Liabilities Assumed in
Certain Corporate Lansactions

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-106791-00] RIN 1545-AY55

TITLE: Liabilities Assumed in Certain Corporate Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

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

SUMMARY: In the Rules and Regulations portion of this issue of the
Federal Register, the IRS is issuing temporary regulations relating
to the assumption of liabilities in certain corporate .Lansactions
under section 301 of the Internal Revenue Code. The temporary
regulations affect corporations and their shareholders. The text of
those temporary regulations also serves as the text of these
proposed regulations. This document also gives notice of a public
hearing on these proposed regulations.

DATES: Written comments must be received by May 10, 2001 Requests to
speak and outlines of topics to be discussed at the public hearing
scheduled for May 31, 2001 at 10 a.m. must be received by May 10,
2001.

ADDRESSES: Send submissions to: CC:M&SP:RU (REG-106791-00), 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:M&SP:RU (REG-106791-00), 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 of the IRS Home Page or
by submitting comments directly to the IRS Internet site at
http://www.irs.ustreas.gov/tax_regs/regslist.html. A public hearing
will be held in room 4718 Internal Revenue Building, 1111
Constitution Avenue NW, Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Mary E.
Dean, (202) 622-7550; concerning submissions and the hearings, Guy
Traynor, (202) 622-7180.

SUPPLEMENTARY INFORMATION

Background

 The temporary regulations amend the income tax regulations (26 CFR
part 1) under section 301 relating to liabilities assumed in
connection with distributions made by a corporation to shareholders
with respect to their stock. These regulations provide that the
amount of a distribution under section 301 will be reduced by the
amount of any liability that is treated as assumed by the
distributee within the meaning of section 357(d)(1) and (2). Thus,
in a distribution under section 301, if a liability is treated as
not having been assumed by the distributee under section 357(d)(1)
and (2), the amount of the distribution will not be reduced by the
amount of any liability the property is subject to under section
301(b)(2)(B). The text of the temporary regulations also serves as
the text of these proposed regulations. The preamble to the
temporary regulations explains the proposed regulations.

 Special Analyses

       It has been determined that this notice of proposed
rulemaking is not a significant regulatory action as defined in
Executive Order 12866. Therefore, a regulatory assessment is not
required.

        It is hereby certified that these regulations do not have a
significant economic impact on a substantial number of small
entities. These proposed regulations under section 301 of the
Internal Revenue Code (Code) address distributions by corporations
in which liabilities are assumed by the shareholders or in which the
distributed property is subject to liabilities. These proposed
regulations provide that the amount of a distribution under section
301 will be reduced by the amount of any liability that is treated
as assumed by the distributee within the meaning of section 357(d)
(1) and (2).

       If adopted these regulations will affect only .corporations
making distributions of property, in which the property is subject
to a liability, or in which liabilities are assumed by the
distributee. Moreover, if adopted, the proposed regulations will
affect only those corporations that would have, but for the
regulations, considered liabilities to have been assumed in
circumstances other than those described in section 357(d)(1) and
(2). therefore, most corporations, whether large or small, will not
be affected by the proposed regulations in any given year.
Therefore, a Regulatory Flexibility Analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to
section 7805(f) of the 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 businesses.

Comments and Public Hearing

      Before these proposed regulations are adopted as final
regulations, consideration will be given to any written comments
.Lreferably a signed original and eight (8) copies) or
electronically generated comments that are submitted timely to the
IRS. The IRS and Treasury specifically request comments on the
clarity of the proposed regulations and how they may be made easier
to understand. All comments will be available for public inspection
and copying.

      A public hearing has been scheduled for May 31, 2000, at 10
a.m., in room 4718, Internal Revenue Building, 1111 Constitution
Avenue NW., Washington, DC. Due to building security procedures,
visitors must enter at the 1111 Constitution Avenue entrance,
located between 10th and 12th streets. In addition, all visitors
must present photo identification to enter the building. Because of
access restrictions, visitors will not be admitted beyond the
immediate entrance area more than 15 minutes before the hearing
starts. For information about having your name placed on the access
list to attend the hearing, see the FOR FURTHER INFORMATION CONTACT
section of this preamble.

    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons
who wish to present oral comments at the hearing must submit written
comments and an outline of the topics to be discussed and the time
to be devoted to each topic (signed original and eight (8) copies)
by May 10, 2001. 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.

Drafting Information

The principal author of these regulations is Mary E. Dean, Office of
Associate Chief Counsel (Corporate). However, other personnel from
the IRS and Treasury Department participated in their development.

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 26 CFR part 1 continues
to read in part as follows:

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

    Par. 2. Section 1.301-1 is amended by revising paragraph (g) to
read as follows: §1.301-1 Rules applicable with respect to
distributions of money and other property. 

* * * * *

    (g) [The text of the proposed amendment to paragraph (g) of
§1.301-1 is the same as the text of paragraph (g) of
§1.301-1T published elsewhere in this issue of the Federal
Register ].

Acting Deputy Commissioner of Internal Revenue
David A. Mader

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