Final Regs Narrow Scope of Partnership Anti-Abuse Rule

 [4830-01-u]

ACTION: Final regulation.

SUMMARY: This final regulation amends the subchapter K anti- abuse rule to provide that the rule applies solely with respect to taxes under subtitle A of the Internal Revenue Code. This document provides guidance to partnerships and the partners of those partnerships.

DATES: This regulation is effective May 12, 1994, except the amendment to section 1.701-2(f) is effective December 29, 1994.

For a discussion of dates of applicability of this regulation, see Explanation of Provisions under SUPPLEMENTARY INFORMATION.

FOR FURTHER INFORMATION CONTACT: D. Lindsay Russell on (202) 622-3050 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

BACKGROUND

On May 17, 1994, a notice of proposed rulemaking was published in the Federal Register (59 FR 25581) containing a proposed anti-abuse rule under subchapter K. On January 3, 1995, section 1.701-2 (TD 8588) was published in the Federal Register (60 FR 23) containing the final anti-abuse rule under subchapter K.

EXPLANATION OF PROVISIONS

Section 1.701-2 is amended to provide that it applies solely with respect to taxes under subtitle A of the Internal Revenue Code. No inference is intended as to the treatment under current law of transactions not covered by the regulation.

This amendment is effective as of the effective dates of section 1.701-2(g) (May 12, 1994, except that paragraphs (e) and (f) are effective December 29, 1994).

SPECIAL ANALYSES

It has been determined that this Treasury decision 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) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to this amendment, and, therefore, a Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, this amendment was submitted to the Small Business Administration for comment on its impact on small business.

LIST OF SUBJECTS IN 26 CFR PART 1

Income taxes, Reporting and recordkeeping requirements.

ADOPTION OF AMENDMENTS TO THE REGULATIONS

Accordingly, 26 CFR part 1 is 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 1.701-2 is amended by:

1. Amending the fourth sentence of paragraph (a)(3) by:

a. Removing the language "Example 8" and adding "Example 6" in its place.

b. Removing the language "Example 11" and adding "Example 9" in its place.

c. Removing the language "Examples 12 and 13" and adding "Examples 10 and 11" in its place.

2. Removing Examples 5 and 6 of paragraph (d) and redesignating Examples 7 through 13 of paragraph (d) as Examples 5 through 11, respectively.

3. Removing the last sentence of paragraph (f) introductory text.

4. Redesignating paragraph (h) as paragraph (i).

5. Adding a new paragraph (h).

The addition reads as follows:

SECTION 1.701-2 ANTI-ABUSE RULE.

* * * * *

(h) SCOPE AND APPLICATION. This section applies solely with respect to taxes under subtitle A of the Internal Revenue Code, and for purposes of this section, any reference to a federal tax is limited to any tax imposed under subtitle A of the Internal Revenue Code.

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