[Federal Register Volume 82, Number 12 (Thursday, January 19, 2017)]
[Rules and Regulations]
[Pages 6235-6243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01365]
[[Page 6235]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9811]
RIN 1545-BK09
Application of Modified Carryover Basis to General Basis Rules
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations regarding the
application of the modified carryover basis rules of section 1022 of
the Internal Revenue Code (Code). Specifically, the final regulations
modify provisions of the Treasury Regulations involving basis rules by
including a reference to section 1022 where appropriate. The
regulations will affect property transferred from certain decedents who
died in 2010. The regulations reflect changes to the law made by the
Economic Growth and Tax Relief Reconciliation Act of 2001 and the Tax
Relief, Unemployment Insurance Reauthorization, and Job Creation Act of
2010.
DATES: Effective Date: The regulations are effective on January 19,
2017.
Applicability Date: The regulations are applicable on January 19,
2017.
FOR FURTHER INFORMATION CONTACT: Mayer R. Samuels at (202) 317-6859
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to 26 CFR part 1 under various
provisions of the Code in response to statutory changes made by the
Economic Growth and Tax Relief Reconciliation Act of 2001, Public Law
107-16 (EGTRRA) and the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010, Public Law 111-312
(TRUIRJCA).
Section 501(a) of EGTRRA enacted section 2210 of the Code, which
made chapter 11 (the estate tax) inapplicable to the estate of any
decedent who died after 2009. Section 542 of EGTRRA also enacted
section 1022. While section 1014 generally provides that the
recipient's basis in property passing from a decedent is the fair
market value of the property on the decedent's date of death, section
1022 sets forth a modified carryover basis system applicable after 2009
generally providing that the recipient's basis in property acquired
from a decedent is the lesser of the decedent's adjusted basis in the
property or the fair market value of the property on the decedent's
date of death. Section 901(a) of EGTRRA, known as the ``sunset
clause'', provided that all provisions of and amendments made by EGTRRA
do not apply to estates of decedents dying, gifts made, or generation-
skipping transfers after December 31, 2010. The sunset clause
effectively limited the application of sections 501(a) and 542 of
EGTRRA to 2010.
Section 301(a) of TRUIRJCA, which became law on December 17, 2010,
retroactively reinstated the estate tax and repealed section 1022 with
respect to the estates of decedents who died in 2010. However, section
301(c) of TRUIRJCA allowed the executor of the estate of a decedent who
died in 2010 to elect to apply the Code and regulations thereunder as
though section 301(a) of TRUIRJCA did not apply with respect to chapter
11 and with respect to property acquired or passing from the decedent
(within the meaning of section 1014(b) of the Code). Thus, section
301(c) of TRUIRJCA allowed the executor of the estate of a decedent who
died in 2010 to elect not to have the provisions of chapter 11 apply to
the decedent's estate, but rather to have the provisions of section
1022 apply (a Section 1022 Election).
To provide executors with guidance regarding the making of a
Section 1022 Election and certain other collateral issues arising from
the determination of basis under section 1022, on August 29, 2011, the
Treasury Department and the IRS issued Notice 2011-66 (2011-35 IRB 184)
and Revenue Procedure 2011-41 (2011-35 IRB 188). Although section 1022
was applicable only to decedents dying in calendar year 2010, basis
determined pursuant to that section will continue to be relevant until
all of the property whose basis is determined under that section has
been sold or otherwise disposed of in a transaction in which gain or
loss is recognized. Accordingly, on May 11, 2015, the Treasury
Department and the IRS published in the Federal Register (80 FR 26873)
a notice of proposed rulemaking (REG-107595-11, 2015-21 IRB 986)
proposing amendments to existing regulations under various sections of
the Code to take into account the application of the modified carryover
basis rules of section 1022. The IRS received written comments
responding to the notice of proposed rulemaking. No public hearing was
requested or held.
After consideration of the comments received on the proposed
regulations, this Treasury decision adopts the proposed regulations
without modification as final regulations. However, the final
regulations adopt certain nonsubstantive, clarifying changes. The
comments received on the proposed regulations are discussed in the
remainder of this preamble.
Summary of Comments
One commenter noted that the proposed regulations proposed to amend
Sec. 1.742-1 to provide that the basis of a partnership interest
acquired from a decedent is determined under section 1022 if the
decedent died in 2010 and the decedent's executor made a Section 1022
Election with respect to the decedent's estate. The commenter noted
that there was no similar amendment proposed to be made to Sec.
1.1367-1(j), relating to the basis of stock of an S corporation where a
portion of the value of the stock is attributable to items constituting
income in respect of a decedent (IRD). The commenter recommended that
the final regulations amend Sec. 1.1367-1(j) with language referencing
section 1022.
After considering this comment, the Treasury Department and the IRS
have determined that no change is necessary. Section 1.1367-1(j)
states, ``[t]he basis determined under section 1014 of any stock in an
S corporation is reduced by the portion of the value of the stock that
is attributable to items constituting income in respect of a
decedent.'' This regulation section, with its required basis adjustment
for IRD, is limited to situations in which section 1014 applies.
Section 1.1367-1(j) does not apply when a Section 1022 Election is made
because there is no basis adjustment under section 1022 to the date of
death value of S corporation stock. Without an adjustment to date of
death value, no further adjustment to the basis of S corporation stock
is required to account for IRD. Therefore, the final regulations do not
adopt this comment.
A commenter noted that the proposed regulations only propose
amendments to finalized regulations, and not to proposed regulations or
temporary regulations. That commenter specifically requested guidance
with respect to proposed regulation Sec. 1.465-69(a) (which provides
that a successor to a decedent's amount at risk in an activity is
increased by the amount by which the successor's basis in the activity
is increased under section 1014) and temporary regulation Sec.
16A.1255-2(b)(2) (which provides that if, as of the date a person
acquires section 126 property from a decedent, the basis of the
property is determined under section 1014, then on that date the
aggregate of excludable portions under
[[Page 6236]]
section 126 in the hands of such transferee is zero). This Treasury
decision cannot modify provisions of the proposed or temporary
regulations referenced by the commenter without adopting those
provisions as final or temporary regulations. The Treasury Department
and the IRS continue to study these areas, and therefore are not
prepared to adopt modifications to the proposed or temporary
regulations referenced by the commenter at this time. Accordingly, the
final regulations do not adopt this comment. However, the Treasury
Department and the IRS expect that, if those proposed or temporary
regulations are adopted as final or temporary regulations in the
future, such regulations will be updated as appropriate to account for
the existence of section 1022.
Another commenter asked why the preamble to the proposed
regulations omitted any discussion of the revisions made to regulations
under six particular sections of the Code, and requested an explanation
as to why changes to those regulatory provisions were considered less
significant than the changes for which an explanation was given.
Generally, the Treasury Department and the IRS included descriptions of
the proposed changes in that preamble that involved more than a mere
insertion of a reference to section 1022 in addition to an existing
reference to section 1014. In such cases, it was determined that an
explanation or clarification of the substance or effect of the proposed
revision would be helpful. In the case of the proposed amendments to
regulations under the six Code sections mentioned by the commenter, the
only change proposed was the mere insertion of references to section
1022 in addition to existing references to section 1014. Accordingly,
the Treasury Department and the IRS determined that no further
explanation of those changes was necessary.
A commenter also asked why the proposed regulations did not
incorporate the treatment of items under the various Code sections
addressed in Revenue Procedure 2011-41, 2011-35 IRB 188. That revenue
procedure provides a safe harbor that determines the effect on the
application of various Code sections of a Section 1022 Election. The
provisions relating to that safe harbor are available only if the
executor of the estate makes a Section 1022 Election and takes no
position contrary to a provision in that revenue procedure. Nothing in
these final regulations changes or invalidates the provisions of
Revenue Procedure 2011-41, so the safe harbor will remain available to
qualifying taxpayers. Consequently, it is unnecessary to incorporate
the revenue procedure into these regulations.
Special Analyses
Certain IRS regulations, including this one, are exempt from the
requirements of Executive Order 12866, as supplemented and reaffirmed
by Executive Order 13563. Therefore, a regulatory impact assessment is
not required. The Regulatory Flexibility Act (5 U.S.C. chapter 6) does
not apply to these final regulations because the final regulations do
not impose a collection of information requirement on small entities.
Therefore, a Regulatory Flexibility Analysis is not required. Pursuant
to section 7805(f) of the Code, the notice of proposed rulemaking
preceding this regulation has been submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its impact
on small business, and no comments were received.
Drafting Information
The principal author of these final regulations is Mayer R.
Samuels, Office of the Associate Chief Counsel (Passthroughs and
Special Industries). Other personnel from the Treasury Department and
the IRS participated in their development.
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 * * *
0
Par. 2. Section 1.48-12 is amended by revising the last sentence of
paragraph (b)(2)(vii)(B) and adding paragraph (g) to read as follows:
Sec. 1.48-12 Qualified rehabilitated building; expenditures incurred
after December 31, 1981.
* * * * *
(b) * * *
(2) * * *
(vii) * * *
(B) * * * If a transferee's basis is determined under section 1014
or section 1022, any expenditures incurred by the decedent within the
measuring period that are treated as having been incurred by the
transferee under paragraph (c)(3)(ii) of this section shall decrease
the transferee's basis for purposes of the substantial rehabilitation
test.
* * * * *
(g) Effective/applicability date. This section applies on and after
January 19, 2017. For rules before January 19, 2017, see Sec. 1.48-12
as contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 3. Section 1.83-4 is amended by revising the last sentence of
paragraph (b)(1) and adding paragraph (d) to read as follows:
Sec. 1.83-4 Special rules.
* * * * *
(b) * * *
(1) * * * Such basis shall also reflect any adjustments to basis
provided under sections 1015, 1016, and 1022.
* * * * *
(d) Effective/applicability date. The provisions in this section
are applicable for taxable years beginning on or after July 21, 1978.
The provisions of paragraph (b)(1) of this section relating to section
1022 are effective on and after January 19, 2017.
0
Par. 4. Section 1.179-4 is amended by revising the first sentence of
paragraph (c)(1)(iv) to read as follows:
Sec. 1.179-4 Definitions.
* * * * *
(c) * * *
(1) * * *
(iv) The property is not acquired by purchase if the basis of the
property in the hands of the person acquiring it is determined in whole
or in part by reference to the adjusted basis of such property in the
hands of the person from whom acquired, is determined under section
1014(a), relating to property acquired from a decedent, or is
determined under section 1022, relating to property acquired from
certain decedents who died in 2010. * * *
* * * * *
0
Par. 5. Section 1.179-6 is amended by:
0
1. Revising the section heading and the first sentence of paragraph
(a).
0
2. Adding paragraph (d).
The revision and addition read as follows:
Sec. 1.179-6 Effective/applicability dates.
(a) * * * Except as provided in paragraphs (b), (c), and (d) of
this section, the provisions of Sec. Sec. 1.179-1 through 1.179-5
apply for property placed in service by the taxpayer in taxable years
ending after January 25, 1993. * * *
* * * * *
(d) Application of Sec. 1.179-4(c)(1)(iv). The provisions of Sec.
1.179-4(c)(1)(iv)
[[Page 6237]]
relating to section 1022 are effective on and after January 19, 2017.
0
Par. 6. Section 1.197-2 is amended by revising paragraphs (h)(5)(i) and
(h)(12)(viii) and adding paragraph (l)(5) to read as follows:
Sec. 1.197-2 Amortization of goodwill and certain other intangibles.
* * * * *
(h) * * *
(5) * * *
(i) The acquisition of a section 197(f)(9) intangible if the
acquiring taxpayer's basis in the intangible is determined under
section 1014(a) or 1022; or
* * * * *
(12) * * *
(viii) Operating rule for transfers upon death. For purposes of
this paragraph (h)(12), if the basis of a partner's interest in a
partnership is determined under section 1014(a) or 1022, such partner
is treated as acquiring such interest from a person who is not related
to such partner, and such interest is treated as having previously been
held by a person who is not related to such partner.
* * * * *
(l) * * *
(5) Application of section 1022. The provisions of Sec. 1.197-
2(h)(5)(i) and (h)(12)(viii) relating to section 1022 are effective on
and after January 19, 2017.
0
Par. 7. Section 1.267(d)-1 is amended by revising paragraph (a)(3) to
read as follows:
Sec. 1.267(d)-1 Amount of gain where loss previously disallowed.
(a) * * *
(3) The benefit of the general rule is available only to the
original transferee but does not apply to any original transferee (for
example, a donee or a person acquiring property from a decedent where
the basis of property is determined under section 1014 or 1022) who
acquired the property in any manner other than by purchase or exchange.
* * * * *
0
Par. 8. Section 1.267(d)-2 is amended by revising the section heading
and adding a sentence to the end of the paragraph to read as follows:
Sec. 1.267(d)-2 Effective/applicability dates.
* * * The provisions of Sec. 1.267(d)-1(a)(3) relating to section
1022 are effective on and after January 19, 2017.
0
Par. 9. Section 1.273-1 is revised to read as follows:
Sec. 1.273-1 Life or terminable interests.
(a) In general. Amounts paid as income to the holder of a life or a
terminable interest acquired by gift, bequest, or inheritance shall not
be subject to any deduction for shrinkage (whether called by
depreciation or any other name) in the value of such interest due to
the lapse of time. In other words, the holder of such an interest so
acquired may not set up the value of the expected future payments as
corpus or principal and claim deduction for shrinkage or exhaustion
thereof due to the passage of time. For the treatment generally of
distributions to beneficiaries of an estate or trust, see Subparts A,
B, C, and D (section 641 and following), Subchapter J, Chapter 1 of the
Code, and the regulations thereunder. For basis of property acquired
from a decedent and by gifts and transfers in trust, see sections 1014,
1015, and 1022, and the regulations thereunder.
(b) Effective/applicability date. The provisions in this section
are applicable for taxable years beginning on or after September 16,
1958. The provisions of this section relating to section 1022 are
effective on and after January 19, 2017.
0
Par. 10. Section 1.306-3 is amended by removing the last sentence of
paragraph (e) and adding two sentences in its place to read as follows:
Sec. 1.306-3 Section 306 stock defined.
* * * * *
(e) * * * Section 306 stock ceases to be so classified if the basis
of such stock is determined by reference to its fair market value on
the date of the decedent-stockholder's death under section 1014 or the
optional valuation date under section 2032. Section 306 stock continues
to be so classified if the basis of such stock is determined under
section 1022.
* * * * *
0
Par. 11. Section 1.306-4 is added to read as follows:
Sec. 1.306-4 Effective/applicability date.
The provisions of Sec. Sec. 1.306-1 through 1.306-3 are applicable
on or after June 22, 1954. The provisions of Sec. 1.306-3 relating to
section 1022 are effective on and after January 19, 2017.
0
Par. 12. Section 1.336-1 is amended by revising paragraph (b)(5)(i)(A)
to read as follows:
Sec. 1.336-1 General principles, nomenclature, and definitions for a
section 336(e) election.
* * * * *
(b) * * *
(5) * * *
(i) * * *
(A) The basis of the stock in the hands of the purchaser is not
determined in whole or in part by reference to the adjusted basis of
such stock in the hands of the person from whom the stock is acquired,
is not determined under section 1014(a) (relating to property acquired
from a decedent), or is not determined under section 1022 (relating to
the basis of property acquired from certain decedents who died in
2010);
* * * * *
0
Par. 13. Section 1.336-5 is amended by revising the section heading and
adding a sentence to the end of the paragraph to read as follows:
Sec. 1.336-5 Effective/applicability dates.
* * * The provisions of Sec. 1.336-1(b)(5)(i)(A) relating to
section 1022 are effective on and after January 19, 2017.
0
Par. 14. Section 1.355-6 is amended by revising paragraphs
(d)(1)(i)(A)(2) and (g) to read as follows:
Sec. 1.355-6 Recognition of gain on certain distributions of stock or
securities in controlled corporation.
* * * * *
(d) * * *
(1) * * *
(i) * * *
(A) * * *
(2) Under section 1014(a) or 1022; and
* * * * *
(g) Effective/applicability dates. This section applies to
distributions occurring after December 20, 2000, except that they do
not apply to any distributions occurring pursuant to a written
agreement that is (subject to customary conditions) binding on December
20, 2000, and at all later times. The provisions of paragraph
(d)(1)(i)(A)(2) of this section relating to section 1022 are effective
on and after January 19, 2017.
0
Par. 15. Section 1.382-1 is amended by revising the entry for Sec.
1.382-9(d)(6) to read as follows:
Sec. 1.382-9 Special rules under section 382 for corporations under
the jurisdiction of a court in a title 11 or similar case.
* * * * *
(d) * * *
(6) Effective/applicability date.
* * * * *
0
Par. 16. Section 1.382-9 is amended by revising paragraphs
(d)(5)(ii)(D) and (d)(6)(i) to read as follows:
Sec. 1.382-9 Special rules under section 382 for corporations under
the jurisdiction of a court in a title 11 or similar case.
* * * * *
(d) * * *
(5) * * *
(ii) * * *
(D) The transferee's basis in the indebtedness is determined under
[[Page 6238]]
section 1014, 1015, or 1022 or with reference to the transferor's basis
in the indebtedness;
* * * * *
(6) Effective/applicability date--(i) In general. This paragraph
(d) applies to ownership changes occurring on or after March 17, 1994.
The provisions of paragraph (d)(5)(ii)(D) of this section relating to
section 1022 are effective on and after January 19, 2017.
* * * * *
0
Par. 17. Section 1.421-2 is amended by:
0
1. Revising paragraphs (c)(4)(i)(a) and (c)(4)(ii).
0
2. Revising the heading of paragraph (f) and adding paragraph (f)(3).
The revisions and addition read as follows:
Sec. 1.421-2 General rules.
* * * * *
(c) * * *
(4)(i)(a) In the case of the death of an optionee, the basis of any
share of stock acquired by the exercise of an option under this
paragraph (c), determined under section 1011, shall be increased by an
amount equal to the portion of the basis of the option attributable to
such share. For example, if a statutory option to acquire 10 shares of
stock has a basis of $100, the basis of one share acquired by a partial
exercise of the option, determined under section 1011, would be
increased by 1/10th of $100, or $10. The option acquires a basis,
determined under section 1014(a) or under section 1022, if applicable,
only if the transfer of the share pursuant to the exercise of such
option qualifies for the special tax treatment provided by section
421(a). To the extent the option is so exercised, in whole or in part,
it will acquire a basis equal to its fair market value (or the basis as
determined under section 1022, if applicable) at the date of the
employee's death or, if an election is made under section 2032, its
value at its applicable valuation date. In certain cases, the basis of
the share is subject to the adjustments provided by paragraphs
(c)(4)(i)(b) and (c) of this section, but such adjustments are only
applicable in the case of an option that is subject to section 423(c).
* * * * *
(ii) If a statutory option is not exercised by the estate of the
individual to whom the option was granted, or by the person who
acquired such option by bequest or inheritance or by reason of the
death of such individual, the option shall be considered to be property
that constitutes a right to receive an item of income in respect of a
decedent to which the rules of sections 691 and 1014(c) (or section
1022(f), if applicable) apply.
* * * * *
(f) Effective/applicability date. * * *
* * * * *
(3) Application of section 1022. The provisions of paragraph (c) of
this section relating to section 1022 are effective on and after
January 19, 2017.
0
Par. 18. Section 1.423-2 is amended by:
0
1. Revising the third sentence of paragraph (k)(2).
0
2. Adding a sentence to the end of paragraph (l).
The revision and addition read as follows:
Sec. 1.423-2 Employee stock purchase plan defined.
* * * * *
(k) * * *
(2) * * * If the special rules provided in this paragraph (k) are
applicable to a share of stock upon the death of an employee, then the
basis of the share in the hands of the estate or the person receiving
the stock by bequest or inheritance shall be determined under section
1014 or under section 1022, if applicable, and shall not be increased
by reason of the inclusion upon the decedent's death of any amount in
the decedent's gross income under this paragraph (k). * * *
* * * * *
(l) * * * The provisions of this section relating to section 1022
are effective on and after January 19, 2017.
0
Par. 19. Section 1.424-1 is amended by revising the last sentence of
paragraph (c)(2) and adding paragraph (g)(3) to read as follows:
Sec. 1.424-1 Definitions and special rules applicable to statutory
options.
* * * * *
(c) * * *
(2) * * * For determination of basis in the hands of the survivor
where joint ownership is terminated by the death of one of the owners,
see section 1014 or section 1022, if applicable.
* * * * *
(g) * * *
(3) Application of section 1022. The provisions of paragraph (c)(2)
of this section relating to section 1022 are effective on and after
January 19, 2017.
0
Par. 20. Section 1.467-7 is amended by revising paragraph (c)(2) and
revising the first sentence of paragraph (c)(4) to read as follows:
Sec. 1.467-7 Section 467 recapture and other rules relating to
dispositions and modifications.
* * * * *
(c) * * *
(2) Dispositions at death. Paragraph (a) of this section does not
apply to a disposition if the basis of the property in the hands of the
transferee is determined under section 1014(a) or section 1022.
However, see paragraph (c)(4) of this section for dispositions of
property subject to section 1022 by transferees. This paragraph (c)(2)
does not apply to property that constitutes a right to receive an item
of income in respect of a decedent. See sections 691, 1014(c), and
1022(f).
* * * * *
(4) * * * If the recapture amount with respect to a disposition of
property (the first disposition) is limited under paragraph (c)(1) or
(c)(3) of this section, or under paragraph (c)(2) of this section
because the basis of the property in the hands of the transferee is
determined under section 1022, and the transferee subsequently disposes
of the property in a transaction to which paragraph (a) of this section
applies, the prior understated inclusion determined under paragraph
(b)(2) of this section is computed by taking into account the amounts
attributable to the period of the transferor's ownership of the
property prior to the first disposition. * * *
* * * * *
0
Par. 21. Section 1.467-9 is amended by revising the section heading and
adding paragraph (f) to read as follows:
Sec. 1.467-9 Effective/applicability dates and automatic method
changes for certain agreements.
* * * * *
(f) Application of section 1022. The provisions of Sec. 1.467-
7(c)(2) and (4) relating to section 1022 are effective on and after
January 19, 2017.
0
Par. 22. Section 1.617-3 is amended by revising paragraph (d)(5)(ii)(b)
to read as follows:
Sec. 1.617-3 Recapture of exploration expenditures.
* * * * *
(d) * * *
(5) * * *
(ii) * * *
(b) The transactions referred to in paragraph (d)(5)(ii)(a) of this
section are:
(1) A disposition that is in part a sale or exchange and in part a
gift;
(2) A disposition that is described in section 617(d) through the
incorporation by reference of the provisions of section 1245(b)(3)
(relating to certain tax free transactions); or
(3) A transfer at death where basis of property in the hands of the
transferee is determined under section 1022.
* * * * *
[[Page 6239]]
0
Par. 23. Section 1.617-4 is amended by revising the second sentence of
paragraph (c)(1)(i) to read as follows:
Sec. 1.617-4 Treatment of gain from disposition of certain mining
property.
* * * * *
(c) * * *
(1)(i) * * * For purposes of this paragraph (c), the term gift
means, except to the extent that paragraph (c)(1)(ii) of this section
applies, a transfer of mining property that, in the hands of the
transferee, has a basis determined under the provisions of section
1015(a) or 1015(d) (relating to basis of property acquired by gift) or
section 1022 (relating to the basis of property acquired from certain
decedents who died in 2010). * * *
* * * * *
0
Par. 24. Section 1.617-5 is added to read as follows:
Sec. 1.617-5 Effective/applicability date.
Sections 1.617-3 and 1.617-4 apply on and after January 19, 2017.
For rules before January 19, 2017, see Sec. Sec. 1.617-3 and 1.617-4
as contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 25. Section 1.684-3 is amended by revising paragraph (c) to read
as follows:
Sec. 1.684-3 Exceptions to general rule of gain recognition.
* * * * *
(c) Certain transfers at death--(1) Section 1014 basis. The general
rule of gain recognition under Sec. 1.684-1 shall not apply to any
transfer of property to a foreign trust or foreign estate or, in the
case of a transfer of property by a U.S. transferor decedent dying in
2010, to a foreign trust, foreign estate, or a nonresident alien, by
reason of death of the U.S. transferor, if the basis of the property in
the hands of the transferee is determined under section 1014(a).
(2) Section 1022 basis election. For U.S. transferor decedents
dying in 2010, the general rule of gain recognition under Sec. 1.684-1
shall apply to any transfer of property by reason of death of the U.S.
transferor if the basis of the property in the hands of the foreign
trust, foreign estate, or the nonresident alien individual is
determined under section 1022. The gain on the transfer shall be
calculated as set out under Sec. 1.684-1(a), except that adjusted
basis will reflect any increases allocated to such property under
section 1022.
* * * * *
0
Par. 26. Section 1.684-5 is revised to read as follows:
Sec. 1.684-5 Effective/applicability dates.
(a) Sections 1.684-1 through 1.684-4 apply to transfers of property
to foreign trusts and foreign estates after August 7, 2000, except as
provided in paragraph (b) of this section.
(b) In the case a U.S. transferor decedent dying in 2010, Sec.
1.684-3(c) applies to transfers of property to foreign trusts, foreign
estates, and nonresident aliens after December 31, 2009, and before
January 1, 2011.
0
Par. 27. Section 1.691(a)-3 is amended by revising the last two
sentences of paragraph (a) and adding paragraph (c) to read as follows:
Sec. 1.691(a)-3 Character of gross income.
(a) * * * The provisions of section 1014(a), relating to the basis
of property acquired from a decedent, and section 1022, relating to the
basis of property acquired from certain decedents who died in 2010, do
not apply to these amounts in the hands of the estate and such persons.
See sections 1014(c) and 1022(f).
* * * * *
(c) Effective/applicability dates. The last two sentences of
paragraph (a) of this section apply on and after January 19, 2017. For
rules before January 19, 2017, see Sec. 1.691(a)-3 as contained in 26
CFR part 1 revised as of April 1, 2016.
0
Par. 28. Section 1.742-1 is revised to read as follows:
Sec. 1.742-1 Basis of transferee partner's interest.
(a) In general. The basis to a transferee partner of an interest in
a partnership shall be determined under the general basis rules for
property provided by part II (section 1011 and following), Subchapter
O, Chapter 1 of the Internal Revenue Code. Thus, the basis of a
purchased interest will be its cost. Generally, the basis of a
partnership interest acquired from a decedent is the fair market value
of the interest at the date of his death or at the alternate valuation
date, increased by his estate's or other successor's share of
partnership liabilities, if any, on that date, and reduced to the
extent that such value is attributable to items constituting income in
respect of a decedent (see section 753 and Sec. Sec. 1.706-1(c)(3)(v)
and 1.753-1(b)) under section 691. See section 1014(c). However, the
basis of a partnership interest acquired from a decedent is determined
under section 1022 if the decedent died in 2010 and the decedent's
executor elected to have section 1022 apply to the decedent's estate.
For basis of contributing partner's interest, see section 722. The
basis so determined is then subject to the adjustments provided in
section 705.
(b) Effective/applicability date. This section applies on and after
January 19, 2017. For rules before January 19, 2017, see Sec. 1.742-1
as contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 29. Section 1.743-1 is amended by revising paragraphs (k)(2)(ii)
and (l) to read as follows:
Sec. 1.743-1 Optional adjustment to basis of partnership property.
* * * * *
(k) * * *
(2) * * *
(ii) Special rule. A transferee that acquires, on the death of a
partner, an interest in a partnership with an election under section
754 in effect for the taxable year of the transfer, must notify the
partnership, in writing, within one year of the death of the deceased
partner. The written notice to the partnership must be signed under
penalties of perjury and must include the names and addresses of the
deceased partner and the transferee, the taxpayer identification
numbers of the deceased partner and the transferee, the relationship
(if any) between the transferee and the transferor, the deceased
partner's date of death, the date on which the transferee became the
owner of the partnership interest, the fair market value of the
partnership interest on the applicable date of valuation set forth in
section 1014 or section 1022, the manner in which the fair market value
of the partnership interest was determined, and the carryover basis as
adjusted under section 1022 (if applicable).
* * * * *
(l) Effective/applicability date. The provisions in this section
apply to transfers of partnership interests that occur on or after
December 15, 1999. The provisions of this section relating to section
1022 are effective on and after January 19, 2017.
0
Par. 30. Section 1.755-1 is amended by:
0
1. Revising paragraphs (a)(4)(i)(C) and the first sentence of
(b)(4)(i).
0
2. Revising the heading of paragraph (e) and paragraph (e)(2).
The revisions read as follows:
Sec. 1.755-1 Rules for allocation of basis.
(a) * * *
(4) * * *
(i) * * *
(C) Income in respect of a decedent. Solely for the purpose of
determining partnership gross value under this paragraph (a)(4)(i),
where a partnership interest is transferred as a result of the death of
a partner, the transferee's basis
[[Page 6240]]
in its partnership interest is determined without regard to section
1014(c) or section 1022(f), and is deemed to be adjusted for that
portion of the interest, if any, that is attributable to items
representing income in respect of a decedent under section 691.
* * * * *
(b) * * *
(4) * * *
(i) * * * Where a partnership interest is transferred as a result
of the death of a partner, under section 1014(c) or section 1022(f),
the transferee's basis in its partnership interest is not adjusted for
that portion of the interest, if any, that is attributable to items
representing income in respect of a decedent under section 691. * * *
* * * * *
(e) Effective/applicability dates. * * *
(2) Special rules. Paragraphs (a) and (b)(3)(iii) of this section
apply to transfers of partnership interests and distributions of
property from a partnership that occur on or after June 9, 2003. The
provisions of paragraphs (a)(4)(i)(C) and (b)(4)(i) of this section
relating to section 1022 are effective on and after the date January
19, 2017.
0
Par. 31. Section 1.995-4 is amended by revising the first sentence of
paragraph (d)(2) and adding paragraph (f) to read as follows:
Sec. 1.995-4 Gain on disposition of stock in a DISC.
* * * * *
(d) * * *
(2) * * * For purposes of this section, the period during which a
shareholder has held stock includes the period he is considered to have
held it by reason of the application of section 1223 and, if his basis
is determined in whole or in part under the provisions of section
1014(d) (relating to special rule for DISC stock acquired from
decedent) or section 1022 (relating to property acquired from certain
decedents who died in 2010), the holding period of the decedent. * * *
* * * * *
(f) Effective/applicability date. This section applies on and after
January 19, 2017. For rules before January 19, 2017, see Sec. 1.995-4
as contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 32. Section 1.1001-1 is amended by revising the last sentence of
paragraph (a), revising paragraph (f)(1), and adding paragraph (i) to
read as follows:
Sec. 1.1001-1 Computation of gain or loss.
(a) * * * Section 1001(e) and paragraph (f) of this section
prescribe the method of computing gain or loss upon the sale or other
disposition of a term interest in property the adjusted basis (or a
portion) of which is determined pursuant, or by reference, to section
1014 (relating to the basis of property acquired from a decedent),
section 1015 (relating to the basis of property acquired by gift or by
a transfer in trust), or section 1022 (relating to the basis of
property acquired from certain decedents who died in 2010).
* * * * *
(f) * * *
(1) General rule. Except as otherwise provided in paragraph (f)(3)
of this section, for purposes of determining gain or loss from the sale
or other disposition after October 9, 1969, of a term interest in
property (as defined in paragraph (f)(2) of this section), a taxpayer
shall not take into account that portion of the adjusted basis of such
interest that is determined pursuant, or by reference, to section 1014
(relating to the basis of property acquired from a decedent), section
1015 (relating to the basis of property acquired by gift or by a
transfer in trust), or section 1022 (relating to the basis of property
acquired from certain decedents who died in 2010) to the extent that
such adjusted basis is a portion of the adjusted uniform basis of the
entire property (as defined in Sec. 1.1014-5). Where a term interest
in property is transferred to a corporation in connection with a
transaction to which section 351 applies and the adjusted basis of the
term interest:
(i) Is determined pursuant to sections 1014, 1015, or 1022; and
(ii) Is also a portion of the adjusted uniform basis of the entire
property, a subsequent sale or other disposition of such term interest
by the corporation will be subject to the provisions of section 1001(e)
and this paragraph (f) to the extent that the basis of the term
interest so sold or otherwise disposed of is determined by reference to
its basis in the hands of the transferor as provided by section 362(a).
See paragraph (f)(2) of this section for rules relating to the
characterization of stock received by the transferor of a term interest
in property in connection with a transaction to which section 351
applies. That portion of the adjusted uniform basis of the entire
property that is assignable to such interest at the time of its sale or
other disposition shall be determined under the rules provided in Sec.
1.1014-5. Thus, gain or loss realized from a sale or other disposition
of a term interest in property shall be determined by comparing the
amount of the proceeds of such sale with that part of the adjusted
basis of such interest that is not a portion of the adjusted uniform
basis of the entire property.
* * * * *
(i) Effective/applicability date. Except as provided in paragraphs
(g) and (h) of this section, this section applies on and after January
19, 2017. For rules before January 19, 2017, see Sec. 1.1001-1 as
contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 33. Section 1.1014-1 is amended by revising paragraph (a) and
adding paragraph (d) to read as follows:
Sec. 1.1014-1 Basis of property acquired from a decedent.
(a) General rule. The purpose of section 1014 is, in general, to
provide a basis for property acquired from a decedent that is equal to
the value placed upon such property for purposes of the federal estate
tax. Accordingly, the general rule is that the basis of property
acquired from a decedent is the fair market value of such property at
the date of the decedent's death, or, if the decedent's executor so
elects, at the alternate valuation date prescribed in section 2032, or
in section 811(j) of the Internal Revenue Code (Code) of 1939. However,
the basis of property acquired from certain decedents who died in 2010
is determined under section 1022, if the decedent's executor made an
election under section 301(c) of the Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010, Public Law 111-312 (124
Stat. 3296, 3300 (2010)). See section 1022. Property acquired from a
decedent includes, principally, property acquired by bequest, devise,
or inheritance, and, in the case of decedents dying after December 31,
1953, property required to be included in determining the value of the
decedent's gross estate under any provision of the Code of 1954 or the
Code of 1939. The general rule governing basis of property acquired
from a decedent, as well as other rules prescribed elsewhere in this
section, shall have no application if the property is sold, exchanged,
or otherwise disposed of before the decedent's death by the person who
acquired the property from the decedent. For general rules on the
applicable valuation date where the executor of a decedent's estate
elects under section 2032, or under section 811(j) of the Code of 1939,
to value the decedent's gross estate at the alternate valuation date
prescribed in such sections, see Sec. 1.1014-3(e).
* * * * *
(d) Effective/applicability date. This section applies on and after
January 19, 2017. For rules before January 19, 2017,
[[Page 6241]]
see Sec. 1.1014-1 as contained in 26 CFR part 1 revised as of April 1,
2016.
0
Par. 34. Section 1.1014-4 is amended by revising the first sentence of
paragraph (a)(1), revising the second sentence of paragraph (a)(2), and
adding paragraph (d) to read as follows:
Sec. 1.1014-4 Uniformity of basis; adjustment to basis.
(a) * * *
(1) The basis of property acquired from a decedent, as determined
under section 1014(a) or section 1022, is uniform in the hands of every
person having possession or enjoyment of the property at any time under
the will or other instrument or under the laws of descent and
distribution. * * *
(2) * * * Accordingly, there is a common acquisition date for all
titles to property acquired from a decedent within the meaning of
section 1014 or section 1022, and, for this reason, a common or uniform
basis for all such interests. * * *
* * * * *
(d) Effective/applicability date. This section applies on and after
January 19, 2017. For rules before January 19, 2017, see Sec. 1.1014-4
as contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 35. Section 1.1014-5 is amended by revising paragraph (b) to read
as follows:
Sec. 1.1014-5 Gain or loss.
* * * * *
(b) Sale or other disposition of certain term interests--(1) In
general. In determining gain or loss from the sale or other disposition
after October 9, 1969, of a term interest in property (as defined in
Sec. 1.1001-1(f)(2)) the adjusted basis of which is determined
pursuant, or by reference, to section 1014 (relating to the basis of
property acquired from a decedent), section 1015 (relating to the basis
of property acquired by gift or by a transfer in trust), or section
1022 (relating to the basis of property acquired from certain decedents
who died in 2010), that part of the adjusted uniform basis assignable
under the rules of paragraph (a) of this section to the interest sold
or otherwise disposed of shall be disregarded to the extent and in the
manner provided by section 1001(e) and Sec. 1.1001-1(f).
(2) Effective/applicability date. The provisions of paragraph
(b)(1) of this section relating to section 1022 are effective on and
after January 19, 2017. For rules before January 19, 2017, see Sec.
1.1014-5 as contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 36. Section 1.1223-1 is amended by adding a sentence to the end of
paragraph (b) and adding paragraph (l) to read as follows:
Sec. 1.1223-1 Determination of period for which capital assets are
held.
* * * * *
(b) * * * Similarly, the period for which property acquired from a
decedent who died in 2010 was held by the decedent must be included in
determining the period during which the property was held by the
recipient, if the recipient's basis in the property is determined under
section 1022.
* * * * *
(l) Effective/applicability date. This section applies January 19,
2017. For rules before January 19, 2017, see Sec. 1.1223-1 as
contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 37. Section 1.1245-2 is amended by revising paragraph (c)(2)(ii)
and adding paragraph (d) to read as follows:
Sec. 1.1245-2 Definition of recomputed basis.
* * * * *
(c) * * *
(2) * * *
(ii) The transactions referred to in paragraph (c)(2)(i) of this
section are:
(A) A disposition that is in part a sale or exchange and in part a
gift (see Sec. 1.1245-4(a)(3));
(B) A disposition (other than a disposition to which section
1245(b)(6)(A) applies) that is described in section 1245(b)(3)
(relating to certain tax-free transactions);
(C) An exchange described in Sec. 1.1245-4(e)(2) (relating to
transfers described in section 1081(d)(1)(A)); or
(D) A transfer at death where the basis of property in the hands of
the transferee is determined under section 1022.
* * * * *
(d) Effective/applicability date. This section applies on and after
January 19, 2017. For rules before January 19, 2017, see Sec. 1.1245-2
as contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 38. Section 1.1245-3 is amended by revising paragraph (a)(3) and
adding paragraph (d) to read as follows:
Sec. 1.1245-3 Definition of section 1245 property.
(a) * * *
(3) Even though property may not be of a character subject to the
allowance for depreciation in the hands of the taxpayer, such property
may nevertheless be section 1245 property if the taxpayer's basis for
the property is determined by reference to its basis in the hands of a
prior owner of the property and such property was of a character
subject to the allowance for depreciation in the hands of such prior
owner, or if the taxpayer's basis for the property is determined by
reference to the basis of other property that in the hands of the
taxpayer was property of a character subject to the allowance for
depreciation, or if the taxpayer's basis for the property is determined
under section 1022 and such property was of a character subject to the
allowance for depreciation in the hands of the decedent. Thus, for
example, if a father uses an automobile in his trade or business during
a period after December 31, 1961, and then gives the automobile to his
son as a gift for the son's personal use, the automobile is section
1245 property in the hands of the son.
* * * * *
(d) Effective/applicability date. This section applies on and after
January 19, 2017. For rules before January 19, 2017, see Sec. 1.1245-3
as contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 39. Section 1.1245-4 is amended by revising the second sentence of
paragraph (a)(1) and adding paragraph (i) to read as follows:
Sec. 1.1245-4 Exceptions and Limitations.
(a) * * *
(1) * * * For purposes of this paragraph (a), the term gift means,
except to the extent that paragraph (a)(3) of this section applies, a
transfer of property that, in the hands of the transferee, has a basis
determined under the provisions of section 1015(a) or 1015(d) (relating
to basis of property acquired by gifts) or section 1022 (relating to
basis of property acquired from certain decedents who died in 2010). *
* *
* * * * *
(i) Effective/applicability date. This section applies on and after
January 19, 2017. For rules before January 19, 2017, see Sec. 1.1245-4
as contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 40. Section 1.1250-4 is amended by adding paragraphs (c)(5) and
(h) to read as follows:
Sec. 1.1250-4 Holding period.
* * * * *
(c) * * *
(5) A transfer at death where the basis of the property in the
hands of the transferee is determined under section 1022.
* * * * *
(h) Effective/applicability date. This section applies on and after
January 19, 2017. For rules before January 19, 2017, see Sec. 1.1250-4
as contained in 26 CFR part 1 revised as of April 1, 2016.
0
Par. 41. Section 1.1254-2 is amended by revising the second sentence of
paragraph (a)(1) to read as follows:
[[Page 6242]]
Sec. 1.1254-2 Exceptions and limitations.
(a) * * *
(1) * * * For purposes of this paragraph (a), the term gift means,
except to the extent that paragraph (a)(2) of this section applies, a
transfer of natural resource recapture property that, in the hands of
the transferee, has a basis determined under the provisions of section
1015(a) or 1015(d) (relating to basis of property acquired by gift) or
section 1022 (relating to the basis of property acquired from certain
decedents who died in 2010). * * *
* * * * *
0
Par. 42. Section 1.1254-3 is amended by revising paragraphs (b)(2)(ii)
and (iii) and adding paragraph (b)(2)(iv) to read as follows:
Sec. 1.1254-3 Section 1254 costs immediately after certain
acquisitions.
* * * * *
(b) * * *
(2) * * *
(ii) A transaction described in section 1041(a);
(iii) A disposition described in Sec. 1.1254-2(c)(3) (relating to
certain tax-free transactions); or
(iv) A transfer at death where basis of property in the hands of
the transferee is determined under section 1022.
* * * * *
0
Par. 43. Section 1.1254-4 is amended by revising paragraph (e)(4)
introductory text to read as follows:
Sec. 1.1254-4 Special rules for S corporations and their
shareholders.
* * * * *
(e) * * *
(4) * * * If stock is acquired in a transfer that is a gift, in a
transfer that is a part sale or exchange and part gift, in a transfer
that is described in section 1041(a), or in a transfer at death where
the basis of property in the hands of the transferee is determined
under section 1022, the amount of section 1254 costs with respect to
the property held by the corporation in the acquiring shareholder's
hands immediately after the transfer is an amount equal to--
* * * * *
0
Par. 44. Section 1.1254-5 is amended by revising paragraph (c)(2)(iv)
introductory text to read as follows:
Sec. 1.1254-5 Special rules for partnerships and their partners.
* * * * *
(c) * * *
(2) * * *
(iv) * * * If an interest in a partnership is transferred in a
transfer that is a gift, in a transfer that is a part sale or exchange
and part gift, in a transfer that is described in section 1041(a), or
in a transfer at death where the basis of property in the hands of the
transferee is determined under section 1022, the amount of the
transferee partner's section 1254 costs with respect to property held
by the partnership immediately after the transfer is an amount equal
to--
* * * * *
0
Par. 45. Section 1.1254-6 is revised to read as follows:
Sec. 1.1254-6 Effective/applicability date.
(a) Sections 1.1254-1 through 1.1254-3 and 1.1254-5 are effective
with respect to any disposition of natural resource recapture property
occurring after March 13, 1995. The rule in Sec. 1.1254-
1(b)(2)(iv)(A)(2), relating to a nonoperating mineral interest carved
out of an operating mineral interest with respect to which an
expenditure has been deducted, is effective with respect to any
disposition occurring after March 13, 1995, of property (within the
meaning of section 614) that is placed in service by the taxpayer after
December 31, 1986. Section 1.1254-4 applies to dispositions of natural
resource recapture property by an S corporation (and a corporation that
was formerly an S corporation) and dispositions of S corporation stock
occurring on or after October 10, 1996. Sections 1.1254-2(d)(1)(ii) and
1.1254-3(b)(1)(i), (b)(1)(ii), (d)(1)(i), and (d)(1)(ii) are effective
for dispositions of property occurring on or after October 10, 1996.
(b) The provisions of Sec. Sec. 1.1254-2(a)(1), 1.1254-3(b)(2),
1.1254-4(e)(4), and 1.1254-5(c)(2)(iv) that relate to section 1022 are
effective on and after January 19, 2017.
0
Par. 46. Section 1.1296-1 is amended by revising paragraphs (d)(4) and
(j) to read as follows:
Sec. 1.1296-1 Mark to market election for marketable stock.
* * * * *
(d) * * *
(4) Stock acquired from a decedent. In the case of stock of a PFIC
that is acquired by bequest, devise, or inheritance (or by the
decedent's estate) and with respect to which a section 1296 election
was in effect as of the date of the decedent's death, notwithstanding
section 1014 or section 1022, the basis of such stock in the hands of
the person so acquiring it shall be the adjusted basis of such stock in
the hands of the decedent immediately before his death (or, if lesser,
the basis that would have been determined under section 1014 or section
1022 without regard to this paragraph (d)).
* * * * *
(j) Effective/applicability date. The provisions in this section
are applicable for taxable years beginning on or after May 3, 2004. The
provisions of paragraph (d)(4) of this section relating to section 1022
are effective on and after January 19, 2017.
0
Par. 47. Section 1.1312-7 is amended by revising paragraph (b) and
adding paragraph (d) to read as follows:
Sec. 1.1312-7 Basis of property after erroneous treatment of a prior
transaction.
* * * * *
(b)(1) For this section to apply, the taxpayer with respect to whom
the erroneous treatment occurred must be:
(i) The taxpayer with respect to whom the determination is made; or
(ii) A taxpayer who acquired title to the property in the
erroneously treated transaction and from whom, mediately or
immediately, the taxpayer with respect to whom the determination is
made derived title in such a manner that he will have a basis
ascertained by reference to the basis in the hands of the taxpayer who
acquired title to the property in the erroneously treated transaction;
or
(iii) A taxpayer who had title to the property at the time of the
erroneously treated transaction and from whom, mediately or
immediately, the taxpayer with respect to whom the determination is
made derived title, if the basis of the property in the hands of the
taxpayer with respect to whom the determination is made is determined
under section 1015(a) (relating to the basis of property acquired by
gift) or section 1022 (relating to the basis of property acquired from
certain decedents who died in 2010).
(2) No adjustment is authorized with respect to the transferor of
the property in a transaction upon which the basis of the property
depends, when the determination is with respect to the original
transferee or a subsequent transferee of the original transferee.
* * * * *
(d) Effective/applicability date. This section applies on and after
January 19, 2017. For rules before January 19, 2017,
[[Page 6243]]
see Sec. 1.1312-7 as contained in 26 CFR part 1 revised as of April 1,
2016.
John Dalrymple,
Deputy Commissioner for Services and Enforcement.
Approved: November 11, 2016.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2017-01365 Filed 1-18-17; 8:45 am]
BILLING CODE 4830-01-P