Final Regs on Exceptions From Options Attribution Rules

 [4830-01]

 ACTION: Final and temporary regulations.

 SUMMARY: This document amends the regulations under section 382 of the Internal Revenue Code to except from the option attribution rules included in those regulations options designated by the Internal Revenue Service in the Internal Revenue Bulletin. This amendment gives the Treasury Department greater flexibility in providing additional exceptions to those rules. This document also provides a skeletal outline for future final regulations under section 382.

 EFFECTIVE DATES: This regulation is effective October 5, 1992 except that section 1.382-4(b)(2)(ii) is effective as of December 26, 1989.

 FOR FURTHER INFORMATION CONTACT: Keith E. Stanley of the Office of Assistant Chief Counsel (Corporate), Office of Chief Counsel, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, D.C. 20224 (Attention: CC:CORP:1) or telephone 202-622-7750 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

BACKGROUND

Section 382 limits the amount of income earned by a corporation after an "ownership change" that can be offset by losses incurred prior to the ownership change. Sections 1.382-1T and 1.382-2T of the temporary regulations provide guidance regarding the definition of "ownership change." See 52 FR 29663 (August 11, 1987). The temporary regulations include option attribution rules that, subject to certain exceptions, treat options as exercised if the deemed exercise results in an ownership change.

 In 1989, the temporary regulations were amended to except from the option attribution rules any options designated by the Internal Revenue Service in the Internal Revenue Bulletin. See 54 FR 52935 (December 26, 1989). At that time, the Service proposed that that same provision be included in the final section 382 regulations, when issued. See 54 FR 52955 (December 26, 1989). No hearing was requested and no comments were received regarding the amendment. The amendment is subject to section 7805(e)(2) (as amended by the Technical and Miscellaneous Revenue Act of 1988), which provides that temporary regulations issued after November 20, 1988, expire within 3 years after their issuance.

EXPLANATION OF PROVISIONS

 This document adopts as a final regulation the provision described above without substantive change. The provision thus excepts from the section 382 option attribution rules any options designated by the Service in the Internal Revenue Bulletin.

 The Service is considering a more general revision of the section 382 option attribution rules. Therefore, this document does not adopt as final regulations any of the other option attribution rules provided in the temporary regulations.

 This document also provides a skeletal outline for future final regulations under section 382 and, in so doing, redesignates several provisions of the existing final regulations under section 382.

SPECIAL ANALYSES

 It has been determined that these regulations are not major regulations as defined in Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations, and, therefore, a final Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code (as in effect December, 1989), the notice of proposed rulemaking for the regulations was submitted to the Administrator of the Small Business Administration for comment on its impact on small business.

DRAFTING INFORMATION

 The principal author of these regulations is Keith E. Stanley, Office of the Assistant Chief Counsel (Corporate), Internal Revenue Service. However, other personnel from the Service and Treasury Department participated in their development.

LIST OF SUBJECTS

26 CFR 1.381(a)-1 through 1.383-3

 Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

 Reporting and recordkeeping requirements.

Treasury Decision 8440

ADOPTION OF AMENDMENTS TO THE REGULATIONS

Accordingly, 26 CFR parts 1 and 602 are amended as follows:

PART 1 -- INCOME TAX; TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1953

Paragraph 1. The authority citation for part 1 is amended by removing the current citations for sections 1.382-2 and 1.382-3 and by adding the following citations:

Authority: 26 U.S.C. 7805 * * * Section 1.382-2 also issued under 26 U.S.C. 382(k)(1), 26 U.S.C. 382(m), and 26 U.S.C. 383. Section 1.382-3 also issued under 26 U.S.C. 382(m). Section 1.382-4 also issued under 26 U.S.C. 382(1)(3) and 382(m). Section 1.382-9 also issued under 26 U.S.C. 382(1)(3)(A) and 382(m). * * *

Par. 2. Section 1.382-1 is removed.

Par. 3. Section 1.382-1T is redesignated as section 1.382-1 and amended by:

1. Revising the section heading.

2. Revising the introductory text.

3. Adding a section heading in the table of contents for section 1.382-2T immediately following the introductory text; and amending the table of contents entries in the newly designated section 1.382-2T by adding (h)(4)(x)(I) through (Z).

4. Adding entries for sections 1.382-1T, 1.382-2, and 1.382-3 through 1.382-11 to the table of contents.

5. The revisions and additions read as follows:

SECTION 1.382-1 TABLE OF CONTENTS.

This section lists the captions that appear in the regulations for sections 1.382-1T, 1.382-2, 1.382-2T, and 1.382-3 through 1.382-11.

 SECTION 1.382-1T [Reserved].

Par. 5. The heading for section 1.382-2 is revised to read as follows:

SECTION 1.382-2 GENERAL RULES FOR OWNERSHIP CHANGE.

Par. 6. Section 1.382-2T is amended as follows:

1. Paragraph (f)(7) is amended by removing the language "section 1.382-2(a)(3)" and adding "section 1.382-3(a)(1)" in its place.

2. Example 5 of paragraph (g)(4) is amended by removing the language "section 1.382-2(a)(3)(ii)" and adding "section 1.382-3(a)(1)(ii)" in its place.

3. Paragraph (h)(4)(x)(J) is amended by removing the language "section 1.382-3(o)" and adding "section 1.382-9(o)" in its place.

4. By revising paragraph (h)(4)(x)(Z) to read as set forth below.

5. Paragraph (j)(2)(iii)(A) is amended by removing the language "section 1.382-4(k)(1)" and adding "section 1.382-3(k)(1)" in its place.

6. The revised provision reads as follows:

SECTION 1.382-2T DEFINITION OF OWNERSHIP CHANGE UNDER SECTION 382, AS AMENDED BY THE TAX REFORM ACT OF 1986 (TEMPORARY).

* * * * *

(h) * * *

(4) * * *

(x) * * *

(Z) OPTIONS DESIGNATED IN THE INTERNAL REVENUE BULLETIN. See section 1.382-4(b)(2)(ii) for Internal Revenue Service authority to designate in the Internal Revenue Bulletin exceptions from the operation of paragraph (h)(4)(i) of this section.

* * * * *

Par. 7. Section 1.382-3 is redesignated as section 1.382-9.

Par. 8. Section 1.382-4 is redesignated as section 1.382-3.

Par. 9. Newly designated section 1.382-3 is amended as follows:

1. The paragraph heading for (a) is added to read as set forth below.

2. Section 1.382-2, paragraph (a)(3), is redesignated as paragraph (a)(1) of section 1.382-3.

3. Paragraph (a)(1), as newly designated, is amended as set forth in the list below. For each location indicated in the left column, remove the language indicated in the middle column, and add the language indicated in the right column:

 Paragraph                   Remove                 Add

5. Paragraph (k)(2)(ii) is amended by removing "section 1.382-4(k)(1)" and adding "section 1.382-3(k)(1)" in its place.

6. The added, revised, and reserved provisions read as follows:

SECTION 1.382-3 DEFINITIONS AND RULES RELATING TO A 5-PERCENT SHAREHOLDER.

(a) DEFINITIONS. * * *

(2) [Reserved].

(b) through (j) [Reserved].

* * * * *

Par. 10. New sections 1.382-4 through 1.382-8 are added; the third and fourth sentences of section 1.382-9(o)(2), as newly designated, are revised; section 1.382-10 is added and reserved; and section 1.382-11 is added to read as follows:

SECTION 1.382-4 CONSTRUCTIVE OWNERSHIP OF STOCK.

(a) [Reserved].

(b) OPTION ATTRIBUTION.

(1) [Reserved].

(2) OPTIONS NOT SUBJECT TO ATTRIBUTION. Section 1.382-2T(h)(4)(i) shall not apply to --

(i) [Reserved].

(ii) OPTIONS DESIGNATED IN THE INTERNAL REVENUE BULLETIN. Any option designated by the Internal Revenue Service in the Internal Revenue Bulletin as being excepted from the operation of section 1.382-2T(h)(4)(i).

SECTION 1.382-5 SECTION 382 LIMITATION. [Reserved].

SECTION 1.382-6 SPECIAL RULES FOR CHANGE YEAR. [Reserved].

SECTION 1.382-7 BUILT-IN GAINS AND LOSSES. [Reserved].

SECTION 1.382-8 CONTROLLED GROUPS. [Reserved].

SECTION 1.382-9 SPECIAL RULES UNDER SECTION 382 FOR CORPORATIONS UNDER THE JURISDICTION OF A COURT IN A TITLE 11 OR SIMILAR CASE.

* * * * *

(o) * * *

(2) * * * A loss corporation may elect to apply this paragraph (o) to any testing date occurring before September 5, 1990, by filing a statement substantially similar to the following with its income tax return: "THIS IS AN ELECTION TO APPLY section 1.382-3(o) (OR section 1.382-9(o) AFTER REDESIGNATION) FOR TESTING DATES PRIOR TO SEPTEMBER 5, 1990, TO OPTIONS CREATED BY OR UNDER A PLAN OF REORGANIZATION CONFIRMED IN A TITLE 11 OR SIMILAR CASE." A loss corporation may elect to not apply this paragraph (o) to testing dates occurring on or after September 5, 1990, to April 8, 1992, by filing a statement substantially similar to the following with its income tax return: "THIS IS AN ELECTION TO NOT APPLY section 1.382-3(o) (OR section 1.382-9(o) AFTER REDESIGNATION) FOR TESTING DATES OCCURRING ON OR AFTER SEPTEMBER 5, 1990, TO APRIL 8, 1992, TO OpTIONS CREATED BY OR UNDER A PLAN OF REORGANIZATION CONFIRMED IN A TITLE 11 OR SIMILAR CASE." * * *

SECTION 1.382-10 [Reserved].

SECTION 1.382-11 EFFECTIVE DATES. [Reserved].

PART 602 -- OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

Par. 11. The authority for part 602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 12. Section 602.101(c) is amended by removing the entries for sections 1.382-3 and 1.382-4 and adding the following entries in the table:

"Section 1.382-3 . . . . 1545-1281

Section 1.382-9 . . . . 1545-1260".