Election to Amortize Start-up Expenditures for Active Trade or Business

69554

Federal Register / VoI. 63. No. 242 /Thursday, Decemkr 17, 1998 /Rules and Regulations
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{lie taxable ycor with resppct tn property
that was at ally time a position in that
straddle (jncludinf: loss realized in an

earlier tavable year).
(i i) Mixed s paddle accounts. With
respect to each mixed straddle account
(as defined In § I . L09Z(b)-4T(b)), the
amount olgairl taken into account shall
be the annual accounr gain for that
mixcd straddle arrollnt. computed

pursuanr t o 5 1.1092(b)-4T(c)(2).
(5) I7ert~it1transactions similar to
straddles. in computing the gross
income and qualifying Income of a
partnership for purposes ofscctivn
7704(c) (2) and rhis sectlon, related
tntervsh in property (whether or not
personal property as defined in section
1092(d)(l)) that pmduce a substantial
d imlnution of the partnership's risk of
loss simi lac to that of a straddle (as
defined in secti3n 1092(c)) shall be
combined so that the amount of gain
taken into account by the partnchhip in
computing its gross income shall be the
txccss, if any, ~f gain r~r.ngnizedduring
the ramble year with respect to such
interests over any loss recognized
during the twable year with respect to

such interests.
(6) Wash sale rule-(i) Gain nor t a k w
info a r m ! . Solely for purposes of
section 7704 (c)(2) ar~dthis section, if a
parrt~ecshiprecognizes gain In a section
7704 wash sale transactinn with respect
to one or more positions in either a

siraddle (as defined In section 10924~))
or an arrangement described in
paragraph (b){5)of &is section, then the
gain shaH not be taken 1 1 ~ account
u
to
the extent of the amount of
unircognizcd loss (as of the rlw of the
taxable year) in one or more offsetting
positions of the straddle or arrangement
described in paragraph (b)(5) of this
section.
[i i) Section 7704 wash sale
transaction. For purposes of this
paragmph (b){B), a secljon 7704 wash
sale transaction a transaction in

- -

.

be~inningafter any earlier date selected
by the partnership.
Robert E W e ~ u c l ,
Deputy Commisioner o f lr~rcr1 x 4 1 rLvenuc.
Approved, Decembr 7 , 1998.
~ o n a l dC. Lubick,
Assistant

Secretary ofthe Treasury f l a x

Policy).

(FR Doc. 98-33345 Filed 12-1698; 8:45 am)
BILLING C O M 48-14

20503.
.

DEPARTMENT OF THE TREASURY

Internal Revenue ! k u k e
26 CFR pa-

P D 87971

Comments concerning Lhe accuracy of
this burdcn estimate and suggestions for
reduring this burdcn should be sent to
the Internal Revenue Service. Attn: IRS
Reports Clearance Officer. K:FP.
Washington. DC 20224. and to thf
(3ffice of Marlage~~~erlt
and Budget. Ann:
Desk Officer for the Drpartmcnt or rhe
Treasury,OFfice of Information and
Regulatoq Affairs. Washington, DC

1 and 502

. . ,,

I'

B m k s or records re la tin^ to thB

collectfon of information Gus1 be
recained as lung as thcir content< may
become material in the adrninlstratlon
of any Internal revcnue law. Generally.
)!
returns and tax return infomation
are confidential, as required by 26

"

U.S.C. 6103.

Rackground
Section 195 was added to the Internal
Election to dmprttai Start-Up
Revrnuc Code of 1954 by section 102 of
Expenditures for Active Trade or
the Mkcellaneous Revenue Act of 1980.
Buslness
and was amended by sealon 94 of the
A C ; E ~ Internal
:
Revenue Service ORS) . Tax Reform Acr of 1984.
Settion 195 generally provides that no
Treasury
deduction is allowed for starr-tip
A C n O N Final regulations.
expendj turcs unless h e taxpayer elects
to amortl7.e the expenditures. Under
SUMMARY: This document contains final
sccrion 195(b)(l}, if the taxpayer elects
regulations concerning start-up
expenditures fur active tradc or business to amortize start-up expenditures. the
under sectlon I95. These regulation5 are expenditures are arnottlzable ovet a
period of not less than 60 months
ncccmry to pr~vldrtrt~lpsand
procedures for electing to amortize start- beginning with the month in whlch the
active trade or business begins. Secrior~
up expenditures under section 195
195(d)provides that an election to
They affect all taxpayers wishing to
amortize start-up expenditures must be
amoruze start-up expenditures under
made not later than the time prescribed
section 195.
DATES: EfiectfveDate: These regulations by law for filing the return for the
taxable year in which the active trade or
are effecrlve December 17, 1998.
business beglns (lr~cludl~~g
extensions
Applicability Date: For the date of
thereof).
applicability of thew regulations, see
011January 13. 1998. the IRS
5 1.195-l(d).
published a notice of proposed
M R FURTHER HFORhUllONCONTACT:
rulemaking [REG-209373-81) in the
David Selig, (202) 622-3040{not a rollFderal Register (63 FR 1933) proposing
FUN 1545AT71

free number).

SUPPtEHPCTARY NWRmmN:

Paperwork Reduct inn Act
The collection of information
whichcontninod in t h e e final regulations has
(A) A partership dtsposs of one or
been reviewed and approved by the
more positlnnq af a straddle (as defined
Office of Management and Budget in
in wcrion 1092(c)) or one or m r e
accordance with the Paperwork
related positims described in paragraph Reduction Act af 1995 (44 U.S.C.
(b)(5) of this section: and
351)7(d)) under control number 1545 (0)The partnership acquires a
1582.
substantially similar posniorl or
An agency may not conduct or
positions within a period beginning 30
sponsor, and a person Is not required ta
days before the date of the dispositinn
r-pond tn, a collection of information
and ending 30 days after such date.
unless the collection of information
(c) EWcctrvc date. This sertion applies displays a valid control number.
The estimated annual burden per
to taxable years of a partnership
beginning on or after December 17,
respondent varles from .10 hours to -50
1998. However, a partnership may apply hours, depe~ldlng011 individual
this section in its entirety for all of the
circumstances. with a n estimared
partnership's open raxable years
average or .25 hours.

amendments to the Income Tax
Kegulauons (26 CFR p a t 1) concerning
the election to amortize stan-up
expcnditurc?sunder sectlon 195 of the
Internal Revenue Code. A public
hearing was scheduled for June 2. 1998,
pursuant to a notice of public hearing
published simultaneously with the
notice 01proposed rule~i~aklr~g.
No onc
requested to speak at the public hearing,
therefore, no public hearing was held.
Written comments responding to the
notlce were received. After
consideration of all of the comments,
the proposed regulat tons are ad opted as
revised by this Treasury decision.
Exp knation of Revisions and
Discussion of Cornments
The pmposed rtgulations provide that
an election lo amortize start-up
wpendttures i s rmde by atrachlrlg a

Federal Reglskr / Vol . 63. No. 24 2 /Thursday. December 17, 1998 I Rules and Regulations

-----

statprnenr to the taxpayer's income tau
return. The income tax return and
statement mlrst he hled not latcr than
t h e date prescribed by law for filing the
income tax return (including any
~xtmn-qionsof time) for rhe taxnbIe year
in which the active trade or business
bcgins. Thus, a taxpaycr may file an
election Fnr any taxable year prior to the
year in which the taxpayer's active trade
or business begins. and such elecrion
will herome effective in the month of
tl~c
year in which h e taxpayer's actlve
trade or business hglns.
One commentator suggested that the
provision in the proposed regulations
permitting the filing of a r~vised
statement to include any start-up
expenditures not included in i l ~ e
taxpayer's original election statement
appears to endorse the practice of those
t q a y e r s who file elections listing
token or zero start-up expenditures on
t h election
~
statement and subsequently
attempt to increase the amount subject
to amortizatim by expenditures that
taxpayers have been unsuccessful in
maintaining as expansion costs. The
provision is not designed to permit a
taxpayer t o revise the election statement
to include start -up expenditures omitted
by reason of h e taxpayer's claim on the
taxpayer's return h a t the expenditures
are expansion costs. Accordingly, the
regulations have been clarified to
pravide that the election statement may
not be revised to include expenditures
thar a taxpayer has treated on the
taxpayer's tax return in a manner

69555

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This certification is based upon the fact
that the time required to prepare and
file the election staremcnt Is rninlmal
and will not have a signrficant impacr
on those small entitles that choose to
make the elect ion. Therefore, a
Regtilatory FLexibility Analysis ~ l i ~ d e r
the ReguIatory FIexibiIiry Act (5 U.S.C.
chapter 6) Is not required.
Pursuant t o sect~on7805{1)of the
Internal Revenue Code, the notice o f
proposed rulemakifig preceding these
regulations was submitted lo Ihe Chiel
Counsel [or Advocary of the Small
Buslncss Administration for comment
on its impact on small busin-b.
Drafting Informaaon. me principal
author ofthese regulations is David
Selig, Off ~ c eof the Assistant Chief
Counsel (Passthroughs and Special
Industries). IRS. However, other
personnel from the IRS and Treasury
Department participated In their
development.

List of Subjecis
26 CFR Part 1
lncome taxes, Reporting and
recordkeeping requirements.

up expenditura under section 195 rhall
be made by attaching a statement
containing the information described In
pd~agraph(c) of this section to the
taxpayrr's return. The statement must
be filed no later than the date prescribed
by law for filing the r e t u r n (inrlt~ding
any extensions of time) for the taxab!e
year in which the active trade or
b u a i r l m begins Thc statemeat may he
filed with a return for any taxable year
prior to the year I n which the taxpayer's
a ~ t i v etrade or busincss begins, but nn

later than the date prescribed in the
preceding sentence. Accordingly, an
ele~tlorlundet smtion 195 filed for any

taxable year prior to the year in which
the taxpayer's active trade or business
begIris (at~dpursuam to which the
taxpayer commenced amortizing startup expenditures in that prior year) will
beconle drective in the month of the
year in which the taxpayer's active trade
or buslness begins.
(r) Information requ~redThe
statement shall set forth a description of
the trade or business to which i t relates

with sumcrent detail so that expenses
relatlng to the trade or business can be
identifled properly for the taxable year
in which the statement is tiled and for
all future taxabIe years to which it

26 CFR Part 602

Reporting and recordkeeping
requirements.
Adopllon of Amendments to ihc

Redations
"
Accordingly. 26 CFR parts 1 and 602
are amended as foilows:

PART 1-INCOME TAXES
inconsistent with their treatment as
start-up expenditures.
Paragraph 1. The autboriry citation
Another commentator suggested that a
lor part 1 cnntlnues to read in part as
separate statement to make the election
follows:
under section 195 should not be
Authority 26 U.S.C. 7805 * *
required for small businesses, but rather
a check-the-boxelection should be
Par. 2. Section 1.195- 1 Is added to
provided. A separate statement is
read as follows:
necessary to ensure that the expenses
listed threjn are proper1y characterized g t.195t Election to arnonlze start-up
expendttures.
as start-up expendttures, and chat
(a) Ingeneral. Under secllon 195 (b) a
amortization of the start-up
taxpayer may elect to amortize stan-up
expenditures will begin and end at the
proper times. The statement is simple to expenditures (asdeflned in section
195(c)(1)). A taxpayer who elects to
cosnplete and the time to prepare the
an lur,tlze start-upexpandltures must, at
statement Is rninlmal. Accordingly,the
the time of the election, select an
final regu latiom retain (he requirement
amortization period of not less than 60
that a separate statement with the
,
with the month In
rcquislie information be attached to the n ~ o r l t hbeginning
which the active trade or busintaxpayer's return.
beglns. The election applies to all of the
Special A n a l y s
taxpayer's start-up cxpcnditureswith
lt has been determined that this
respect to the trade or business. The
Treasury decision I s not a signiflmnt
election to amortize start-up
regulatory action as defined in EO
expendl tur = i s irrcvocablc, and thc
12866. Therefore.a regula!ory
amortization period selected by the
assessment is not required. 1 t is hereby
taxpayer jn making the election may not
certified that these rrgulations do not
stlbsequeririy be changed.
have a significant impact on a
Time and manner of making
substarilia1 number of small entities.
election. The elcctlon to amortize start-

.

relates. The statement also shall Include
the number of months {not less than 60)
over which the expenditures are to be
amortized, and to t h extent known at
the time the statement is riled, a
description or each start-up expenditure
Incurred (whether or not paid) and the
month in whlch the active trade or
business began (or was acquired). A
revised statement may be filed to
include any start-up expenditures not
included in the taxpayer's original
election statement, but the rwtsed
statement may not Include any
expenditures for which the taxpayer had
p6viously taken a position on Aturn
inc~nsistentwith their treatment as
start-up expenditures. The revised
statement may be flied with a return
filed after the return that contained the
election.
(d) Effectivedate. This wctinn applies
to elections filed on or after December
17. 1998.

PART 6 0 2 4 M B CONTROL NUMBERS
UNDER THE PAPERWORK
REDUClION ACT

Par. 3. The authority citation for part
602 ront inues to read as follows:
Authority: 26 U.S.C. 7805
Par. 4. In 5 602.101, paragraph (c) is
amended by adding an entry to the table
in numerical order to read as follows:

No. 242 /Thursday, December 17, I!398 1 Rules and Regulations

----9 602.101 OMB Control numbers.

*

*

(c)

*

*

*

* * *

CFR part or section where
identified and described

Current

lrol No.

Bob Wenzel.
Deputy Cotnmlssionerof internal Revenue.

Approvd- November 30. 1998.
Donald C. Lublck.
Assistant Serretary of the Tkasugv.
IFR Duc 98-33124 Filed 12-1 6-98: 8:45 am]
BIUINa CODE 4-1-U

---DEPARTMENT OF TRANSPORTATION
Coast Guard

33 CFR Part 117

and 4 p m., Mnnday through Friday,
except P'ederal holidays. Tile 3 1 - i d g e
Administration Branch of the Eighth
Coast Guard District maintains the
p~rhlirrlnrket for this temporary rule.
KN(

FURTHER MFORMATlOH CONTACT:

Phil Johnsonor David Prank, Bridge
Administration Branch, at the address
and telephone number glven above.
S U M W A R Y 1NH)RMATWN: On Juoe
23 1998.the Coast Cuard issued a
reirlpoiary rule [63 FR 35820 Uuly 1,
1998)l For the rcgulation governing the
operation of the draws of the Greater

New Orleans Expressway Commission
causeway, north bcscule spans across
Lake Pontchartrain, to allow the draws
to remain closed Monday through
Sarurduy from luly 6 , I998 through
November 10, 1998. The temporary rule
was issued to allow for the cleaning and
painting of the bascule structures.
However, the contractor was unable to

complete the project for reasons
including the approach of two
hurrlvanes 11) the ]nunth of Scptcmber

which required the removal of a l l
equipment from the site. Presenrly, the
[CG DOtr98-075]
rnntractoc is prepared t n continue with
the praJect and is expending funds to
RIM 21 1 S A E 4 7
maintain barges, tugs and related
Drawbridge Operation Regulation;
equjpmenr needed to complete the
Lake Pontchartratn, L A
project. The 1enlputdr.y rule expjrcd on
November 10, 1998. November 27. 1998,
AGENm: Coast Guard, DOT.
the Coast Guard received a request from
A M : Temporary rule.
t h Creater
~
New Orleans Expressway
Commrssion for another temporary rule
SUWY:
The Coast'Guard is
temporarily changing the regulation for to allow the work to begin on December
the operation of thc draws of the G r e a t ~ r 4, 1998 and to continue through March
13. 1999. Since rhia request dld not
New Orleans Expressway Commission
provide an opportunity for notices to
causeway, north bascule spans across
mariners to be issued, the effective d a t a
Lake Pontchartraln between Metairie.
were rhangftd to December 14, 1998
JeffersonParish and Mandevllle, St.
through March 20, 1999. The portions of
Tam~nanyParish,Louisiana. From
the bascule structure which h a k e not
Decernber 14.1998 through March 20,
been
strlpped and painted remain in a
1999, the draws wl11 remain closed to
navigation Mondays through Saturdays deteriorated condition whlch warrants
h e clnsures so that remedia1 work can
except for federal holidays and the
be accomplished. The contractor is
weekends inclusive of federal holidays
pwpar~drr, resume work and wlll
and an Mardi Gras Day, the draws will
experience loss of Funds if not allowed
open on signal if at [east three hours
to continue without mnecessaty delays.
notice is ghen. This temporary rule is
The Coast Guard was not notified in
issued to allow for completion of a
time ro &sue a ~ ~ u t l of
c eproposed
proJea to clean and paint the bascule
rulemaking. For these reasons, good
swuctures, an extensive but necessary
cause exists to issue this ternporary rule
maintenance operation.
without notice to provide an
DATES: This temporary rule Is effective
opportunity for comments and to make
from December 14. 1998 hmllgh March thfs temporary rule effective in less than
20, 1999.
30 days after publication.
ADDRESSES: Unless otherwise Indicated,
Background and Purpose
documents referred to in this notice are
available for inspection or copying at
The south channel span of the Greater
the off~cc of the Eighth Coast Cuard
New Drl~amExpressway Commission
District, Bridge AdmRistration Branch, causeway across Lake Pontchartrain
Hale Bogs Building, room 1313,501
Louisiana provides an alternate route
Magazine Sheet, New Orleans.
with a vertical clearance of 50 feet above
Louisiana 70130-3396 between 7 a.m.
mean high water. Navigation on the

-

waterway consists of small rugs with
tows, fishing vessels, sailing vessels anrl

other r~creationaIcraI~.The special

equipment used for this procedure has
to be removed each time the draw span
is opened. Since this prmess is time
consuming and costly, the equipment
must remain in place lor 6-day periods.
altowing the contt-artnr to rnakihize
work time. While the draw span being
serviced is in the closed to navigation
position, the equipment wilt be
supported by two crane barges which
must remain in placc below the draw
span. The short term inconvenience,
attrjhutahl~to a &lay of vessel mfic
which is not able to use the south
channel span as an alternate route, for
a n~axlmrrmo f six days, is outweighed
by the long term benefits to be gaincd
by keeping the bridges free of corrosion
and in proper working condition. The
work is ~ s e n t i a for
l the continued
operation of the draw spans. Preently,
the draws open on signal if at least three
hours notice is given.

Regulatory Evaluatian
This temporary rulemaktng is not a
significant regulatory action under
section 3(f) of Executive Order 12866
and does not require an assessment of
potential cost and benefits under section
G(a](3) of that order. It has not been
reviewed by the Omce of Management
and Budget under that order. It is not
s i ~ n i f i c a nunder
t
the Regulatory Pollcies
and Procedures of the Department of
Transportation (DOT) (44 FR 11040,
February 26,1979).The Coast Guard
expects the cconornic impact of this

temporary rule to be so mhimal that a
full Regulatory Evaluation under
paragraph IOe of the regulatory policies
and procedures of DOT is unnecessary.
This is because of the majodty of vessels
affected by the closure is rnlnirnal. The
majority of commcrdal vessels and rnor;?
ofthe recreational sailboats sailboats
which normally transit the causeway
bridge are able to do so at one of the

navigation humps, located at four mile
intervals along the bridge. Or through
the south channel span, which provides
a vectlcal clearance of 50 feet above
mean hlgh water.

Small Entities
Under the Regula~oryFlexiblUty Act
(5 U.S.C. 601 et seq.). the Coast Guard
must consider whether this temporary
rule will have a signifimnt economic
impact on a substantial number of small
ent itles."Small entit ips" may i x l u d e
small businesses, not-for-profit
organizations that are Independently
owned and o w a t e d and are not
dominant in their fields and
governmental jurisdictions with