate tax exclusion related to conservation easements.

• In section 2702(c)(2) it refers to two or more related persons acquiring interests in property where there are one or more term interests.

• In section 6015(e)(3)(B) it refers to the federal court that acquires jurisdiction when a refund suit is filed.

• In section 6043A(a) it refers to the corporation that acquires the stock or property of another corporation if any shareholder of the acquired corporation is required to recognize gain.

• In section 6050W(b)(1)(A), (b)(2), and (d)(2)(C) it is used in the defined term "merchant acquiring entity" with regard to the required information reporting of payments made in settlement of payment card and third-party network transactions.

• In section 6109(h)(4) it refers to indebtedness that is incurred in acquiring a residence for purposes of reporting qualified residence interest allowed as a deduction by section 163.

• In section 6323(c)(2)(D) it refers to a purchaser of commercial financing security protected from a tax lien.

• Section 7345(e)(1) provides that in the case of a civil action to stop the revocation of a taxpayer's passport by reason of a seriously delinquent tax debt, "the court first acquiring jurisdiction over such an action shall have sole jurisdiction."

• In section 7701(a)(19)(B) it is used in the clause "the business of which consists principally of acquiring the savings of the public and investing in loans," as part of the definition of a "domestic building and loan association."

Thus, with only ten exceptions, in which timing of ownership is not an issue, every other use of "acquiring" in the Code refers to a transaction that has already occurred and for which the current and subsequent tax treatment is being determined. The first exception is section 143(g)(2)(B)(ii)(II), in which "acquiring" is used to refer to a hypothetical transaction against which the costs in the actual transaction at issue are to be compared. The second and third exceptions are sections 150(d)(2)(A) and 501(c)(25)(A)(iii)(I), where "acquiring" applies to the purpose for which a corporation or trust is organized. The fourth exception is section 856(i)(3), which describes a hypothetical acquisition used as the measure of tax consequences. The fifth exception is section 877A(h)(1)(a), which terminates the period for acquiring replacement property and thereby makes a qualified acquisition impossible. The sixth exception is 1361 (b)(3)(C)(i), which refers to a deemed acquisition by a new corporation of all the assets of a corporation that ceases to be a qualified subchapter S subsidiary. The seventh exception is section 6015(e)(3)(B), which refers only to a court acquiring jurisdiction. The eighth exception is section 6050W, where "acquiring" is used in the defined term "merchant acquiring entity." The ninth exception is section 7345(e)(1), which refers only to a court acquiring jurisdiction. And the tenth exception is section 7701(a)(19)(B), which is part of the definition of a "domestic building and loan association."

Nowhere has Congress used the word "acquiring" to refer to an acquisition that is expected to occur in the future, much less something that might never happen at all.