Special Aggregate Stock Ownership Rules

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [TD 8949] RIN 1545-AY80 

TITLE: Special Aggregate Stock Ownership Rules

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to the
aggregation of stock ownership in a corporation of members of a
consolidated group. These regulations reflect a technical correction
enacted in section 311(c) of the Community Renewal Tax Relief Act of
2000 that, in substance, provides that the special aggregate stock
ownership rules shall apply for purposes of section 732(f) of the
Code. These final regulations may affect all consolidated groups.

DATES: Effective Date: June 19, 2001.

FOR FURTHER INFORMATION CONTACT: Frances L. Kelly or David H.
Kessler, (202) 622-7770 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Income Tax Regulations (26
CFR Part 1) under section 1502 of the Internal Revenue Code of 1986
(Code). Section.2 1.1502-34 generally provides that, for purposes of
the consolidated return regulations, the stock ownership of all
members of a consolidated group in another corporation is aggregated
in determining the application of certain Code provisions, including
section 332(b)(1), in a consolidated return year.

Section 538 of the Ticket to Work and Work Incentives Improvement
Act of 1999 (Public Law 106-170, 113 Stat. 1939) (the 1999 Act)
enacted section 732(f) on December 17, 1999. With certain
exceptions, section 732(f) generally provides that if (1) a
corporate partner of a partnership receives a distribution from that
partnership of stock in another corporation, (2) the corporate
partner has control of the distributed corporation immediately after
the distribution or at any time thereafter, and (3) the
partnership's adjusted basis in such stock immediately before the
distribution exceeded the corporate partner's adjusted basis in such
stock immediately after the distribution, then an amount equal to
such excess shall reduce the basis of the property held by the
distributed corporation at such time.

On December 21, 2000, Congress enacted section 311(c) of the
Community Renewal Tax Relief Act of 2000 (Public Law 106-554, 114
Stat. 2763) (the 2000 Act), a technical correction to section 538 of
the 1999 Act. Section 311(c) of the 2000 Act states "[t]he reference
to section 332(b)(1) of the Internal Revenue Code of 1986 in
Treasury Regulation section 1.1502-34 shall be deemed to include a
reference to section 732(f) of such Code." The Conference Report
states that the rule in the consolidated return regulations
(§1.1502-34) aggregating stock ownership for purposes of
section 332 (relating to a complete liquidation of a subsidiary that
is a controlled.3 corporation) also applies for purposes of section
732(f) (relating to basis adjustments to assets of a controlled
corporation received in a partnership distribution). H.R. Conf. Rep.
No. 1033, 106th Cong., 2d Sess. 1022 (2000).

Section 311(d) of the 2000 Act provides that section 311(c) of the
2000 Act takes effect as if included in the provisions of the 1999
Act to which it relates. Thus, the effective date of section 311(c)
of the 2000 Act is the same as that for section 538(a) of the 1999
Act, which is contained in section 538(b) of the 1999 Act.

Explanation of Provisions

These final regulations conform §1.1502-34 to a technical
correction enacted in section 311(c) of the 2000 Act and add a
regulation under section 732 reflecting that correction. These
regulations reflect this statutory provision clarifying that the
stock aggregation rules under §1.1502-34 apply for purposes of
section 732(f).

Because section 311(d) of the 2000 Act provides that section 311(c)
of the 2000 Act shall take effect as if it had been included in the
provisions of the 1999 Act, the effective date provisions of section
538(b) of the 1999 Act apply to these regulations. Section 538(b)
generally provides that the amendments made by section 538(a) of the
1999 Act apply to distributions made after July 14, 1999. In the
case of a corporation that was a partner in a partnership as of July
14, 1999, the amendments made by section 538(a) of the 1999 Act
apply to distributions made (or treated as made) to that partner
from that partnership after June 30, 2001. In the case of any such
distribution made after December 17, 1999, and before July 1, 2001,
the rule of the preceding sentence does not apply unless that
partner makes an election to have the rule apply to.4 the
distribution on the partner's income tax return for the year in
which the distribution occurs.

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. Because no
notice of proposed rulemaking is required for this final regulation,
the provisions of the Regulatory Flexibility Act (5 U.S.C. chapter
6) do not apply.

This final rule merely conforms §1.1502-34 to the statutory
amendment made by section 311(c) of the 2000 Act. Pursuant to 5
U.S.C. 553, it is determined that prior notice and comment are
unnecessary and contrary to the public interest. For the same
reason, good cause exists for not delaying the effective date of
this final rule. 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 is amended by adding
entries in numerical order to read in part as follows:

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

Section 1.732-3 also issued under 26 U.S.C. 732(f). * * *

Section 1.1502-34 also issued under 26 U.S.C. 1502. * * *

Par. 2. Section 1.732-3 is added to read as follows:

§1.732-3 Corresponding adjustment to basis of assets of a
distributed corporation controlled by a corporate partner.

The determination of whether a corporate partner has control of a
distributed corporation for purposes of section 732(f) shall be made
by applying the special aggregate stock ownership rules of
§1.1502-34.

§1.1502-34 [Amended ] Par. 3. In §1.1502-34, the first
sentence is amended by adding "732(f)," immediately after "351(a),"

Robert E. Wenzel
Deputy Commissioner of Internal Revenue

Approved: June 8, 2001

Mark A. Weinberger
Assistant Secretary of the Treasury

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