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Control(s) Country Chart provide guidance regarding the income deferred to the recognition
treatment of prepaid income under the period should be treated as RBIG.
NP applies to 2B001.a, .b, NP Column 1 built-in gain provisions of section
.c, and .d, EXCEPT: (1) After giving consideration to the
382(h). comment, the IRS and Treasury
Turning machines
under 2B001.a with a DATES: Effective Date: These regulations continue to believe that none of the
capacity no greater than are effective on June 11, 2010. prepaid income taken into account
35 mm diameter; (2) bar Applicability Date: For dates of during the recognition period in the
machines (Swissturn), applicability see 1.3827(b). example should be RBIG. As noted
limited to machining above, where prepaid income is
only bar feed through, if FOR FURTHER INFORMATION CONTACT:
maximum bar diameter Keith E. Stanley, (202) 6227750 (not a properly deferred from gross income
is equal to or less than toll-free number). under a permissible method of
42 mm and there is no accounting, such deferral reflects a
SUPPLEMENTARY INFORMATION:
capability of mounting judgment that the income has not been
chucks. (Machines may Background earned, or, in the parlance of section
have drilling and/or 382(h)(6)(A), is not attributable to
milling capabilities for This document contains amendments
prior performance. The premise of this
machining parts with to 26 CFR part 1. On June 14, 2007,
Treasury decision is that, for purposes
diameters less than 42 temporary regulations (TD 9330; 72 FR
mm); or (3) milling ma- 32792) regarding the treatment of of section 382, there is not a compelling
chines under prepaid income under the built-in gain policy underlying section 382(h) that
2B001.b.with x-axis provisions of section 382(h) were warrants a different timing answer for
travel greater than two published in the Federal Register. A the treatment of properly deferred
meters and overall po- prepaid income.
sitioning accuracy on
notice of proposed rulemaking (NPRM)
the x-axis more (worse) (REG14454006) cross-referencing to Accordingly, the proposed regulations
than 0.030 mm temporary regulations was published in set forth in the NPRM (REG144540
AT applies to entire entry AT Column 1 the Federal Register for the same day 06), which cross-referenced to the
(72 FR 32828). The temporary temporary regulations for their
* * * * *
regulations provided that prepaid substance, are adopted with no
Category 4Computers income is not recognized built-in gain substantive change by this Treasury
* * * * * (RBIG) for purposes of section 382(h). decision, and the corresponding
They further provided that prepaid temporary regulations are removed.
Technical Note on Adjusted Peak
Performance (APP)
income means any amount received
prior to the change date that is Special Analyses
* * * * * attributable to performance occurring on It has been determined that this
Abbreviations Used in This Technical Note or after the change date. Examples of regulation is not a significant regulatory
* * * * * prepaid income include, but are not action as defined in Executive Order
APP is expressed in Weighted limited to, income received prior to the
12866. Therefore, a regulatory
TeraFLOPS (WT) in units of 1012 adjusted change date that is deferred until the
floating point operations per second.
assessment is not required. Pursuant to
five year section 382 recognition period
5 U.S.C. 553(d)(3), it has been
* * * * * under section 455, 1.4515, or Rev.
determined that good cause exists to
Proc. 200434 (20041 CB 991 (June 1,
Bernard Kritzer, dispense with a delayed effective date
2004)) (or any successor revenue
Director, Office of Exporter Services. procedure) (see 601.601(d)(2)(ii)(b)). on grounds that this regulation, which
[FR Doc. 201014432 Filed 61510; 8:45 am] These prepaid income provisions permit is substantively identical to currently
BILLING CODE 351033P deferral in order to better match the effective temporary regulations, merely
taxpayers income with the expenses continues to provide necessary guidance
incurred to earn that income and, as a to taxpayers with respect to the
DEPARTMENT OF THE TREASURY result, to more clearly reflect the treatment of prepaid income under the
taxpayers income both in the year of built-in gain provisions of section
Internal Revenue Service receipt and in the year of performance. 382(h). It is hereby certified that these
The IRS and the Treasury Department regulations will not have a significant
26 CFR Part 1 therefore view such income to be economic impact on a substantial
properly attributable to the period when number of small entities. These
[TD 9487]
included in gross income, which may be regulations only apply in the rare
RIN 1545BG03 within the recognition period. circumstance in which a qualifying loss
Accordingly, such income is not corporation that uses a particular
Built-in Gains and Losses Under attributable to periods before the accounting method undergoes an
Section 382(h) change date and so is not RBIG under ownership change. Therefore, a
AGENCY: Internal Revenue Service (IRS), section 382(h)(6)(A). Regulatory Flexibility Analysis under
Treasury. One comment was received and no the Regulatory Flexibility Act (5 U.S.C.
ACTION: Final regulations and removal of public hearing was requested or held. chapter 6) is not required. Pursuant to
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temporary regulations. The public comment focused on section 7805(f) of the Internal Revenue
companies in the business of providing Code, the notice of proposed rulemaking
SUMMARY: This document contains final extended warranty coverage for preceding these final regulations was
regulations that apply to loss automobiles or other products. The submitted to the Chief Counsel for
corporations that have undergone an commenter presented an example under Advocacy of the Small Business
ownership change within the meaning the facts of which the commenter Administration for comment on its
of section 382. These regulations argued that a portion of the prepaid impact on small business.
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Federal Register / Vol. 75, No. 115 / Wednesday, June 16, 2010 / Rules and Regulations 33991
(e) Owner shift and equity structure (3) Attribution to corporations, (iv) Identification of the public groups
shift. partnerships, estates and trusts. treated as 5-percent shareholders.
(1) Owner shift. (4) Option attribution. (A) Analysis of highest tier entities.
(i) Defined. (i) In general. (B) Analysis of other higher tier
(ii) Transactions between persons (ii) Examples. entities and first tier entities.
who are not 5-percent shareholders (iii) Contingencies. (C) Aggregation of the public
disregarded. (iv) Series of options. shareholders.
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33992 Federal Register / Vol. 75, No. 115 / Wednesday, June 16, 2010 / Rules and Regulations
(v) Appropriate adjustments. (l) Changes in percentage ownership income is not recognized built-in gain.
(vi) Examples. which are attributable to fluctuations in The term prepaid income means any
(2) Segregation rules applicable to value. [Reserved] amount received prior to the change
transactions involving the loss (m) Effective date. (1) In general. date that is attributable to performance
corporation. (2) Plan of reorganization. occurring on or after the change date.
(i) In general. (3) Earliest commencement of the Examples to which this paragraph (a)
(ii) Direct public group. testing period. will apply include, but are not limited
(iii) Transactions to which segregation (4) Transitional rules. to, income received prior to the change
rules apply. (i) Rules provided in paragraph (j) of date that is deferred under section 455,
(A) In general. this section for testing dates before 1.4515, or Rev. Proc. 200434 (2004
(B) Certain equity structure shifts and September 4, 1987. 1 CB 991 (June 1, 2004)) (or any
transactions to which section 1032 (ii) Example. successor revenue procedure) (see
applies. (iii) Rules provided in paragraph (j) of 601.601(d)(2)(ii)(b)).
(1 ) In general. this section for testing dates on or after (b) Effective/applicability dates. This
(2 ) Examples. September 4, 1987. section applies to loss corporations that
(C) Redemption-type transactions. (iv) Rules provided in paragraphs have undergone an ownership change
(1 ) In general. (f)(18)(ii) and (iii) of this section. on or after June 11, 2010. For loss
(2 ) Examples. (v) Rules provided in paragraph corporations that have undergone an
(D) Acquisition of loss corporation (a)(2)(ii) of this section. ownership change before June 11, 2010,
stock as the result of the ownership of (vi) Rules provided in paragraph see 1.3827T as contained in 26 CFR
a right to acquire stock. (h)(4) of this section. part 1, revised April 1, 2009.
(1) In general. (vii) Rules provided in paragraph
(2) Example. (a)(2)(i) of this section. 1.3827T [Removed]
(E) Transactions identified in the (5) Bankruptcy proceedings. Par. 5. Section 1.3827T is removed.
Internal Revenue Bulletin. (i) In general.
(F) Issuance of rights to acquire loss (ii) Example. Steven T. Miller,
corporation stock. (6) Transactions of domestic building Deputy Commissioner for Services and
(1) In general. and loan associations. Enforcement.
(2 ) Example. (7) Transactions not subject to section Approved: June 8, 2010.
(iv) Combination of de minimis public 382. Michael Mundaca,
groups. (i) Application of old section 382.
Assistant Secretary of the Treasury (Tax
(A) In general. (ii) Effect on testing period. Policy).
(B) Example. (iii) Termination of old section 382.
[FR Doc. 201014431 Filed 61110; 4:15 pm]
(v) Multiple transactions. [Reserved]
BILLING CODE 482001P
(A) In general. (8) Options issued or transferred
(B) Example. before January 1, 1987.
(vi) Acquisitions made by either a 5- (i) Options issued before May 6, 1986.
(ii) Options issued on or after May 6, DEPARTMENT OF THE TREASURY
percent shareholder or the loss
corporation following application of the 1986 and before September 18, 1986. Internal Revenue Service
segregation rules. (iii) Options issued on or after
(3) Segregation rules applicable to September 18, 1986 and before January 26 CFR Part 301
transactions involving first tier entities 1, 1987.
or higher tier entities. (9) Examples. [TD 9488]
(i) Dispositions. Par. 3. Section 1.3821 is amended
RIN 1545BE07
(ii) Example. by:
(iii) Other transactions affecting direct 1. Revising the introductory text. Interest and Penalty Suspension
public groups of a first tier entity or 2. Removing the entry for 1.3821T. Provisions Under Section 6404(g) of
higher tier entity. 3. Removing the entries for 1.382 the Internal Revenue Code
(iv) Examples. 2T.
(v) Acquisitions made by a 5-percent 4. Adding the entries for 1.3827. AGENCY: Internal Revenue Service (IRS),
shareholder, a higher tier entity, or a The revisions and the additions read Treasury.
first tier entity following application of as follows: ACTION: Final regulations and removal of
the segregation rules. temporary regulations.
1.3821 Table of contents.
(k) Operating rules. (1) Presumptions
regarding stock ownership. This section lists the captions that SUMMARY: This document contains final
(i) Stock subject to regulation by the appear in the regulations for 1.382 regulations under section 6404(g)(2)(E)
Securities and Exchange Commission. 2 through 1.38211. of the Internal Revenue Code on the
(ii) Statements under penalties of * * * * * suspension of any interest, penalty,
perjury. addition to tax, or additional amount
1.3827 Built-in gains and losses. with respect to listed transactions or
(2) Actual knowledge regarding stock
ownership. (a) Treatment of prepaid income. undisclosed reportable transactions. The
(3) Duty to inquire as to actual stock (b) Effective/applicability dates. final regulations reflect changes to the
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