Reg-208172-91

Federal Register / Vol. 62, No. 4 / Tuesday, January 7, 1997 / Proposed Rules
in the foreign country that will receive
the device. The labeling for devices
exported under section 802 of the act
also must be in the language and units
of measurement of the foreign country
or in the language designated by that
country.
III. Issues for Public Comment
Considering these changes in the
export authority for devices, FDA is
reopening for 60 days the comment
period for the proposed rule. FDA is
soliciting public comment on the
following issues:
1. Is a final rule still necessary? Given
that section 802 of the act now provides
additional flexibility for device exports
and to export devices without the need
to make export requests under section
801(e)(2) of the act, is there still a need
to streamline the export procedure
under section 801(e)(2) of the act? If so,
what specific relief for exports under
§ 801(e)(2) of the act is sought for U.S.
IDE devices that is not preceded by the
new legislation?
2. If a final rule is still necessary,
what changes to the rule should be
made? For example, the proposed rule
included a program option under which
foreign countries would notify FDA of
their willingness to accept devices that
are the subject of an approved IDE.
However, there is little evidence to
suggest that foreign governments will be
willing to accept all IDE devices.
Conceivably, a foreign government
might be inclined to impose conditions
on its acceptance of IDE devices, or
accept some, but not all, devices. What
are some alternatives to this program
option? FDA invites interested persons
to submit draft language for any
suggested regulatory change.
Interested persons may, on or before
March 10, 1997 submit to the Dockets
Management Branch (address above)
written comments regarding this
proposal. Two copies of any comments
are to be submitted, except that
individuals may submit one copy.
Comments are to be identified with the
docket number found in brackets in the
heading of this document. Received
comments may be seen in the office
above between 9 a.m. and 4 p.m.,
Monday through Friday.
During this comment period and
FDA’s review of the comments, FDA
will issue export permits under section
801(e)(2) of the act using current CDRH
procedures. A copy of the procedures
may be obtained through the
Information Processing and Office
Automation Branch (HFZ–307),
Division of Program Operations, CDRH,
by calling 301–594–4520 or by faxing a
request to 301–594–4528. In the event

that FDA decides, after considering the
comments received, not to issue a final
rule or to issue a new proposal, FDA
will continue to issue export permits
under section 801(e)(2) of the act using
current CDRH procedures.
Dated: December 31, 1996.
William K. Hubbard,
Associate Commissioner for Policy
Coordination.
[FR Doc. 97–292 Filed 1–6–97; 8:45 am]
BILLING CODE 4160–01–F

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[REG–208172–91]
RIN 1545–AU71

Basis Reduction Due to Discharge of
Indebtedness
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
AGENCY:

This document contains
proposed regulations that provide
ordering rules for the reduction of bases
of property under sections 108 and 1017
of the Internal Revenue Code of 1986.
The regulations will affect taxpayers
that exclude discharge of indebtedness
from gross income under section 108.
DATES: Written comments must be
received by April 7, 1997. Outlines of
oral comments to be presented at the
public hearing scheduled for April 24,
1997, at 10 a.m. must be received by
April 3, 1997.
ADDRESSES: Send submissions to:
CC:DOM:CORP:R (REG–208172–91),
room 5228, Internal Revenue Service,
POB 7604, Ben Franklin Station,
Washington, DC 20044. In the
alternative, submissions may be hand
delivered between the hours of 8 a.m.
and 5 p.m. to: CC:DOM:CORP:R (REG–
208172–91), Courier’s Desk, Internal
Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC.
Alternatively, taxpayers may submit
comments electronically via the internet
by selecting the ‘‘Tax Regs’’ option on
the IRS Home Page, or by submitting
comments directly to the IRS internet
site at http://www.irs.ustreas.gov/prod/
tax regs/comments.html.
FOR FURTHER INFORMATION CONTACT:
Concerning the regulations generally,
Sharon L. Hall or Christopher F. Kane
of the Office of Assistant Chief Counsel
(Income Tax & Accounting) at (202)
SUMMARY:

l

955

622–4930; concerning partnership
adjustments under section 1017, Brian
M. Blum of the Office of Assistant Chief
Counsel (Passthroughs & Special
Industries) at (202) 622–3050;
concerning submissions and the
hearing, Evangelista C. Lee of the
Regulations Unit at (202) 622–7190 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act
The collections of information
contained in this notice of proposed
rulemaking have been submitted to the
Office of Management and Budget for
review in accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)).
Comments on the collections of
information should be sent to the Office
of Management and Budget, Attn: Desk
Officer for the Department of the
Treasury, Office of Information and
Regulatory Affairs, Washington, DC
20503, with copies to the Internal
Revenue Service, Attn: IRS Reports
Clearance Officer, T:FP, Washington, DC
20224. Comments on the collections of
information should be received by
March 10, 1997. Comments are
specifically requested concerning:
Whether the proposed collections of
information are necessary for the proper
performance of the functions of the
Internal Revenue Service, including
whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collections
of information (see below);
How the quality, utility, and clarity of
the information to be collected may be
enhanced;
How the burden of complying with
the proposed collections of information
may be minimized, including through
the application of automated collection
techniques or other forms of information
technology; and
Estimates of capital or start-up costs
and costs of operation, maintenance,
and purchase of service to provide
information.
The collections of information in this
proposed regulation are in §§ 1.108–
4(b), 1.1017–1(e)(2), and 1.1017–1(f)(2)
(ii) and (iii). This information is
required for a taxpayer to elect to reduce
the adjusted bases of depreciable
property under section 108(b)(5), to
elect to treat section 1221(1) real
property as either depreciable property
or depreciable real property, and to
account for a partnership interest as
either depreciable property or
depreciable real property. This
information will be used to determine

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Federal Register / Vol. 62, No. 4 / Tuesday, January 7, 1997 / Proposed Rules

whether taxpayers have properly
reduced the bases of their properties.
The collections of information are
required to obtain a benefit. The likely
respondents are individuals, farms,
businesses or other for-profit
institutions, and small businesses or
organizations.
Estimated total annual reporting
burden: 100,000 hour.
Estimated average annual burden per
respondent: 1 hour.
Estimated number of respondents:
100,000.
Estimated annual frequency of
responses: On occasion.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information
displays a valid control number.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
This notice contains proposed
amendments to the income tax
regulations (26 CFR Parts 1 and 301)
under sections 108 and 1017 of the
Internal Revenue Code of 1986 (Code).
The amendments are proposed to
conform the regulations to amendments
to sections 108 and 1017 made by the
Bankruptcy Tax Act of 1980, Pub. L. 96–
589, § 2, 94 Stat. 3389 (1980), 1980–2
C.B. 607 (Bankruptcy Tax Act); the
Technical Corrections Act of 1982, Pub.
L. 97–448, § 102(h)(1), 96 Stat. 2365,
2372 (1983), 1983–1 C.B. 451; the
Deficit Reduction Act of 1984, Pub. L.
98–369, §§ 474(r)(5) and 721(b)(2), 98
Stat. 494, 839, 966 (1984), 1984–3 C.B.
(Vol. 1) 1; the Tax Reform Act of 1986,
Pub. L. 99–514, §§ 104(b)(2),
231(d)(3)(D), 822, and 1171(b)(4), 100
Stat. 2085, 2105, 2179, 2373, 2513
(1986), 1986–3 C.B. (Vol. 1) 2; and the
Omnibus Budget Reconciliation Act of
1993, Pub. L. 103–66, § 13150, 107 Stat.
312, 446 (1993), 1993–3 C.B. 1.
In general, section 108 excludes from
gross income discharges of indebtedness
if the discharge occurs in a title 11 case
or when the taxpayer is insolvent, or if
the indebtedness is ‘‘qualified farm
indebtedness’’ or ‘‘qualified real
property business indebtedness.’’
Taxpayers generally must reduce
specified tax attributes, including
adjusted bases of properties, to the
extent income from discharge of
indebtedness is excluded from gross
income under section 108. Section 1017

provides rules regarding any basis
reductions required by, or elected
under, section 108.
Explanation of Provisions
Overview
The legislative history of the
Bankruptcy Tax Act states that the
exclusion of discharge of indebtedness
(COD income) from gross income under
section 108 is intended to promote a
debtor’s fresh start. S. Rep. No. 1035,
96th Cong., 2d Sess. 10 (1980), 1980–2
C.B. 620, 624; H.R. Rep. No. 833, 96th
Cong., 2d Sess. 11 (1980). The exclusion
provided by the statute generally
operates, however, to defer, rather than
eliminate, income from discharge of
indebtedness.
The deferral of income provided by
statute is generally achieved by
requiring a taxpayer to reduce specified
tax attributes (including adjusted bases
of property) under section 108(b) by an
amount equal to the COD income
excluded from gross income under
section 108(a). Section 108(b)(2)
requires a taxpayer to reduce tax
attributes in the following order: (A) net
operating loss; (B) general business
credit; (C) minimum tax credit; (D)
capital loss carryovers; (E) adjusted
bases of property; (F) passive activity
loss and credit carryovers; and (G)
foreign tax credit carryovers. If the
excluded COD income exceeds the sum
of the taxpayer’s tax attributes, the
excess is permanently excluded from
the taxpayer’s gross income.
When basis reductions are necessary,
section 1017(a) requires the taxpayer to
reduce the adjusted bases of property
held on the first day of the following tax
year. Section 1017(b)(1) provides that
the amount of the basis reduction
required under section 1017(a), and the
particular properties the bases of which
are to be reduced, shall be determined
under regulations.
General Rules for Basis Reduction
Consistent with the legislative history
of the Bankruptcy Tax Act, the proposed
regulations generally retain the
‘‘tracing’’ approach of the existing
regulations issued under prior law.
Thus, the proposed regulations require
a taxpayer to reduce the adjusted basis
of the property that secured the
discharged indebtedness before
reducing the adjusted bases of other
property.
In addition, the proposed regulations
modify the categories in the existing
regulations to simplify the process of
basis reduction. First, the distinction
between purchase-money indebtedness
and other secured indebtedness is

eliminated. Second, the order of basis
reduction for property that secured
discharged indebtedness is changed.
Thus, the first category of the general
ordering rule is real property used in the
taxpayer’s trade or business or held for
the production of income (other than
section 1221(1) real property) that
secured the discharged indebtedness,
and the second category is personal
property used in the taxpayer’s trade or
business or held for the production of
income (other than inventory, accounts
receivable, and notes receivable) that
secured the discharged indebtedness.
Therefore, if an indebtedness secured by
a building, a parcel of land used in the
taxpayer’s trade or business, office
equipment, and office furniture is
discharged, the taxpayer proportionately
reduces the adjusted bases of the
building and the parcel of land, based
upon their relative adjusted bases, to the
full extent of the excluded COD income
before reducing the adjusted bases of the
office equipment and the office
furniture. The IRS and Treasury
Department believe that this
modification of the current regulations
will simplify the process of basis
reduction for many taxpayers.
Special Rules for Depreciable Properties
Instead of reducing tax attributes in
the order specified by section 108(b)(2),
a taxpayer may elect under section
108(b)(5) first to reduce the adjusted
bases of depreciable property (real and
personal) to the extent of the excluded
COD income. If the adjusted bases of
depreciable property are insufficient to
offset the entire amount of excluded
COD income, the taxpayer must reduce
any remaining tax attributes in the order
specified in section 108(b)(2). Section
108(c) requires that excluded COD
income from the cancellation of
qualified real property business
indebtedness must be applied against
depreciable real property.
Section 1017(b)(3)(C) provides that a
taxpayer must treat a partnership
interest as depreciable property when
reducing adjusted bases under section
108(b)(5), and as depreciable real
property when reducing adjusted bases
under section 108(c), to the extent the
partnership correspondingly reduces the
partner’s proportionate interest in the
adjusted bases of depreciable property
(or depreciable real property) held by
the partnership (inside basis).
The proposed regulations generally
provide that a taxpayer may freely
choose whether or not to request that a
partnership reduce the partner’s share of
depreciable basis in partnership
property and thereby permit the
taxpayer to treat the partnership interest

Federal Register / Vol. 62, No. 4 / Tuesday, January 7, 1997 / Proposed Rules
as depreciable property (or depreciable
real property). In addition, the proposed
regulations generally provide that the
partnership is free to grant or deny its
consent. In order to prevent avoidance
of the general ordering rules of the
proposed regulations through the use of
partnerships, however, a partner is
required to request consent if the
partner owns (directly or indirectly)
more than 50 percent of the capital and
profits interests of the partnership, or if
the partner receives a distributive share
of COD income from the partnership. In
addition, the partnership is required to
grant consent if requests are made by
partners owning (directly or indirectly)
an aggregate of more than 50 percent of
the capital and profits interests of the
partnership.
The proposed regulations provide that
a partner requesting a reduction in
inside basis must make the request
before the due date (including
extensions) for filing the partner’s
Federal income tax return for the
taxable year in which the partner has
COD income. A partnership that
consents to a basis reduction must
include a consent statement with its
Form 1065, U.S. Partnership Return of
Income, and must also provide a copy
of that statement to the affected partner
on or before the date the Form 1065 is
filed. The IRS and Treasury Department
recognize that under current law a
partner may not always have sufficient
information with which to decide to
request a basis reduction until on, or
shortly before, the due date (including
extensions) for filing the partner’s tax
return. For example, for calendar year
taxpayers, a partner’s tax return and a
partnership’s Form 1065 are generally
due on the same day. See sections 6031
and 6072. Comments are requested as to
whether additional rules (such as
requiring a partnership to inform
partners of COD income prior to the
date the Form 1065 is filed) are
necessary to ensure that information is
exchanged between the partnership and
its partners in a timely fashion.
The proposed regulations remove
§ 301.9100–13T, which governs
elections under section 108(b)(5), and
add new proposed § 1.108–4. Under the
temporary regulations, a taxpayer is
required to make the election with the
taxpayer’s Federal income tax return for
the taxable year in which the discharge
occurs, but is permitted to file an
election with an amended return, or
claim for credit or refund, if the
taxpayer establishes reasonable cause
for failing to file the election with the
original return. New proposed § 1.108–
4 requires the taxpayer to make the
election on the timely filed (including

extensions) Federal income tax return
for the taxable year the taxpayer has
COD income that is excluded under
section 108(a). Therefore, a taxpayer
that fails to make the election on that
return must request the Commissioner’s
consent to file a late election under
§ 301.9100–3T or any regulations that
supersede § 301.9100–3T.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a
significant regulatory action as defined
in EO 12866. Therefore, a regulatory
assessment is not required.
Pursuant to section 7805(f) of the
Internal Revenue Code, this notice of
proposed rulemaking will be submitted
to the Chief Counsel for Advocacy of the
Small Business Administration for
comment on its impact on small
business. Initial Regulatory Flexibility
Act Analysis
This initial analysis is required under
the Regulatory Flexibility Act (5 U.S.C.
chapter 6). In certain circumstances, the
proposed regulations will require a
partnership to include a statement with
its Form 1065, U.S. Partnership Return
of Income, and provide a copy of that
statement with the taxpayer’s Schedule
K–1 (Form 1065), Partner’s Share of
Income, Credits, Deductions, etc., for
the taxable year in which the COD
income is excluded under section
108(a), stating the amount of the
partner’s share of the reduction in the
partnership’s adjusted bases of
depreciable real or personal property
(inside basis). This requirement will
ensure that the partner knows it is
entitled to reduce the adjusted basis of
the partnership interest and that the
affected partnership knows it must
reduce the partner’s interest in inside
basis. The legal basis for this
requirement is contained in sections
1017(b), 6001, and 7805(a).
Though the proposed regulations
might affect any partnership owning
depreciable property, the IRS and
Treasury Department believe that
partnerships owning depreciable real
property are the most likely to be
affected. Approximately 1,560,000
partnership returns were filed for 1993.
Approximately 620,000 of these were
for partnerships owning real property. It
is unlikely, however, that many of these
partnerships will be affected by the
proposed regulations in any given year.
After a partner conveys information
concerning the amount of COD income
excluded from gross income under
section 108(a) to the affected
partnership, the partnership must
reduce the partner’s interest in inside
basis. Accordingly, the partnership must

957

prepare and maintain special entries on
its books because this basis reduction
will reduce the partner’s share of the
partnership’s depreciation deductions,
and ultimate gain or loss on the sale of
the property, in subsequent years. In
many cases, partnership returns are
prepared using computer software that
can prepare and maintain these special
entries after the initial year.
The IRS and Treasury Department are
not aware of any federal rules that may
duplicate, overlap, or conflict with the
proposed rule.
As an alternative to the disclosure
described above, the IRS and Treasury
Department considered, but rejected as
too burdensome, a rule that would have
required an affected partnership to
disclose the reductions of adjusted basis
on a property-by-property basis. There
are no known alternative rules that are
less burdensome to small entities but
that accomplish the purpose of the
statute. The IRS and Treasury
Department request comments from
small entities concerning possible
alternatives.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
written comments (a signed original and
eight (8) copies) that are submitted
timely to the IRS. All comments will be
available for public inspection and
copying.
A public hearing has been scheduled
for April 29, 1997, at 10 a.m. in IRS
Auditorium, 7th Floor, Internal Revenue
Building, 1111 Constitution Avenue,
NW., Washington, DC. Because of access
restrictions, visitors will not be
admitted beyond the Internal Revenue
Building lobby more than 15 minutes
before the hearing starts.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing.
Persons that wish to present oral
comments at the hearing must submit
written comments by April 7, 1997 and
submit an outline of the topics to be
discussed and the time to be devoted to
each topic (signed original and eight (8)
copies) by April 3, 1997.
A period of 10 minutes will be
allotted to each person for making
comments.
An agenda showing the scheduling of
the speakers will be prepared after the
deadline for receiving outlines has
passed. Copies of the agenda will be
available free of charge at the hearing.
Drafting Information
The principal author of these
regulations is Leo F. Nolan II, Office of
Assistant Chief Counsel (Income Tax

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Federal Register / Vol. 62, No. 4 / Tuesday, January 7, 1997 / Proposed Rules

and Accounting). However, other
personnel from the IRS and Treasury
Department participated in their
development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 301
Employment taxes, Estate taxes,
Excise taxes, Gift taxes, Income taxes,
Penalties, Reporting and recordkeeping
requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 301
are proposed to be amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for 26 CFR part 1 is amended by adding
entries in numerical order to read as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.108–4 also issued under 26
U.S.C. 108.
Section 1.108–5 also issued under 26
U.S.C. 108.
Section 1.1017–1 also issued under 26
U.S.C. 1017.
§ 1.108(a)–1

[Removed]

Par. 2. Section 1.108(a)–1 is removed.
§ 1.108(a)–2

[Removed]

Par. 3. Section 1.108(a)–2 is removed.
§ 1.108(b)–1

[Removed]

Par. 4. Section 1.108(b)–1 is removed.
§ 1.1016–7

[Removed]

Par. 5. Section 1.1016–7 is removed.
§ 1.1016–8

[Removed]

Par. 6–7. Section 1.1016–8 is
removed.
§ 1.1017–2

[Removed]

Par. 8. Section 1.1017–2 is removed.
Par. 9. Section 1.108–4 is added to
read as follows:
§ 1.108–4 Election to reduce basis of
depreciable property under section
108(b)(5).

(a) Description. An election under
section 108(b)(5) is available whenever
a taxpayer excludes discharge of
indebtedness (COD income) from gross
income under sections 108(a)(1)(A), (B),
or (C) (concerning title 11 cases,
insolvency, and qualified farm
indebtedness, respectively). See sections
108(d)(2) and (3) for the definitions of
title 11 case and insolvent. See section
108(g)(2) for the definition of qualified
farm indebtedness.

(b) Time and manner. To make an
election under section 108(b)(5), a
taxpayer must enter the appropriate
information on Form 982, Reduction of
Tax Attributes Due to Discharge of
Indebtedness (and Section 1082 Basis
Adjustment), and attach the form to the
timely filed (including extensions)
Federal income tax return for the
taxable year in which the taxpayer has
COD income that is excluded from gross
income under section 108(a). An
election under this section may be
revoked only with the consent of the
Commissioner.
(c) Effective date. This section is
effective for elections concerning
discharges of indebtedness occurring on
or after the date these regulations are
published as final regulations in the
Federal Register.
Par. 10. Section 1.108–5 is added to
read as follows:
§ 1.108–5 Limitations on the exclusion of
income from the discharge of qualified real
property business indebtedness.

(a) Indebtedness in excess of value.
The amount excluded from gross
income under section 108(a)(1)(D)
(concerning discharges of qualified real
property business indebtedness) shall
not exceed the excess, if any, of the
outstanding principal amount of that
indebtedness immediately before the
discharge over the net fair market value
of the qualifying real property, as
defined in § 1.1017–1(c)(1), immediately
before the discharge. For purposes of
this section, net fair market value means
the fair market value of the qualifying
real property (notwithstanding section
7701(g)) reduced by the outstanding
principal amount of any other qualified
real property business indebtedness
secured by that property immediately
before and after the discharge.
(b) Overall limitation. The amount
excluded from gross income under
section 108(a)(1)(D) shall not exceed the
aggregate adjusted bases of all
depreciable real property held by the
taxpayer immediately before the
discharge (other than depreciable real
property acquired in contemplation of
the discharge) reduced by the sum of
any—
(1) Depreciation claimed for the
taxable year the taxpayer excluded
discharge of indebtedness from gross
income under section 108(a)(1)(D); and
(2) Reductions to the adjusted bases of
depreciable real property required
under section 108(b) or section 108(g)
for the same taxable year.
(c) Effective date. This section is
effective for discharges of qualified real
property business indebtedness
occurring on or after the date these

regulations are published as final
regulations in the Federal Register.
Par. 11. Section 1.1017–1 is revised to
read as follows:
§ 1.1017–1 Basis reductions following a
discharge of indebtedness.

(a) General rule for section
108(b)(2)(E). This paragraph (a) applies
to basis reductions under section
108(b)(2)(E) that are required by section
108(a)(1) (A) or (B) because the taxpayer
excluded discharge of indebtedness
(COD income) from gross income. A
taxpayer must reduce in the following
order, to the extent of the excluded COD
income but not below zero, the adjusted
bases of property held on the first day
of the taxable year following the taxable
year that the taxpayer excluded COD
income from gross income (in
proportion to adjusted basis):
(1) Real property used in a trade or
business or held for investment, other
than real property described in section
1221(1), that secured the discharged
indebtedness immediately before the
discharge (see paragraph (f)(1) of this
section for the treatment of partnership
indebtedness as indebtedness secured
by the taxpayer’s interest in the
partnership);
(2) Personal property used in a trade
or business or held for investment, other
than inventory, accounts receivable, and
notes receivable, that secured the
indebtedness immediately before the
discharge (see paragraph (f)(1) of this
section for the treatment of partnership
indebtedness as indebtedness secured
by the taxpayer’s interest in the
partnership);
(3) Remaining property used in a
trade or business or held for investment,
other than inventory, accounts
receivable, notes receivable, and real
property described in section 1221(1);
(4) Inventory, accounts receivable,
notes receivable, and real property
described in section 1221(1); and
(5) Property not used in a trade or
business nor held for investment.
(b) Operating rules—(1) Prior taxattribute reduction. The amount of
excluded COD income applied to reduce
basis does not include any COD income
applied to reduce tax attributes under
sections 108(b)(2) (A) through (D) and,
if applicable, section 108(b)(5). For
example, if a taxpayer excludes $100 of
COD income from gross income under
section 108(a) and reduces tax attributes
by $40 under sections 108(b)(2) (A)
through (D), the taxpayer is required to
reduce the adjusted bases of property by
$60 ($100–$40) under section
108(b)(2)(E).
(2) Multiple discharged
indebtednesses. If a taxpayer has COD

Federal Register / Vol. 62, No. 4 / Tuesday, January 7, 1997 / Proposed Rules
income attributable to more than one
discharged indebtedness resulting in the
reduction of tax attributes under
sections 108(b)(2) (A) through (D) and,
if applicable, section 108(b)(5),
paragraph (b)(1) of this section must be
applied by allocating the tax-attribute
reductions among the indebtednesses in
proportion to the amount of COD
income attributable to each discharged
indebtedness. For example, if a taxpayer
excludes $20 of COD income
attributable to secured indebtedness A
and excludes $80 of COD income
attributable to unsecured indebtedness
B (a total exclusion of $100), and if the
taxpayer reduces tax attributes by $40
under sections 108(b)(2) (A) through (D),
the taxpayer must reduce the amount of
COD income attributable to secured
indebtedness A to $12 ($20 ¥ ($20 ÷
$100 × $40)) and must reduce the
amount of COD income attributable to
unsecured indebtedness B to $48 ($80
¥ ($80 ÷ $100 × $40)).
(3) Limitation on basis reductions
under section 108(b)(2)(E) in bankruptcy
or insolvency. If COD income arises
from a discharge of indebtedness in a
title 11 case or while the taxpayer is
insolvent, the amount of any basis
reduction under section 108(b)(2)(E)
shall not exceed the excess of—
(i) The aggregate of the adjusted bases
of property and the amount of money
held by the taxpayer immediately after
the discharge; over
(ii) The aggregate of the liabilities of
the taxpayer immediately after the
discharge.
(c) Modification of ordering rules for
basis reductions under sections
108(b)(5) and 108(c)—(1) In general.
The ordering rules prescribed in
paragraph (a) of this section apply, with
appropriate modifications, to basis
reductions under sections 108 (b)(5) and
(c). Thus, a taxpayer may reduce only
the adjusted bases of depreciable
property under section 108(b)(5) and
may reduce only the adjusted bases of
depreciable real property under section
108(c). Furthermore, for basis
reductions under section 108(c), a
taxpayer must reduce the adjusted basis
of the qualifying real property to the
extent of the discharged qualified real
property business indebtedness before
reducing the adjusted bases of other
depreciable real property. The term
qualifying real property means real
property with respect to which the
indebtedness is qualified real property
business indebtedness within the
meaning of section 108(c)(3). See
paragraphs (e) and (f) of this section for
elections relating to section 1221(1)
property and partnership interests.

(2) Partial basis reductions under
section 108(b)(5). If the amount of basis
reductions under section 108(b)(5) is
less than the amount of the COD income
excluded from gross income under
section 108(a), the taxpayer must reduce
the balance of its tax attributes,
including any remaining adjusted bases
of depreciable property, under section
108(b)(2). For example, if a taxpayer
excludes $100 of COD income from
gross income under section 108(a) and
elects to reduce the adjusted bases of
depreciable property by $10 under
section 108(b)(5), the taxpayer must
reduce its remaining tax attributes by
$90 under section 108(b)(2).
(3) Modification of fresh start rule for
prior basis reductions under section
108(b)(5). After reducing the adjusted
bases of depreciable property under
section 108(b)(5), a taxpayer must
compute the limitation on basis
reductions under section 1017(b)(2)
using the aggregate of the remaining
adjusted bases of property. For example,
if, immediately after the discharge of
indebtedness in a title 11 case, a
taxpayer’s adjusted bases of property is
$100 and its undischarged indebtedness
is $70, and if the taxpayer elects to
reduce the adjusted bases of depreciable
property by $10 under section 108(b)(5),
section 1017(b)(2) limits any further
basis reductions under section
108(b)(2)(E) to $20 (($100 ¥ $10) ¥
$70).
(d) Changes in security. Any change
in the property securing an
indebtedness during the one-year period
preceding the discharge of that
indebtedness shall be disregarded if a
principal purpose of that change is to
affect the taxpayer’s basis reductions
under section 1017.
(e) Election to treat section 1221(1)
real property as depreciable—(1) In
general. For basis reductions under
sections 108 (b)(5) and (g), a taxpayer
may elect under sections 1017(b) (3)(E)
and (4)(C), respectively, to treat real
property described in section 1221(1) as
depreciable property. This election is
not available, however, for basis
reductions under section 108(c).
(2) Time and manner. To make an
election under section 1017(b) (3)(E) or
(4)(C), a taxpayer must enter the
appropriate information on Form 982,
Reduction of Tax Attributes Due to
Discharge of Indebtedness (and Section
1082 Basis Adjustment), and attach the
form to a timely filed (including
extensions) Federal income tax return
for the taxable year in which the
taxpayer has COD income that is
excluded from gross income under
section 108(a). An election under this

959

paragraph (e) may be revoked only with
the consent of the Commissioner.
(f) Partnerships—(1) Partnership COD
income. For purposes of paragraph (a) of
this section, a taxpayer must treat a
distributive share of a partnership’s
COD income as attributable to a
discharged indebtedness secured by the
taxpayer’s interest in that partnership.
(2) Partnership interest treated as
depreciable property—(i) In general. For
purposes of making basis reductions, if
a taxpayer makes an election under
section 108 (b)(5) or (c) the taxpayer
must treat a partnership interest as
depreciable property (or depreciable
real property) to the extent of the
partner’s proportionate share of the
partnership’s basis in depreciable
property (or depreciable real property),
provided the partnership consents to a
corresponding reduction in the
partnership’s basis (inside basis) in
depreciable property (or depreciable
real property) with respect to such
partner.
(ii) Request by partner and consent of
partnership—(A) In general. Except as
otherwise provided in this paragraph
(f)(2)(ii), a taxpayer may choose whether
or not to request that a partnership
reduce the inside basis of its depreciable
property (or depreciable real property)
with respect to the taxpayer, and the
partnership may grant or withhold such
consent, in its sole discretion. A request
by the taxpayer must be made before the
due date (including extensions) for
filing the taxpayer’s Federal income tax
return for the taxable year in which the
taxpayer has COD income that is
excluded from gross income under
section 108(a).
(B) Request for consent required. A
taxpayer must request a partnership’s
consent to reduce inside basis if the
taxpayer owns (directly or indirectly) a
greater than 50 percent interest in the
capital and profits of the partnership, or
if reductions to the basis of the
taxpayer’s depreciable property (or
depreciable real property) are being
made with respect to the taxpayer’s
distributive share of COD income of the
partnership.
(C) Granting of request required. A
partnership must consent to reduce its
partners’ shares of inside basis if
consent is requested by partners owning
(directly or indirectly) an aggregate of
more than 50 percent of the capital and
profits interests of the partnership. For
example, if there is a cancellation of
partnership indebtedness securing real
property used in a partnership’s trade or
business, and if partners owning (in the
aggregate) 60 percent of the capital and
profits interests of the partnership elect
to exclude the COD income under

960

Federal Register / Vol. 62, No. 4 / Tuesday, January 7, 1997 / Proposed Rules

section 108(c), the partnership must
make the appropriate reductions in
those partners’ shares of inside basis.
(iii) Partnership consent statement—
(A) Partnership requirement. A
consenting partnership must include
with the Form 1065, U.S. Partnership
Return of Income, for the taxable year of
the partnership that ends with or within
the taxable year the taxpayer excludes
COD income from gross income under
section 108(a), and must provide to the
taxpayer on or before the date the Form
1065 is filed, a statement that—
(1) Contains the name, address, and
taxpayer identification number of the
partnership; and
(2) States the amount of the reduction
of the partner’s proportionate interest in
the adjusted bases of the partnership’s
depreciable property or depreciable real
property, whichever is applicable.
(B) Taxpayer’s requirement.
Statements described in paragraph
(f)(2)(iii)(A) of this section must be
attached to a taxpayer’s timely filed
(including extensions) Federal income
tax return for the taxable year in which
the taxpayer has COD income that is
excluded from gross income under
section 108(a).
(iv) Partner’s share of partnership’s
adjusted basis. [Reserved.]
(3) Partnership basis reduction. The
rules of this section (including this
paragraph (f)), apply in determining the
properties to which the partnership’s
basis reductions must be made.
(g) Special allocation rule for cases to
which section 1398 applies. If a
bankruptcy estate and a taxpayer to
whom section 1398 applies (concerning
only individuals under Chapter 7 or 11
of title 11 of the United States Code)
hold property subject to basis reduction
under section 108(b)(2)(E) or (5) on the
first day of the taxable year following
the taxable year of discharge, the
bankruptcy estate must reduce all of the
adjusted bases of its property before the
taxpayer is required to reduce any
adjusted bases of property.
(h) Effective date. This section is
effective for discharges of indebtedness
occurring on or after the date these
regulations are published as final
regulations in the Federal Register.
PART 301—PROCEDURE AND
ADMINISTRATION
Par. 12. The authority citation for part
301 continues to read as follows:
Authority: 26 U.S.C. 7805 * * *

§ 301.9100–13T

[Removed]

Par. 13. Section 301.9100–13T is
removed.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
[FR Doc. 97–154 Filed 1–6–97; 8:45 am]
BILLING CODE 4830–01–U

ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Parts 60, 63, 260, 261, 264, 265,
266, 270 and 271
[FRL–5672–6]
RIN 2050–AF01

Hazardous Waste Combustors;
Revised Standards; Proposed Rule—
Notice of Data Availability and Request
for Comments
Environmental Protection
Agency (EPA).
ACTION: Notice of data availability and
request for comments.
AGENCY:

This announcement is a
notice of availability and invitation for
comment on the Agency’s updated
database of emissions and ancillary
information on hazardous waste
combustors (HWCs) pertaining to the
proposed revised standards for
hazardous waste combustors (61 FR
17358 (April 19, 1996)).
Readers should note that only
comments about new information
discussed in this notice will be
considered during the comment period.
Issues related to the April 19, 1996,
proposed rule that are not directly
affected by the documents or data
referenced in this Notice of Data
Availability are not open for further
comment.
DATES: Written comments must be
submitted by February 6, 1997.
ADDRESSES: Commenters must send an
original and two copies of their
comments referencing Docket Number
F–96–CS2A–FFFFF to: RCRA Docket
Information Center, Office of Solid
Waste (5305G), U.S. Environmental
Protection Agency Headquarters (EPA,
HQ), 401 M Street, S.W., Washington,
D.C. 20460. Comments may also be
submitted electronically through the
Internet to: rcradocket@epamail.epa.gov. Comments in
electronic format should also be
identified by the docket number F–96–
CS2A–FFFFF. All electronic comments
must be submitted as an ASCII file
avoiding the use of special characters
and any form of encryption.
Commenters should not submit
SUMMARY:

electronically any confidential business
information (CBI). An original and two
copies of the CBI must be submitted
under separate cover to: RCRA CBI
Document Control Officer, OSW
(5305W), 401 M Street, SW, Washington
D.C. 20460. For other information
regarding submitting comments
electronically, or viewing the comments
received or supporting information,
please refer to the proposed rule (61 FR
17358 (April 19, 1996)). The RCRA
Information Center is located at Crystal
Gateway One, 1235 Jefferson Davis
Highway, First Floor, Arlington,
Virginia and is open for public
inspection and copying of supporting
information for RCRA rules from 9:00
a.m. to 4:00 p.m. Monday through
Friday, except for Federal holidays. The
public must make an appointment to
view docket materials by calling (703)
603–9230. The public may copy a
maximum of 100 pages from any
regulatory document at no cost.
Additional copies cost $0.15 per page.
FOR FURTHER INFORMATION CONTACT: For
general information, call the RCRA
Hotline at 1–800–424–9346 or TDD 1–
800–553–7672 (hearing impaired)
including directions on how to access
electronically the database document
(USEPA, ‘‘Updated Hazardous Waste
Combustor Database,’’ December 1996)
via EPA’s Cleanup Information Bulletin
Board System (CLU–IN). The database
document is posted on CLU–IN in
Portable Document Format (PDF) and
can be viewed and printed using
Acrobat Reader. The CLU–IN modem
access phone number is 301–589–8366
or Telnet to clu-in.epa.gov for Internet
access. The RCRA Hotline is open
Monday–Friday, 9:00 a.m. to 6:00 p.m.,
Eastern Standard Time. Callers within
the Washington Metropolitan Area must
dial 703–412–9810 or TDD 703–412–
3323 (hearing impaired). For other
information on this notice, contact Bob
Holloway (5302W), Office of Solid
Waste, 401 M Street, S.W., Washington,
DC 20460, phone (703) 308–8461, email: holloway.bob@epamail.epa.gov.
SUPPLEMENTARY INFORMATION: On April
19, 1996, EPA proposed revised
standards for hazardous waste
combustors (i.e., incinerators and
cement and lightweight aggregate kilns
that burn hazardous waste). See 61 FR
17358. After an extension of the
comment period, the comment period
closed on August 19, 1996.
The Agency also published a notice of
data availability (NODA) on August 23,
1996 (61 FR 43501) inviting comment
on information pertaining to a peer
review of aspects of the proposed rule,
additional analyses of fuel oils that