Liabilities Assumed in Certain Corporate Transactions

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [TD 8964] RIN 1545-AY55

TITLE: Liabilities Assumed in Certain Corporate Transactions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

SUMMARY: This document contains final regulations relating to the
assumption of liabilities in certain corporate transactions under
section 301 of the Internal Revenue Code. These final regulations
affect corporations and their shareholders. Changes to the
applicable law were made by the Miscellaneous Trade and Technical
Corrections Act of 1999.

DATES: Effective Date: These regulations are effective September 27,
2001. Applicability Date: For dates of applicability, see the
Effective Date portion of the preamble under SUPPLEMENTARY
INFORMATION.

FOR FURTHER INFORMATION CONTACT: Douglas Bates (202) 622-7550 (not a
toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

Changes to the applicable law were made by the Miscellaneous Trade
and Technical Corrections Act of 1999, Public Law 106-36 (113 Stat.
127). On January 4, 2001, temporary regulations (TD 8924) were
published in the Federal Register (66 FR 723) under section 301 of
the Internal Revenue Code, relating to liabilities assumed in
connection with a distribution of property made by a corporation
with respect to its stock. A notice of proposed rulemaking cross-
referencing the temporary regulations.2 was published in the Federal
Register for the same day (66 FR 748). No public hearing was
requested or held.

No written comments responding to the notice were received. This
document adopts, without substantive change, final regulations with
respect to the notice of proposed rulemaking.

Effective Date

The regulations apply generally to distributions occurring after
January 4, 2001. The regulations also apply to distributions
occurring on or prior to January 4, 2001, if the distribution is
made as part of a transaction described in, or substantially similar
to, the transaction in Notice 99-59 (1999-2 C.B. 761), including
transactions designed to reduce gain. Under section 7805(b)(3), the
Secretary may provide that any regulation may take effect or apply
retroactively to prevent abuse. These regulations are being applied
retroactively to prevent the abuse described in Notice 99-59. No
inference should be drawn regarding the tax treatment of
distributions not covered by these regulations.

Special Analyses

It has been determined that this Treasury decision 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 final regulations do not have a
significant economic impact on a substantial number of small
entities. These final regulations under section 301 address
distributions by corporations in which liabilities are assumed by
the shareholders or in which the distributed property is subject to
liabilities. These final 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).

These regulations apply to persons receiving distributions of
property in which the property is subject to a liability, or in
which liabilities are assumed by the distributee. These regulations,
however, will affect only those persons described in the preceding
sentence that would have, but for the regulations, considered
liabilities to have been assumed in circumstances other that those
described in section 357(d). Therefore, most businesses will not be
affected by the final 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, the notice of proposed rulemaking accompanying these
regulations was submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on its impact on small
businesses.

Drafting Information

The principal author of these regulations is Michael N. Kaibni of
the Office of the 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. 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 * * *

Section 1.301-1 also issued under 26 U.S.C. 357(d)(3). * * *

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..4 * * * * *

(g) Reduction for liabilities - - (1) General rule. For the purpose
of section 301, no reduction shall be made for the amount of any
liability, unless the liability is assumed by the shareholder within
the meaning of section 357(d).

(2) No reduction below zero. Any reduction pursuant to paragraph (g)
(1) of this section shall not cause the amount of the distribution
to be reduced below zero.

(3) Effective dates - - (i) In general. This paragraph (g) applies
to distributions occurring after January 4, 2001.

(ii) Retroactive application. This paragraph (g) also applies to
distributions made on or before January 4, 2001, if the distribution
is made as part of a transaction described in, or substantially
similar to, the transaction in Notice 99-59 (1999-2 C.B. 761),
including transactions designed to reduce gain (see §601.601(d)
(2) of this chapter). For rules for distributions on or before
January 4, 2001 (other than distributions on or before that date to
which this paragraph (g) applies), see rules in effect on January 4,
2001 (see §1.301-1(g) as contained in 26 CFR Part 1 revised
April 1, 2001).

* * * * *

§1.301-1T [Removed ]
Par. 3. Section 1.301-1T is removed.

Robert E. Wenzel
Deputy Commissioner of Internal Revenue.

Approved: September 17, 2001

Mark Weinberger
Assistant Secretary of the Treasury for Tax Policy.

SEARCH:

You can search the entire Tax Professionals section, or all of Uncle Fed's Tax*Board. For a more focused search, put your search word(s) in quotes.

2001 Regulations Main | IRS Regulations Main | Home