[Federal Register Volume 77, Number 73 (Monday, April 16, 2012)]
[Proposed Rules]
[Pages 22515-22516]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-9003]
[[Page 22515]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-141268-11]
RIN 1545-BK73
Allocation of Earnings and Profits in Tax-Free Transfers From One
Corporation to Another
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations under section 312
of the Internal Revenue Code (Code). The proposed regulations clarify
the regulations under section 312 regarding the allocation of earnings
and profits in tax-free transfers from one corporation to another. The
proposed regulations affect corporations involved in these transfers
and their shareholders.
DATES: Written or electronic comments and requests for a public hearing
must be received by July 16, 2012.
ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-141268-11), Room
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
141268-11), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW., Washington, DC. Submissions may also be sent electronically
via the Federal eRulemaking Portal at http://www.regulations.gov (IRS
REG-141268-11).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Stephanie D. Floyd at (202) 622-7930 or Isaac W. Zimbalist at (202)
622-7550 (not toll-free numbers); concerning submissions of comments
and/or requests for a public hearing, Oluwafunmilayo (Fumni) Taylor, at
202-622-7180.
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
This document contains proposed amendments to 26 CFR part 1
concerning the allocation of earnings and profits in tax-free transfers
from one corporation to another. The IRS has historically interpreted
the regulations under section 312 as providing that the earnings and
profits of the transferor corporation do not move to the transferee in
whole or in part other than in a transfer described in section 381 or,
to the extent provided under Sec. 1.312-10, in a divisive
reorganization. Furthermore, the IRS has interpreted the regulations to
provide that in a corporate reorganization described in section 381,
the acquiring corporation, as defined in Sec. 1.381(a)-1(b)(2),
succeeds to the full earnings and profits account of the transferor
corporation. Thus, the earnings and profits account is not divided if
the acquiring corporation in an acquisitive asset reorganization
subsequently transfers target assets to one or more controlled
subsidiaries. Practitioners have suggested that this result may be
unclear under current law. See Sec. 1.381(c)(2)-1(d) (providing that
where part of the acquired assets is transferred to one or more
controlled corporations, or all of the acquired assets are transferred
to two or more controlled corporations, the allocation of earnings and
profits is made without regard to section 381); Sec. 1.312-11(a)
(providing for proper adjustment and allocation of earnings and profits
with respect to asset transfers in connection with reorganizations, and
cross-referencing the section 381 regulations for specific rules).
Consistent with the longstanding administrative position, the
proposed regulations clarify that, except as provided in Sec. 1.312-
10, if property is transferred from one corporation to another and no
gain or loss is recognized, no allocation of the earnings and profits
of the transferor is made to the transferee unless the transfer is
described in section 381(a). The proposed regulations further clarify
that, in a transfer described in section 381(a), only the acquiring
corporation, as defined in Sec. 1.381(a)-1(b)(2), succeeds to the
earnings and profits of the distributor or transferor corporation
(within the meaning of Sec. 1.381(a)-1(a)).
The IRS and Treasury Department believe the proposed rule is
appropriate because earnings and profits measures the capacity of a
corporation to pay dividends to its shareholders and the corporation
that has an interest, directly or indirectly, in all of the target's
assets has the dividend-paying capacity that is most comparable to that
of the target. Further, the IRS and Treasury Department believe the
rules for the allocation of earnings and profits should conform to the
rules for the allocation of other tax attributes under section 381.
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 has also
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these proposed regulations, and
because these regulations do not impose a collection of information on
small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6)
does not apply. Pursuant to section 7805(f) of the Code, these
regulations were submitted to the Chief Counsel for Advocacy of the
Small Business Administration for comment on their impact on small
business.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (a signed original and eight
(8) copies) or electronic comments that are submitted timely to the
IRS. All comments will be available for public inspection and copying.
A public hearing will be scheduled if requested in writing by any
person that timely submits written or electronic comments. If a public
hearing is scheduled, notice of the date, time, and place for the
public hearing will be published in the Federal Register.
Drafting Information
The principal author of these proposed regulations is Stephanie D.
Floyd of the Office of Associate Chief Counsel (Corporate). 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 part 1 continues to read,
in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.312-11 is amended by revising paragraph (a) and
adding paragraph (e) to read as follows:
Sec. 1.312-11 Effect on earnings and profits of certain other tax-
free exchanges, tax-free distributions, and tax-free transfers from one
corporation to another.
(a) In a transfer described in section 381(a), the acquiring
corporation, as defined in Sec. 1.381(a)-1(b)(2), and only that
corporation, succeeds to the earnings and profits of the distributor or
transferor corporation (within the
[[Page 22516]]
meaning of Sec. 1.381(a)-1(a)). Except as provided in Sec. 1.312-10,
in all other cases in which property is transferred from one
corporation to another and no gain or loss is recognized (or is
recognized only to the extent of the property received other than that
permitted to be received without the recognition of gain), no
allocation of the earnings and profits of the transferor is made to the
transferee.
* * * * *
(e) Effective/Applicability date. Paragraph (a) of this section
applies to transactions occurring on or after the date of publication
of the Treasury decision adopting this rule as a final regulation in
the Federal Register.
Sec. 1.381(c)(2)-1(d) [Removed]
Par. 3. Section 1.381(c)(2)-1(d) is removed.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2012-9003 Filed 4-13-12; 8:45 am]
BILLING CODE 4830-01-P