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pdfFederal Register / Vol. 75, No. 177 / Tuesday, September 14, 2010 / Proposed Rules
Background
The correction notice that is the
subject of this document is under
section 108 of the Internal Revenue
Code.
Need for Correction
As published, the notice of proposed
rulemaking by cross-reference to
temporary regulations (REG–142800–09)
contains an error that may prove to be
misleading and is in need of
clarification.
Correction of Publication
Accordingly, the publication of the
notice of proposed rulemaking by crossreference to temporary regulations
(REG–142800–09), which was the
subject of FR Doc. 2010–20059, is
corrected as follows:
On page 49429, column 2, in the
authority citation for part 1, the
language ‘‘Section 1.108(i)-0T also
issued under 26 U.S.C. 108(i)(7). * * *’’
is removed and the language ‘‘Section
1.108(i)-0T also issued under 26 U.S.C.
108(i)(7) and 1502. * * *’’ is added in
its place.
LaNita Van Dyke,
Chief, Publications and Regulations Branch,
Legal Processing Division, Associate Chief
Counsel, Procedure and Administration.
[FR Doc. 2010–22791 Filed 9–13–10; 8:45 am]
BILLING CODE 4830–01–P
Background
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 301
[REG–119921–09]
RIN 1545–BI69
Series LLCs and Cell Companies
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking.
AGENCY:
This document contains
proposed regulations regarding the
classification for Federal tax purposes of
a series of a domestic series limited
liability company (LLC), a cell of a
domestic cell company, or a foreign
series or cell that conducts an insurance
business. The proposed regulations
provide that, whether or not a series of
a domestic series LLC, a cell of a
domestic cell company, or a foreign
series or cell that conducts an insurance
business is a juridical person for local
law purposes, for Federal tax purposes
it is treated as an entity formed under
local law. Classification of a series or
cell that is treated as a separate entity
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SUMMARY:
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for Federal tax purposes generally is
determined under the same rules that
govern the classification of other types
of separate entities. The proposed
regulations provide examples
illustrating the application of the rule.
The proposed regulations will affect
domestic series LLCs; domestic cell
companies; foreign series, or cells that
conduct insurance businesses; and their
owners.
DATES: Written or electronic comments
and requests for a public hearing must
be received by December 13, 2010.
ADDRESSES: Send submissions to:
CC:PA:LPD:PR (REG–119921–09), Room
5203, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be handdelivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–119921–09),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue,
NW., Washington, DC, or sent
electronically, via the Federal
eRulemaking portal at http://
www.regulations.gov (IRS REG–119921–
09).
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
Joy Spies, (202) 622–3050; concerning
submissions of comments,
Oluwafunmilayo (Funmi) Taylor, (202)
622–7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
1. Introduction
A number of States have enacted
statutes providing for the creation of
entities that may establish series,
including limited liability companies
(series LLCs). In general, series LLC
statutes provide that a limited liability
company may establish separate series.
Although series of a series LLC
generally are not treated as separate
entities for State law purposes and,
thus, cannot have members, each series
has ‘‘associated’’ with it specified
members, assets, rights, obligations, and
investment objectives or business
purposes. Members’ association with
one or more particular series is
comparable to direct ownership by the
members in such series, in that their
rights, duties, and powers with respect
to the series are direct and specifically
identified. If the conditions enumerated
in the relevant statute are satisfied, the
debts, liabilities, and obligations of one
series generally are enforceable only
against the assets of that series and not
against assets of other series or of the
series LLC.
Certain jurisdictions have enacted
statutes providing for entities similar to
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the series LLC. For example, certain
statutes provide for the chartering of a
legal entity (or the establishment of
cells) under a structure commonly
known as a protected cell company,
segregated account company or
segregated portfolio company (cell
company). A cell company may
establish multiple accounts, or cells,
each of which has its own name and is
identified with a specific participant,
but generally is not treated under local
law as a legal entity distinct from the
cell company. The assets of each cell are
statutorily protected from the creditors
of any other cell and from the creditors
of the cell company.
Under current law, there is little
specific guidance regarding whether for
Federal tax purposes a series (or cell) is
treated as an entity separate from other
series or the series LLC (or other cells
or the cell company, as the case may
be), or whether the company and all of
its series (or cells) should be treated as
a single entity.
Notice 2008–19 (2008–5 IRB 366)
requested comments on proposed
guidance concerning issues that arise if
arrangements entered into by a cell
constitute insurance for Federal income
tax purposes. The notice also requested
comments on the need for guidance
concerning similar segregated
arrangements that do not involve
insurance. The IRS received a number of
comments requesting guidance for
similar arrangements not involving
insurance, including series LLCs and
cell companies. These comments
generally recommended that series and
cells should be treated as separate
entities for Federal tax purposes if they
are established under a statute with
provisions similar to the series LLC
statutes currently in effect in several
States. The IRS and Treasury
Department generally agree with these
comments. See § 601.601(d)(2)(ii)(b).
2. Entity Classification for Federal Tax
Purposes
A. Regulatory Framework
Sections 301.7701–1 through
301.7701–4 of the Procedure and
Administration Regulations provide the
framework for determining an
organization’s entity classification for
Federal tax purposes. Classification of
an organization depends on whether the
organization is treated as: (i) A separate
entity under § 301.7701–1, (ii) a
‘‘business entity’’ within the meaning of
§ 301.7701–2(a) or a trust under
§ 301.7701–4, and (iii) an ‘‘eligible
entity’’ under § 301.7701–3.
Section 301.7701–1(a)(1) provides
that the determination of whether an
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entity is separate from its owners for
Federal tax purposes is a matter of
Federal tax law and does not depend on
whether the organization is recognized
as an entity under local law. Section
301.7701–1(a)(2) provides that a joint
venture or other contractual
arrangement may create a separate
entity for Federal tax purposes if the
participants carry on a trade, business,
financial operation, or venture and
divide the profits therefrom. However, a
joint undertaking merely to share
expenses does not create a separate
entity for Federal tax purposes, nor does
mere co-ownership of property where
activities are limited to keeping
property maintained, in repair, and
rented or leased. Id.
Section 301.7701–1(b) provides that
the tax classification of an organization
recognized as a separate entity for tax
purposes generally is determined under
§§ 301.7701–2, 301.7701–3, and
301.7701–4. Thus, for example, an
organization recognized as an entity that
does not have associates or an objective
to carry on a business may be classified
as a trust under § 301.7701–4.
Section 301.7701–2(a) provides that a
business entity is any entity recognized
for Federal tax purposes (including an
entity with a single owner that may be
disregarded as an entity separate from
its owner under § 301.7701–3) that is
not properly classified as a trust or
otherwise subject to special treatment
under the Internal Revenue Code
(Code). A business entity with two or
more members is classified for Federal
tax purposes as a corporation or a
partnership. See § 301.7701–2(a). A
business entity with one owner is
classified as a corporation or is
disregarded. See § 301.7701–2(a). If the
entity is disregarded, its activities are
treated in the same manner as a sole
proprietorship, branch, or division of
the owner. However, § 301.7701–
2(c)(2)(iv) and (v) provides for an
otherwise disregarded entity to be
treated as a corporation for certain
Federal employment tax and excise tax
purposes.
Section 301.7701–3(a) generally
provides that an eligible entity, which is
a business entity that is not a
corporation under § 301.7701–2(b), may
elect its classification for Federal tax
purposes.
B. Separate Entity Classification
The threshold question for
determining the tax classification of a
series of a series LLC or a cell of a cell
company is whether an individual
series or cell should be considered an
entity for Federal tax purposes. The
determination of whether an
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organization is an entity separate from
its owners for Federal tax purposes is a
matter of Federal tax law and does not
depend on whether the organization is
recognized as an entity under local law.
Section 301.7701–1(a)(1). In Moline
Properties, Inc. v. Commissioner, 319
U.S. 436 (1943), the Supreme Court
noted that, so long as a corporation was
formed for a purpose that is the
equivalent of business activity or the
corporation actually carries on a
business, the corporation remains a
taxable entity separate from its
shareholders. Although entities that are
recognized under local law generally are
also recognized for Federal tax
purposes, a State law entity may be
disregarded if it lacks business purpose
or any business activity other than tax
avoidance. See Bertoli v. Commissioner,
103 T.C. 501 (1994); Aldon Homes, Inc.
v. Commissioner, 33 T.C. 582 (1959).
The Supreme Court in Commissioner
v. Culbertson, 337 U.S. 733 (1949), and
Commissioner v. Tower, 327 U.S. 280
(1946), set forth the basic standard for
determining whether a partnership will
be respected for Federal tax purposes. In
general, a partnership will be respected
if, considering all the facts, the parties
in good faith and acting with a business
purpose intended to join together to
conduct an enterprise and share in its
profits and losses. This determination is
made considering not only the stated
intent of the parties, but also the terms
of their agreement and their conduct.
Madison Gas & Elec. Co. v.
Commissioner, 633 F. 2d 512, 514 (7th
Cir. 1980); Luna v. Commissioner, 42
T.C. 1067, 1077–78 (1964).
Conversely, under certain
circumstances, arrangements that are
not recognized as entities under State
law may be treated as separate entities
for Federal tax purposes. Section
301.7701–1(a)(2). For example, courts
have found entities for tax purposes in
some co-ownership situations where the
co-owners agree to restrict their ability
to sell, lease or encumber their interests,
waive their rights to partition property,
or allow certain management decisions
to be made other than by unanimous
agreement among co-owners. Bergford v.
Commissioner, 12 F. 3d 166 (9th Cir.
1993); Bussing v. Commissioner, 89 T.C.
1050 (1987); Alhouse v. Commissioner,
T.C. Memo. 1991–652. However, the
Internal Revenue Service (IRS) has ruled
that a co-ownership does not rise to the
level of an entity for Federal tax
purposes if the owner employs an agent
whose activities are limited to collecting
rents, paying property taxes, insurance
premiums, repair and maintenance
expenses, and providing tenants with
customary services. Rev. Rul. 75–374
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(1975–2 CB 261). See also Rev. Rul. 79–
77 (1979–1 CB 448), (see
§ 601.601(d)(2)(ii)(b)).
Rev. Proc. 2002–22 (2002–1 CB 733),
(see § 601.601(d)(2)(ii)(b)), specifies the
conditions under which the IRS will
consider a request for a private letter
ruling that an undivided fractional
interest in rental real property is not an
interest in a business entity under
§ 301.7701–2(a). A number of factors
must be present to obtain a ruling under
the revenue procedure, including a limit
on the number of co-owners, a
requirement that the co-owners not treat
the co-ownership as an entity (that is,
that the co-ownership may not file a
partnership or corporate tax return,
conduct business under a common
name, execute an agreement identifying
any or all of the co-owners as partners,
shareholders, or members of a business
entity, or otherwise hold itself out as a
partnership or other form of business
entity), and a requirement that certain
rights with respect to the property
(including the power to make certain
management decisions) must be
retained by co-owners. The revenue
procedure provides that an organization
that is an entity for State law purposes
may not be characterized as a coownership under the guidance in the
revenue procedure.
The courts and the IRS have
addressed the Federal tax classification
of investment trusts with assets divided
among a number of series. In National
Securities Series-Industrial Stocks
Series v. Commissioner, 13 T.C. 884
(1949), acq., 1950–1 CB 4, several series
that differed only in the nature of their
assets were created within a statutory
open-end investment trust. Each series
regularly issued certificates representing
shares in the property held in trust and
regularly redeemed the certificates
solely from the assets and earnings of
the individual series. The Tax Court
stated that each series of the trust was
taxable as a separate regulated
investment company. See also Rev. Rul.
55–416 (1955–1 CB 416), (see
§ 601.601(d)(2)(ii)(b)). But, see Union
Trusteed Funds v. Commissioner, 8 T.C.
1133 (1947), (series funds organized by
a State law corporation could not be
treated as if each fund were a separate
corporation).
In 1986, Congress added section
851(g) to the Code. Section 851(g)
contains a special rule for series funds
and provides that, in the case of a
regulated investment company (within
the meaning of section 851(a)) with
more than one fund, each fund generally
is treated as a separate corporation. For
these purposes, a fund is a segregated
portfolio of assets the beneficial
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interests in which are owned by holders
of interests in the regulated investment
company that are preferred over other
classes or series with respect to these
assets.
C. Insurance Company Classification
Section 7701(a)(3) and § 301.7701–
2(b)(4) provide that an arrangement that
qualifies as an insurance company is a
corporation for Federal income tax
purposes. Sections 816(a) and 831(c)
define an insurance company as any
company more than half the business of
which during the taxable year is the
issuing of insurance or annuity
contracts or the reinsuring of risks
underwritten by insurance companies.
See also § 1.801–3(a)(1), (‘‘[T]hough its
name, charter powers, and subjection to
State insurance laws are significant in
determining the business which a
company is authorized and intends to
carry on, it is the character of the
business actually done in the taxable
year which determines whether a
company is taxable as an insurance
company under the Internal Revenue
Code.’’). Thus, an insurance company
includes an arrangement that conducts
insurance business, whether or not the
arrangement is a State law entity.
3. Overview of Series LLC Statutes and
Cell Company Statutes
emcdonald on DSK2BSOYB1PROD with PROPOSALS
A. Domestic Statutes
Although § 301.7701–1(a)(1) provides
that State classification of an entity is
not controlling for Federal tax purposes,
the characteristics of series LLCs and
cell companies under their governing
statutes are an important factor in
analyzing whether series and cells
generally should be treated as separate
entities for Federal tax purposes.
Series LLC statutes have been enacted
in Delaware, Illinois, Iowa, Nevada,
Oklahoma, Tennessee, Texas, Utah and
Puerto Rico. Delaware enacted the first
series LLC statute in 1996. Del. Code
Ann. Tit. 6, section 18–215 (the
Delaware statute). Statutes enacted
subsequently by other States are similar,
but not identical, to the Delaware
statute. All of the statutes provide a
significant degree of separateness for
individual series within a series LLC,
but none provides series with all of the
attributes of a typical State law entity,
such as an ordinary limited liability
company. Individual series generally are
not treated as separate entities for State
law purposes. However, in certain
States (currently Illinois and Iowa), a
series is treated as a separate entity to
the extent provided in the series LLC’s
articles of organization.
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The Delaware statute provides that a
limited liability company may establish,
or provide for the establishment of, one
or more designated series of members,
managers, LLC interests or assets. Under
the Delaware statute, any such series
may have separate rights, powers, or
duties with respect to specified property
or obligations of the LLC or profits and
losses associated with specified
property or obligations, and any such
series may have a separate business
purpose or investment objective.
Additionally, the Delaware statute
provides that the debts, liabilities,
obligations, and expenses of a particular
series are enforceable against the assets
of that series only, and not against the
assets of the series LLC generally or any
other series of the LLC, and, unless the
LLC agreement provides otherwise,
none of the debts, liabilities, obligations,
and expenses of the series LLC generally
or of any other series of the series LLC
are enforceable against the assets of the
series, provided that the following
requirements are met: (1) The LLC
agreement establishes or provides for
the establishment of one or more series;
(2) records maintained for any such
series account for the assets of the series
separately from the other assets of the
series LLC, or of any other series of the
series LLC; (3) the LLC agreement so
provides; and (4) notice of the limitation
on liabilities of a series is set forth in the
series LLC’s certificate of formation.
Unless otherwise provided in the LLC
agreement, a series established under
Delaware law has the power and
capacity to, in its own name, contract,
hold title to assets, grant liens and
security interests, and sue and be sued.
A series may be managed by the
members of the series or by a manager.
Any event that causes a manager to
cease to be a manager with respect to a
series will not, in itself, cause the
manager to cease to be a manager of the
LLC or of any other series of the LLC.
Under the Delaware statute, unless
the LLC agreement provides otherwise,
any event that causes a member to cease
to be associated with a series will not,
in itself, cause the member to cease to
be associated with any other series or
with the LLC, or cause termination of
the series, even if there are no remaining
members of the series. Additionally, the
Delaware statute allows a series to be
terminated and its affairs wound up
without causing the dissolution of the
LLC. However, all series of the LLC
terminate when the LLC dissolves.
Finally, under the Delaware statute, a
series generally may not make a
distribution to the extent that the
distribution will cause the liabilities of
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the series to exceed the fair market
value of the series’ assets.
The series LLC statutes of Illinois, 805
ILCS 180/37–40 (the Illinois statute),
and Iowa, I.C.A. § 489.1201 (the Iowa
statute) provide that a series with
limited liability will be treated as a
separate entity to the extent set forth in
the articles of organization. The Illinois
statute provides that the LLC and any of
its series may elect to consolidate their
operations as a single taxpayer to the
extent permitted under applicable law,
elect to work cooperatively, elect to
contract jointly, or elect to be treated as
a single business for purposes of
qualification to do business in Illinois or
any other State.
In addition, under the Illinois statute,
a series’ existence begins upon filing of
a certificate of designation with the
Illinois secretary of state. A certificate of
designation must be filed for each series
that is to have limited liability. The
name of a series with limited liability
must contain the entire name of the LLC
and be distinguishable from the names
of the other series of the LLC. If different
from the LLC, the certificate of
designation for each series must list the
names of the members if the series is
member-managed or the names of the
managers if the series is managermanaged. The Iowa and Illinois statutes
both provide that, unless modified by
the series LLC provisions, the
provisions generally applicable to LLCs
and their managers, members, and
transferees are applicable to each series.
Some States have enacted series
provisions outside of LLC statutes. For
example, Delaware has enacted series
limited partnership provisions (6 Del. C.
§ 17–218). In addition, Delaware’s
statutory trust statute permits a statutory
trust to establish series (12 Del. C.
§ 3804). Both of these statutes contain
provisions that are nearly identical to
the corresponding provisions of the
Delaware series LLC statute with respect
to the ability of the limited partnership
or trust to create or establish separate
series with the same liability protection
enjoyed by series of a Delaware series
LLC.
All of the series LLC statutes contain
provisions that grant series certain
attributes of separate entities. For
example, individual series may have
separate business purposes, investment
objectives, members, and managers.
Assets of a particular series are not
subject to the claims of creditors of
other series of the series LLC or of the
series LLC itself, provided that certain
recordkeeping and notice requirements
are observed. Finally, most series LLC
statutes provide that an event that
causes a member to cease to be
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associated with a series does not cause
the member to cease to be associated
with the series LLC or any other series
of the series LLC.
However, all of the State statutes limit
the powers of series of series LLCs. For
example, a series of a series LLC may
not convert into another type of entity,
merge with another entity, or
domesticate in another State
independent from the series LLC.
Several of the series LLC statutes do not
expressly address a series’ ability to sue
or be sued, hold title to property, or
contract in its own name. Ordinary
LLCs and series LLCs generally may
exercise these rights. Additionally, most
of the series LLC statutes provide that
the dissolution of a series LLC will
cause the termination of each of its
series.
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B. Statutes with Respect to Insurance
The insurance codes of a number of
States include statutes that provide for
the chartering of a legal entity
commonly known as a protected cell
company, segregated account company,
or segregated portfolio company. See,
for example, Vt. Stat. Ann. tit. 8,
chap.141, §§ 6031–6038 (sponsored
captive insurance companies and
protected cells of such companies); S.C.
Code Ann. tit. 38, chap. 10, §§ 38–10–
10 through 39–10–80 (protected cell
insurance companies). Under those
statutes, as under the series LLC statutes
described above, the assets of each cell
are segregated from the assets of any
other cell. The cell may issue insurance
or annuity contracts, reinsure such
contracts, or facilitate the securitization
of obligations of a sponsoring insurance
company. Rev. Rul. 2008–8 (2008–1 CB
340), (see § 601.601(d)(2)(ii)(b)),
analyzes whether an arrangement
entered into between a protected cell
and its owner possesses the requisite
risk shifting and risk distribution to
qualify as insurance for Federal income
tax purposes. Under certain domestic
insurance codes, the sponsor may be
organized under a corporate or
unincorporated entity statute.
Series or cell company statutes in a
number of foreign jurisdictions allow
series or cells to engage in insurance
businesses. See, for example, The
Companies (Guernsey) Law, 2008 Part
XXVII (Protected Cell Companies), Part
XXVIII (Incorporated Cell Companies);
The Companies (Jersey) law, 1991, Part
18D; Companies Law, Part XIV (2009
Revision) (Cayman Isl.) (Segregated
Portfolio Companies); and Segregated
Accounts Companies Act (2000)
(Bermuda).
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Explanation of Provisions
1. In General
The proposed regulations provide
that, for Federal tax purposes, a
domestic series, whether or not a
juridical person for local law purposes,
is treated as an entity formed under
local law.
With one exception, the proposed
regulations do not apply to series or
cells organized or established under the
laws of a foreign jurisdiction. The one
exception is that the proposed
regulations apply to a foreign series that
engages in an insurance business.
Whether a series that is treated as a
local law entity under the proposed
regulations is recognized as a separate
entity for Federal tax purposes is
determined under § 301.7701–1 and
general tax principles. The proposed
regulations further provide that the
classification of a series that is
recognized as a separate entity for
Federal tax purposes is determined
under § 301.7701–1(b), which provides
the rules for classifying organizations
that are recognized as entities for
Federal tax purposes.
The proposed regulations define a
series organization as a juridical entity
that establishes and maintains, or under
which is established and maintained, a
series. A series organization includes a
series limited liability company, series
partnership, series trust, protected cell
company, segregated cell company,
segregated portfolio company, or
segregated account company.
The proposed regulations define a
series statute as a statute of a State or
foreign jurisdiction that explicitly
provides for the organization or
establishment of a series of a juridical
person and explicitly permits (1)
members or participants of a series
organization to have rights, powers, or
duties with respect to the series; (2) a
series to have separate rights, powers, or
duties with respect to specified property
or obligations; and (3) the segregation of
assets and liabilities such that none of
the debts and liabilities of the series
organization (other than liabilities to the
State or foreign jurisdiction related to
the organization or operation of the
series organization, such as franchise
fees or administrative costs) or of any
other series of the series organization
are enforceable against the assets of a
particular series of the series
organization. For purposes of this
definition, a ‘‘participant’’ of a series
organization includes an officer or
director of the series organization who
has no ownership interest in the series
or series organization, but has rights,
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powers, or duties with respect to the
series.
The proposed regulations define a
series as a segregated group of assets
and liabilities that is established
pursuant to a series statute by agreement
of a series organization. A series
includes a cell, segregated account, or
segregated portfolio, including a cell,
segregated account, or segregated
portfolio that is formed under the
insurance code of a jurisdiction or is
engaged in an insurance business.
However, the term ‘‘series’’ does not
include a segregated asset account of a
life insurance company, which consists
of all assets the investment return and
market value of which must be allocated
in an identical manner to any variable
life insurance or annuity contract
invested in any of the assets. See
§ 1.817–5(e). Such an account is
accorded special treatment under
subchapter L. See generally section
817(a) through (c).
Certain series statutes provide that the
series liability limitation provisions do
not apply if the series organization or
series does not maintain records
adequately accounting for the assets
associated with each series separately
from the assets of the series organization
or any other series of the series
organization. The IRS and the Treasury
Department considered whether a
failure to elect or qualify for the liability
limitations under the series statute
should affect whether a series is a
separate entity for Federal tax purposes.
However, limitations on liability of
owners of an entity for debts and
obligations of the entity and the rights
of creditors to hold owners liable for
debts and obligations of the entity
generally do not alter the
characterization of the entity for Federal
tax purposes. Therefore, the proposed
regulations provide that an election,
agreement, or other arrangement that
permits debts and liabilities of other
series or the series organization to be
enforceable against the assets of a
particular series, or a failure to comply
with the recordkeeping requirements for
the limitation on liability available
under the relevant series statute, will
not prevent a series from meeting the
definition of ‘‘series’’ in the proposed
regulations. For example, a series
generally will not cease to be an entity
under the proposed regulations simply
because it guarantees the debt of another
series within the series organization.
The proposed regulations treat a
series as created or organized under the
laws of the same jurisdiction in which
the series is established. Because a
series may not be a separate juridical
entity for local law purposes, this rule
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provides the means for establishing the
jurisdiction of the series for Federal tax
purposes.
Under § 301.7701–1(b), § 301.7701–
2(b) applies to a series that is recognized
as a separate entity for Federal tax
purposes. Therefore, a series that is
itself described in § 301.7701–2(b)(1)
through (8) would be classified as a
corporation regardless of the
classification of the series organization.
The proposed regulations also provide
that, for Federal tax purposes,
ownership of interests in a series and of
the assets associated with a series is
determined under general tax
principles. A series organization is not
treated as the owner of a series or of the
assets associated with a series merely
because the series organization holds
legal title to the assets associated with
the series. For example, if a series
organization holds legal title to assets
associated with a series because the
statute under which the series
organization was organized does not
expressly permit a series to hold assets
in its own name, the series will be
treated as the owner of the assets for
Federal tax purposes if it bears the
economic benefits and burdens of the
assets under general Federal tax
principles. Similarly, for Federal tax
purposes, the obligor for the liability of
a series is determined under general tax
principles.
In general, the same legal principles
that apply to determine who owns
interests in other types of entities apply
to determine the ownership of interests
in series and series organizations. These
principles generally look to who bears
the economic benefits and burdens of
ownership. See, for example, Rev. Rul.
55–39 (1955–1 CB 403), (see
§ 601.601(d)(2)(ii)(b)). Furthermore,
common law principles apply to the
determination of whether a person is a
partner in a series that is classified as a
partnership for Federal tax purposes
under § 301.7701–3. See, for example,
Commissioner v. Culbertson, 337 U.S.
733 (1949); Commissioner v. Tower, 327
U.S. 280 (1946).
The IRS and the Treasury Department
considered other approaches to the
classification of series for Federal tax
purposes. In particular, the IRS and the
Treasury Department considered
whether series should be disregarded as
entities separate from the series
organization for Federal tax purposes.
This approach would be supported by
the fact that series are not generally
considered entities for local law
purposes (except, for example,
potentially under the statutes of Illinois
and Iowa, where a series may be treated
as a separate entity to the extent set
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forth in the articles of organization).
Additionally, while the statutes
enabling series organizations grant
series significant autonomy, under no
current statute do series possess all of
the attributes of independence that
entities recognized under local law
generally possess. For example, series
generally cannot convert into another
type of entity, merge with another
entity, or domesticate in another
jurisdiction independent of the series
organization. In addition, the
dissolution of a series organization
generally will terminate all of its series.
The IRS and the Treasury Department
believe that, notwithstanding that series
differ in some respects from more
traditional local law entities, domestic
series generally should be treated for
Federal tax purposes as entities formed
under local law. Because Federal tax
law, and not local law, governs the
question of whether an organization is
an entity for Federal tax purposes, it is
not dispositive that domestic series
generally are not considered entities for
local law purposes. Additionally, the
IRS and the Treasury Department
believe that, overall, the factors
supporting separate entity status for
series outweigh the factors in favor of
disregarding series as entities separate
from the series organization and other
series of the series organization.
Specifically, managers and equity
holders are ‘‘associated with’’ a series,
and their rights, duties, and powers
with respect to the series are direct and
specifically identified. Also, individual
series may (but generally are not
required to) have separate business
purposes and investment objectives.
The IRS and the Treasury Department
believe these factors are sufficient to
treat domestic series as entities formed
under local law.
Although some statutes creating series
organizations permit an individual
series to enter into contracts, sue, be
sued, and/or hold property in its own
name, the IRS and the Treasury
Department do not believe that the
failure of a statute to explicitly provide
these rights should alter the treatment of
a domestic series as an entity formed
under local law. These attributes
primarily involve procedural formalities
and do not appear to affect the
substantive economic rights of series or
their creditors with respect to their
property and liabilities. Even in
jurisdictions where series may not
possess these attributes, the statutory
liability shields would still apply to the
assets of a particular series, provided
the statutory requirements are satisfied.
Furthermore, the rule provided in the
proposed regulations would provide
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greater certainty to both taxpayers and
the IRS regarding the tax status of
domestic series and foreign series that
conduct insurance businesses. In effect,
taxpayers that establish domestic series
are placed in the same position as
persons that file a certificate of
organization for a State law entity. The
IRS and the Treasury Department
believe that the approach of the
proposed regulations is straightforward
and administrable, and is preferable to
engaging in a case-by-case
determination of the status of each
series that would require a detailed
examination of the terms of the relevant
statute. Finally, the IRS and the
Treasury Department believe that a rule
generally treating domestic series as
local law entities would be consistent
with taxpayers’ current ability to create
similar structures using multiple local
law entities that can elect their Federal
tax classification pursuant to
§ 301.7701–3.
The IRS and the Treasury Department
believe that domestic series should be
classified as separate local law entities
based on the characteristics granted to
them under the various series statutes.
However, except as specifically stated in
the proposed regulations, a particular
series need not actually possess all of
the attributes that its enabling statute
permits it to possess. The IRS and the
Treasury Department believe that a
domestic series should be treated as a
separate local law entity even if its
business purpose, investment objective,
or ownership overlaps with that of other
series or the series organization itself.
Separate State law entities may have
common or overlapping business
purposes, investment objectives and
ownership, but generally are still treated
as separate local law entities for Federal
tax purposes.
The proposed regulations do not
address the entity status for Federal tax
purposes of a series organization.
Specifically, the proposed regulations
do not address whether a series
organization is recognized as a separate
entity for Federal tax purposes if it has
no assets and engages in no activities
independent of its series.
Until further guidance is issued, the
entity status of a foreign series that does
not conduct an insurance business will
be determined under applicable law.
Foreign series raise novel Federal
income tax issues that continue to be
considered and addressed by the IRS
and the Treasury Department.
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2. Classification of a Series That Is
Treated as a Separate Entity for Federal
Tax Purposes
If a domestic series or a foreign series
engaged in an insurance business is
treated as a separate entity for Federal
tax purposes, then § 301.7701–1(b)
applies to determine the proper tax
classification of the series. However, the
proposed regulations do not provide
how a series should be treated for
Federal employment tax purposes. If a
domestic series is treated as a separate
entity for Federal tax purposes, then the
series generally is subject to the same
treatment as any other entity for Federal
tax purposes. For example, a series that
is treated as a separate entity for Federal
tax purposes may make any Federal tax
elections it is otherwise eligible to make
independently of other series or the
series organization itself, and regardless
of whether other series (or the series
organization) do not make certain
elections or make different elections.
3. Entity Status of Series Organizations
The proposed regulations do not
address the entity status or filing
requirements of series organizations for
Federal tax purposes. A series
organization generally is an entity for
local law purposes. An organization that
is an entity for local law purposes
generally is treated as an entity for
Federal tax purposes. However, an
organization characterized as an entity
for Federal income tax purposes may
not have an income or information tax
filing obligation. For example,
§ 301.6031(a)–(1)(a)(3)(i) provides that a
partnership with no income,
deductions, or credits for Federal
income tax purposes for a taxable year
is not required to file a partnership
return for that year. Generally, filing
fees of a series organization paid by
series of the series organization would
be treated as expenses of the series and
not as expenses of the series
organization. Thus, a series organization
characterized as a partnership for
Federal tax purposes that does not have
income, deductions, or credits for a
taxable year need not file a partnership
return for the year.
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4. Continuing Applicability of Tax Law
Authority to Series
Notwithstanding that a domestic
series or a foreign series engaged in an
insurance business is treated as an
entity formed under local law under the
proposed regulations, the Commissioner
may under applicable law, including
common law tax principles, characterize
a series or a portion of a series other
than as a separate entity for Federal tax
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purposes. Series covered by the
proposed regulations are subject to
applicable law to the same extent as
other entities. Thus, a series may be
disregarded under applicable law even
if it satisfies the requirements of the
proposed regulations to be treated as an
entity formed under local law. For
example, if a series has no business
purpose or business activity other than
tax avoidance, it may be disregarded
under appropriate circumstances. See
Bertoli v. Commissioner, 103 T.C. 501
(1994); Aldon Homes, Inc. v.
Commissioner, 33 T.C. 582 (1959).
Furthermore, the anti-abuse rule of
§ 1.701–2 is applicable to a series or
series organization that is classified as a
partnership for Federal tax purposes.
5. Applicability to Organizations That
Qualify as Insurance Companies
Notice 2008–19 requested comments
on proposed guidance setting forth
conditions under which a cell of a
protected cell company would be
treated as an insurance company
separate from any other entity for
Federal income tax purposes. Those
who commented on the notice generally
supported the proposed guidance, and
further commented that it should extend
to non-insurance arrangements as well,
including series LLCs. Rather than
provide independent guidance for
insurance company status setting forth
what is essentially the same standard,
the proposed regulations define the term
series to include a cell, segregated
account, or segregated portfolio that is
formed under the insurance code of a
jurisdiction or is engaged in an
insurance business (other than a
segregated asset account of a life
insurance company).
Although the proposed regulations do
not apply to a series organized or
established under the laws of a foreign
jurisdiction, an exception is provided
for certain series conducting an
insurance business. Under this
exception, a series that is organized or
established under the laws of a foreign
jurisdiction is treated as an entity if the
arrangements and other activities of the
series, if conducted by a domestic
company, would result in its being
classified as an insurance company.
Thus, a foreign series would be treated
as an entity if more than half of the
series’ business is the issuing or
reinsuring of insurance or annuity
contracts. The IRS and the Treasury
Department believe it is appropriate to
provide this rule even though the
proposed regulations otherwise do not
apply to a foreign series because an
insurance company is classified as a per
se corporation under section 7701(a)(3)
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regardless of how it otherwise would be
treated under §§ 301.7701–1, 301.7701–
2, or 301.7701–3.
The IRS and the Treasury Department
are aware that insurance-specific
guidance may still be needed to address
the issues identified in § 3.02 of Notice
2008–19 and insurance-specific
transition issues that may arise for
protected cell companies that
previously reported in a manner
inconsistent with the regulations. See
§ 601.601(d)(2)(ii)(b).
6. Effect of Local Law Classification on
Tax Collection
The IRS and Treasury Department
understand that there are differences in
local law governing series (for example,
rights to hold title to property and to sue
and be sued are expressly addressed in
some statutes but not in others) that may
affect how creditors of series, including
State taxing authorities, may enforce
obligations of a series. Thus, the
proposed regulations provide that, to
the extent Federal or local law permits
a creditor to collect a liability
attributable to a series from the series
organization or other series of the series
organization, the series organization and
other series of the series organization
may also be considered the taxpayer
from whom the tax assessed against the
series may be collected pursuant to
administrative or judicial means.
Further, when a creditor is permitted to
collect a liability attributable to a series
organization from any series of the
series organization, a tax liability
assessed against the series organization
may be collected directly from a series
of the series organization by
administrative or judicial means.
7. Employment Tax and Employee
Benefits Issues
A. In General
The domestic statutes authorizing the
creation of series contemplate that a
series may operate a business. If the
operating business has workers, it will
be necessary to determine how the
business satisfies any employment tax
obligations, whether it has the ability to
maintain any employee benefit plans
and, if so, whether it complies with the
rules applicable to those plans.
Application of the employment tax
requirements will depend principally
on whether the workers are employees,
and, if so, who is considered the
employer for Federal income and
employment tax purposes. In general, an
employment relationship exists when
the person for whom services are
performed has the right to control and
direct the individual who performs the
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services, not only as to the result to be
accomplished by the work but also as to
the details and means by which that
result is accomplished. See
§§ 31.3121(d)–1(c)(2), 31.3306(i)–1(b),
and 31.3401(c)– 1(b).
B. Employment Tax
An entity must be a person in order
to be an employer for Federal
employment tax purposes. See sections
3121(b), 3306(a)(1), 3306(c), and 3401(d)
and § 31.3121(d)–2(a). However, status
as a person, by itself, is not enough to
make an entity an employer for Federal
employment tax purposes. The entity
must also satisfy the criteria to be an
employer under Federal employment
tax statutes and regulations for purposes
of the determination of the proper
amount of employment taxes and the
party liable for reporting and paying the
taxes. Treatment of a series as a separate
person for Federal employment tax
purposes would create the possibility
that the series could be an ‘‘employer’’
for Federal employment tax purposes,
which would raise both substantive and
administrative issues.
The series structure would make it
difficult to determine whether the series
or the series organization is the
employer under the relevant criteria
with respect to the services provided.
For example, if workers perform all of
their services under the direction and
control of individuals who own the
interests in a series, but the series has
no legal authority to enter into contracts
or to sue or be sued, could the series
nonetheless be the employer of the
workers? If workers perform services
under the direction and control of the
series, but they are paid by the series
organization, would the series
organization, as the nominal owner of
all the series assets, have control over
the payment of wages such that it would
be liable as the employer under section
3401(d)?
The structure of a series organization
could also affect the type of
employment tax liability. For example,
if a series were recognized as a distinct
person for Federal employment tax
purposes, a worker providing services as
an employee of one series and as a
member of another series or the series
organization would be subject to FICA
tax on the wages paid for services as an
employee and self-employment tax on
the member income. Note further that,
if a domestic series were classified as a
separate entity that is a business entity,
then, under § 301.7701–3, the series
would be classified as either a
partnership or a corporation. While a
business entity with one owner is
generally classified as a corporation or
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is disregarded for Federal tax purposes,
such an entity cannot be disregarded for
Federal employment tax purposes. See
§ 301.7701–2(c)(2)(iv).
Once the employer is identified,
additional issues arise, including but
not limited to the following: How would
the wage base be determined for
employees, particularly if they work for
more than one series in a common line
of business? How would the common
paymaster rules apply? Who would be
authorized to designate an agent under
section 3504 for reporting and payment
of employment taxes, and how would
the authorization be accomplished?
How would the statutory exceptions
from the definitions of employment and
wages apply given that they may be
based on the identity of the employer?
Which entity would be eligible for tax
credits that go to the employer such as
the Work Opportunity Tax Credit under
section 51 or the tip credit under section
45B? If a series organization handles
payroll for a series and is also the
nominal owner of the series assets,
would the owners or the managers of
the series organization be responsible
persons for the Trust Fund Recovery
Penalty under section 6672?
Special administrative issues might
arise if the series were to be treated as
the employer for Federal employment
tax purposes but not for State law
purposes. For example, if the series
were the employer for Federal
employment tax purposes and filed a
Form W–2, ‘‘Wage and Tax Statement,’’
reporting wages and employment taxes
withheld, but the series were not
recognized as a juridical person for State
law purposes, then administrative
problems might ensue unless separate
Forms W–2 were prepared for State and
local tax purposes. Similarly, the IRS
and the States might encounter
challenges in awarding the FUTA credit
under section 3302 to the appropriate
entity and certifying the amount of State
unemployment tax paid.
In light of these issues, the proposed
regulations do not currently provide
how a series should be treated for
Federal employment tax purposes.
C. Employee Benefits
Various issues arise with respect to
the ability of a series to maintain an
employee benefit plan, including issues
related to those described above with
respect to whether a series may be an
employer. The proposed regulations do
not address these issues. However, to
the extent that a series can maintain an
employee benefit plan, the aggregation
rules under section 414(b), (c), (m), (o)
and (t), as well as the leased employee
rules under section 414(n), would
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55705
apply. In this connection, the IRS and
Treasury Department expect to issue
regulations under section 414(o) that
would prevent the avoidance of any
employee benefit plan requirement
through the use of the separate entity
status of a series.
8. Statement Containing Identifying
Information About Series
As the series organization or a series
of the series organization may be treated
as a separate entity for Federal tax and
related reporting purposes but may not
be a separate entity under local law, the
IRS and Treasury Department believe
that a new statement may need to be
created and required to be filed
annually by the series organization and
each series of the series organization to
provide the IRS with certain identifying
information to ensure the proper
assessment and collection of tax.
Accordingly, these regulations propose
to amend the Procedure and
Administration Regulations under
section 6011 to include this requirement
and a cross-reference to those
regulations is included under
§ 301.7701–1. The IRS and Treasury
Department are considering what
information should be required by these
statements. Information tentatively
being considered includes (1) the name,
address, and taxpayer identification
number of the series organization and
each of its series and status of each as
a series of a series organization or as the
series organization; (2) the jurisdiction
in which the series organization was
formed; and (3) an indication of whether
the series holds title to its assets or
whether title is held by another series or
the series organization and, if held by
another series or the series organization,
the name, address, and taxpayer
identification number of the series
organization and each series holding
title to any of its assets. The IRS and
Treasury Department are also
considering the best time to require
taxpayers to file the statement. For
example, the IRS and Treasury
Department are considering whether the
statement should be filed when returns,
such as income tax returns and excise
tax returns, are required to be filed or
whether it should be a stand-alone
statement filed separately by a set date
each year, as with information returns
such as Forms 1099. A cross-reference
to these regulations was added to the
Procedure and Administration
regulations under section 6071 for the
time to file returns and statements. The
proposed regulations under section
6071 provide that the statement will be
a stand-alone statement due March 15th
of each year. In addition, the IRS and
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Treasury Department are considering
revising Form SS–4, ‘‘Application for
Employer Identification Number,’’ to
include questions regarding series
organizations.
Proposed Effective Date
These regulations generally apply on
the date final regulations are published
in the Federal Register. Generally, when
final regulations become effective,
taxpayers that are treating series
differently for Federal tax purposes than
series are treated under the final
regulations will be required to change
their treatment of series. In this
situation, a series organization that
previously was treated as one entity
with all of its series may be required to
begin treating each series as a separate
entity for Federal tax purposes. General
tax principles will apply to determine
the consequences of the conversion
from one entity to multiple entities for
Federal tax purposes. See, for example,
section 708 for rules relating to
partnership divisions in the case of a
series organization previously treated as
a partnership for Federal tax purposes
converting into multiple partnerships
upon recognition of the series
organization’s series as separate entities.
While a division of a partnership may
be tax-free, gain may be recognized in
certain situations under section
704(c)(1)(B) or section 737. Sections 355
and 368(a)(1)(D) provide rules that
govern certain divisions of a
corporation. The division of a series
organization into multiple corporations
may be tax-free to the corporation and
to its shareholders; however, if the
corporate division does not satisfy one
or more of the requirements in section
355, the division may result in taxable
events to the corporation, its
shareholders, or both.
The regulations include an exception
for series established prior to
publication of the proposed regulations
that treat all series and the series
organization as one entity. If the
requirements for this exception are
satisfied, after issuance of the final
regulations the series may continue to
be treated together with the series
organization as one entity for Federal
tax purposes. Specifically, these
requirements are satisfied if (1) The
series was established prior to
September 14, 2010; (2) The series
(independent of the series organization
or other series of the series organization)
conducted business or investment
activity or, in the case of a foreign
series, more than half the business of
the series was the issuing of insurance
or annuity contracts or the reinsuring of
risks underwritten by insurance
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companies, on and prior to September
14, 2010; (3) If the series was
established pursuant to a foreign statute,
the series’ classification was relevant (as
defined in § 301.7701–3(d)), and more
than half the business of the series was
the issuing of insurance or annuity
contracts or the reinsuring of risks
underwritten by insurance companies
for all taxable years beginning with the
taxable year that includes September 14,
2010; (4) No owner of the series treats
the series as an entity separate from any
other series of the series organization or
from the series organization for
purposes of filing any Federal income
tax returns, information returns, or
withholding documents for any taxable
year; (5) The series and series
organization had a reasonable basis
(within the meaning of section 6662) for
their claimed classification; and (6)
Neither the series nor any owner of the
series nor the series organization was
notified in writing on or before the date
final regulations are published in the
Federal Register that classification of
the series was under examination (in
which case the series’ classification will
be determined in the examination).
This exception will cease to apply on
the date any person or persons who
were not owners of the series
organization (or series) prior to
September 14, 2010 own, in the
aggregate, a 50 percent or greater
interest in the series organization (or
series). For this purpose, the term
interest means (i) in the case of a
partnership, a capital or profits interest
and (ii) in the case of a corporation, an
equity interest measured by vote or
value. This transition rule does not
apply to any determination other than
the entity status of a series, for example,
tax ownership of a series or series
organization or qualification of a series
or series organization conducting an
insurance business as a controlled
foreign corporation.
Special Analyses
It has been determined that this notice
of proposed rulemaking is not a
significant regulatory action as defined
in Executive Order 12866. Therefore, a
regulatory assessment is not required. It
also has been determined that section
553(b) of the Administrative Procedure
Act (5 U.S.C. chapter 5) does not apply
to these regulations.
Pursuant to the Regulatory Flexibility
Act (5 U.S.C. chapter 6), it is hereby
certified that the regulations will not
have a significant economic impact on
a substantial number of small entities.
The regulations require that series and
series organizations file a statement to
provide the IRS with certain identifying
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information to ensure the proper
assessment and collection of tax. The
regulations affect domestic series LLCs,
domestic cell companies, and foreign
series and cells that conduct insurance
businesses, and their owners. Based on
information available at this time, the
IRS and the Treasury Department
believe that many series and series
organizations are large insurance
companies or investment firms and,
thus, are not small entities. Although a
number of small entities may be subject
to the information reporting
requirement of the new statement, any
economic impact will be minimal. The
information that the IRS and the
Treasury Department are considering
requiring on the proposed statement
should be known by or readily available
to the series or the series organization.
Therefore, it should take minimal time
and expense to collect and report this
information. For example, the IRS and
the Treasury Department are
considering requiring the following
information: (1) The name, address, and
taxpayer identification number of the
series organization and each of its series
and status of each as a series of a series
organization or as the series
organization; (2) The jurisdiction in
which the series organization was
formed; and (3) An indication of
whether the series holds title to its
assets or whether title is held by another
series or the series organization and, if
held by another series or the series
organization, the name, address, and
taxpayer identification number of the
series organization and each series
holding title to any of its assets. The IRS
and the Treasury Department request
comments on the accuracy of the
statement that the regulations in this
document will not have a significant
economic impact on a substantial
number of small entities. Pursuant to
section 7805(f) of the Code, this notice
of proposed rulemaking has been
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small businesses.
Comments and Requests for a 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. Alternatively,
taxpayers may submit comments
electronically directly to the Federal
eRulemaking portal at http://
www.regulations.gov.
The IRS and the Treasury Department
request comments on the proposed
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regulations. In addition, the IRS and the
Treasury Department request comments
on the following issues:
(1) Whether a series organization
should be recognized as a separate
entity for Federal tax purposes if it has
no assets and engages in no activities
independent of its series;
(2) The appropriate treatment of a
series that does not terminate for local
law purposes when it has no members
associated with it;
(3) The entity status for Federal tax
purposes of foreign cells that do not
conduct insurance businesses and other
tax consequences of establishing,
operating, and terminating all foreign
cells;
(4) How the Federal employment tax
issues discussed and similar technical
issues should be resolved;
(5) How series and series
organizations will be treated for State
employment tax purposes and other
state employment-related purposes and
how that treatment should affect the
Federal employment tax treatment of
series and series organizations
(comments from the states would be
particularly helpful);
(6) What issues could arise with
respect to the provision of employee
benefits by a series organization or
series; and
(7) The requirement for the series
organization and each series of the
series organization to file a statement
and what information should be
included on the statement.
All comments will be available for
public inspection and copying. A public
hearing may be scheduled if requested
in writing by a person who timely
submits comments. If a public hearing is
scheduled, notice of the date, time and
place for the hearing will be published
in the Federal Register.
Drafting Information
The principal author of these
proposed regulations is Joy Spies, IRS
Office of the Associate Chief Counsel
(Passthroughs and Special Industries).
However, other personnel from the IRS
and the Treasury Department
participated in their development.
emcdonald on DSK2BSOYB1PROD with PROPOSALS
List of Subjects in 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 part 301 is
proposed to be amended as follows:
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PART 301—PROCEDURE AND
ADMINISTRATION
Paragraph 1. The authority citation
for part 301 is amended by adding
entries in numerical order to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 301.6011–6 also issued under 26
U.S.C. 6011(a). * * *
Section 301.6071–2 also issued under 26
U.S.C. 6071(a). * * *
Par. 2. Section 301.6011–6 is added to
read as follows:
§ 301.6011–6 Statements of series and
series organizations.
(a) Statement required. Each series
and series organization (as defined in
paragraph (b) of this section) shall file
a statement for each taxable year
containing the identifying information
with respect to the series or series
organization as prescribed by the
Internal Revenue Service for this
purpose and shall include the
information required by the statement
and its instructions.
(b) Definitions—(1) Series. The term
series has the same meaning as in
§ 301.7701–1(a)(5)(viii)(C).
(2) Series organization. The term
series organization has the same
meaning as in § 301.7701–
1(a)(5)(viii)(A).
(c) Effective/applicability date. This
section applies to taxable years
beginning after the date of publication
of the Treasury decision adopting these
rules as final regulations in the Federal
Register.
Par. 3. Section 301.6071–2 is added to
read as follows:
§ 301.6071–2 Time for filing statements of
series and series organizations.
(a) In general. Statements required by
§ 301.6011–6 must be filed on or before
March 15 of the year following the
period for which the return is made.
(b) Effective/applicability date. This
section applies to taxable years
beginning after the date of publication
of the Treasury decision adopting these
rules as final regulations in the Federal
Register.
Par. 4. Section 301.7701–1 is
amended by:
1. Adding paragraph (a)(5).
2. Revising paragraphs (e) and (f).
The additions and revisions read as
follows:
§ 301.7701–1 Classification of
organizations for Federal tax purposes.
(a) * * *
(5) Series and series organizations—
(i) Entity status of a domestic series. For
Federal tax purposes, except as
provided in paragraph (a)(5)(ix) of this
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55707
section, a series (as defined in paragraph
(a)(5)(viii)(C) of this section) organized
or established under the laws of the
United States or of any State, whether
or not a juridical person for local law
purposes, is treated as an entity formed
under local law.
(ii) Certain foreign series conducting
an insurance business. For Federal tax
purposes, except as provided in
paragraph (a)(5)(ix) of this section, a
series organized or established under
the laws of a foreign jurisdiction is
treated as an entity formed under local
law if the arrangements and other
activities of the series, if conducted by
a domestic company, would result in
classification as an insurance company
within the meaning of section 816(a) or
section 831(c).
(iii) Recognition of entity status.
Whether a series that is treated as a local
law entity under paragraph (a)(5)(i) or
(ii) of this section is recognized as a
separate entity for Federal tax purposes
is determined under this section and
general tax principles.
(iv) Classification of series. The
classification of a series that is
recognized as a separate entity for
Federal tax purposes is determined
under paragraph (b) of this section.
(v) Jurisdiction in which series is
organized or established. A series is
treated as created or organized under
the laws of a State or foreign jurisdiction
if the series is established under the
laws of such jurisdiction. See
§ 301.7701–5 for rules that determine
whether a business entity is domestic or
foreign.
(vi) Ownership of series and the assets
of series. For Federal tax purposes, the
ownership of interests in a series and of
the assets associated with a series is
determined under general tax
principles. A series organization is not
treated as the owner for Federal tax
purposes of a series or of the assets
associated with a series merely because
the series organization holds legal title
to the assets associated with the series.
(vii) Effect of Federal and local law
treatment. To the extent that, pursuant
to the provisions of this paragraph
(a)(5), a series is a taxpayer against
whom tax may be assessed under
Chapter 63 of Title 26, then any tax
assessed against the series may be
collected by the Internal Revenue
Service from the series in the same
manner the assessment could be
collected by the Internal Revenue
Service from any other taxpayer. In
addition, to the extent Federal or local
law permits a debt attributable to the
series to be collected from the series
organization or other series of the series
organization, then, notwithstanding any
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other provision of this paragraph (a)(5),
and consistent with the provisions of
Federal or local law, the series
organization and other series of the
series organization may also be
considered the taxpayer from whom the
tax assessed against the series may be
administratively or judicially collected.
Further, when a creditor is permitted to
collect a liability attributable to a series
organization from any series of the
series organization, a tax liability
assessed against the series organization
may be collected directly from a series
of the series organization by
administrative or judicial means.
(viii) Definitions—(A) Series
organization. A series organization is a
juridical entity that establishes and
maintains, or under which is
established and maintained, a series (as
defined in paragraph (a)(5)(viii)(C) of
this section). A series organization
includes a series limited liability
company, series partnership, series
trust, protected cell company,
segregated cell company, segregated
portfolio company, or segregated
account company.
(B) Series statute. A series statute is
a statute of a State or foreign jurisdiction
that explicitly provides for the
organization or establishment of a series
of a juridical person and explicitly
permits—
(1) Members or participants of a series
organization to have rights, powers, or
duties with respect to the series;
(2) A series to have separate rights,
powers, or duties with respect to
specified property or obligations; and
(3) The segregation of assets and
liabilities such that none of the debts
and liabilities of the series organization
(other than liabilities to the State or
foreign jurisdiction related to the
organization or operation of the series
organization, such as franchise fees or
administrative costs) or of any other
series of the series organization are
enforceable against the assets of a
particular series of the series
organization.
(C) Series. A series is a segregated
group of assets and liabilities that is
established pursuant to a series statute
(as defined in paragraph (a)(5)(viii)(B) of
this section) by agreement of a series
organization (as defined in paragraph
(a)(5)(viii)(A) of this section). A series
includes a series, cell, segregated
account, or segregated portfolio,
including a cell, segregated account, or
segregated portfolio that is formed
under the insurance code of a
jurisdiction or is engaged in an
insurance business. However, the term
series does not include a segregated
asset account of a life insurance
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16:35 Sep 13, 2010
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company. See section 817(d)(1);
§ 1.817–5(e). An election, agreement, or
other arrangement that permits debts
and liabilities of other series or the
series organization to be enforceable
against the assets of a particular series,
or a failure to comply with the record
keeping requirements for the limitation
on liability available under the relevant
series statute, will be disregarded for
purposes of this paragraph
(a)(5)(viii)(C).
(ix) Treatment of series and series
organizations under Subtitle C—
Employment Taxes and Collection of
Income Tax (Chapters 21, 22, 23, 23A,
24 and 25 of the Internal Revenue
Code). [Reserved.]
(x) Examples. The following examples
illustrate the principles of this
paragraph (a)(5):
Example 1. Domestic Series LLC. (i) Facts.
Series LLC is a series organization (within
the meaning of paragraph (a)(5)(viii)(A) of
this section). Series LLC has three members
(1, 2, and 3). Series LLC establishes two
series (A and B) pursuant to the LLC statute
of state Y, a series statute within the meaning
of paragraph (a)(5)(viii)(B) of this section.
Under general tax principles, Members 1 and
2 are the owners of Series A, and Member 3
is the owner of Series B. Series A and B are
not described in § 301.7701–2(b) or
paragraph (a)(3) of this section and are not
trusts within the meaning of § 301.7701–4.
(ii) Analysis. Under paragraph (a)(5)(i)
of this section, Series A and Series B are
each treated as an entity formed under
local law. The classification of Series A
and Series B is determined under
paragraph (b) of this section. The default
classification under § 301.7701–3 of
Series A is a partnership and of Series
B is a disregarded entity.
Example 2. Foreign Insurance Cell.
(i) Facts. Insurance CellCo is a series
organization (within the meaning of
paragraph (a)(5)(viii)(A) of this section)
organized under the laws of foreign Country
X. Insurance CellCo has established one cell,
Cell A, pursuant to a Country X law that is
a series statute (within the meaning of
paragraph (a)(5)(viii)(B) of this section). More
than half the business of Cell A during the
taxable year is the issuing of insurance or
annuity contracts or the reinsuring of risks
underwritten by insurance companies. If the
activities of Cell A were conducted by a
domestic company, that company would
qualify as an insurance company within the
meaning of sections 816(a) and 831(c).
(ii) Analysis. Under paragraph
(a)(5)(ii) of this section, Cell A is treated
as an entity formed under local law.
Because Cell A is an insurance
company, it is classified as a
corporation under § 301.7701–2(b)(4).
*
*
*
*
*
(e) State. For purposes of this section
and §§ 301.7701–2 and 301.7701–4, the
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term State includes the District of
Columbia.
(f) Effective/applicability dates—(1) In
general. Except as provided in
paragraphs (f)(2) and (f)(3) of this
section, the rules of this section are
applicable as of January 1, 1997.
(2) Cost sharing arrangements. The
rules of paragraph (c) of this section are
applicable on January 5, 2009.
(3) Series and series organizations—
(i) In general. Except as otherwise
provided in this paragraph (f)(3),
paragraph (a)(5) of this section applies
on and after the date final regulations
are published in the Federal Register.
(ii) Transition rule—(A) In general.
Except as provided in paragraph
(f)(3)(ii)(B) of this section, a taxpayer’s
treatment of a series in a manner
inconsistent with the final regulations
will be respected on and after the date
final regulations are published in the
Federal Register, provided that—
(1) The series was established prior to
September 14, 2010;
(2) The series (independent of the
series organization or other series of the
series organization) conducted business
or investment activity, or, in the case of
a series established pursuant to a foreign
statute, more than half the business of
the series was the issuing of insurance
or annuity contracts or the reinsuring of
risks underwritten by insurance
companies, on and prior to September
14, 2010.
(3) If the series was established
pursuant to a foreign statute, the series’
classification was relevant (as defined in
§ 301.7701–3(d)), and more than half the
business of the series was the issuing of
insurance or annuity contracts or the
reinsuring of risks underwritten by
insurance companies for all taxable
years beginning with the taxable year
that includes September 14, 2010;
(4) No owner of the series treats the
series as an entity separate from any
other series of the series organization or
from the series organization for
purposes of filing any Federal income
tax returns, information returns, or
withholding documents in any taxable
year;
(5) The series and series organization
had a reasonable basis (within the
meaning of section 6662) for their
claimed classification; and
(6) Neither the series nor any owner
of the series nor the series organization
was notified in writing on or before the
date final regulations are published in
the Federal Register that classification
of the series was under examination (in
which case the series’ classification will
be determined in the examination).
(B) Exception to transition rule.
Paragraph (f)(3)(ii)(A) of this section
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will not apply on and after the date any
person or persons who were not owners
of the series organization (or series)
prior to September 14, 2010 own, in the
aggregate, a fifty percent or greater
interest in the series organization (or
series). For purposes of the preceding
sentence, the term interest means—
(1) In the case of a partnership, a
capital or profits interest; and
(2) In the case of a corporation, an
equity interest measured by vote or
value.
Steven T. Miller,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2010–22793 Filed 9–13–10; 8:45 am]
BILLING CODE 4830–01–P
DEPARTMENT OF HOMELAND
SECURITY
33 CFR Part 167
[Docket No. USCG–2009–0765]
Port Access Route Study: In the
Approaches to Los Angeles-Long
Beach and in the Santa Barbara
Channel
Coast Guard, DHS.
Notice of public meetings;
request for comments.
AGENCY:
ACTION:
The Coast Guard announces
two separate public meetings to receive
comments on the study entitled ‘‘Port
Access Route Study: In the Approaches
to Los Angeles-Long Beach and in the
Santa Barbara Channel’’ that was
published in the Federal Register on
Wednesday, April 7, 2010. As stated in
that document, the Coast Guard is
conducting a Port Access Route Study
(PARS) to evaluate the continued
applicability of and the potential need
for modifications to the current vessel
routing in the approaches to Los
Angeles-Long Beach and in the Santa
Barbara Channel.
DATES: Public meetings will be held on
Wednesday, October 13, 2010 from 7
p.m. to 9 p.m., and on Thursday,
October 14, 2010 from 7 p.m. to 9 p.m.
to provide an opportunity for oral
comments. Written comments and
related material may also be submitted
to Coast Guard personnel specified at
the meetings.
ADDRESSES: The October 13, 2010 public
meeting will be held at Oxnard Harbor
District Offices at 333 Ponoma Street in
Port Hueneme, CA. Visitor parking is
available in the adjacent parking lot.
The October 14, 2010 public meeting
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16:35 Sep 13, 2010
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If
you have questions concerning the
meeting or the study, please call or email LTJG Lucas Mancini, Coast Guard;
telephone 510–437–3801, e-mail
Lucas.W.Mancini@uscg.mil. If you have
questions on viewing the docket call
Ms. Renee V. Wright, Program Manager,
Docket Operations, telephone 202–366–
9826.
SUPPLEMENTARY INFORMATION:
FOR FURTHER INFORMATION CONTACT:
Background and Purpose
Coast Guard
SUMMARY:
will be held at the Port of Los Angeles
Administration Building at 425 S. Palos
Verdes St., San Pedro, CA 90731. Visitor
parking is available in the Liberty Hill
Plaza parking lot directly across the
street from the Port of Los Angeles
Administration Building. Governmentissued photo identification will be
required for entrance into both
buildings.
We published a notice of study in the
Federal Register on April 7, 2010 (75 FR
17562), entitled ‘‘Port Access Route
Study: In the Approaches to Los
Angeles-Long Beach and In the Santa
Barbara Channel’’ in which we did not
state a plan to hold a public meeting.
We received several requests for a
meeting in comments submitted to the
docket and have concluded that a public
meeting would aid this study.
Therefore, we are publishing this notice.
In the notice of PARS, we discussed
increased vessel traffic observed
bypassing the Santa Barbara Channel
Traffic Separation Scheme (TSS) and
opting for routes south of San Miguel,
Santa Rosa, and Santa Cruz Islands
approaching the San Pedro Channel.
This study will assess whether the
creation of a vessel routing system is
necessary to increase the predictability
of vessel movements, which may
decrease the potential for collisions, oil
spills, and other events that could
threaten the marine environment.
You may view the notice of PARS in
our online docket, in addition to
comments submitted thus far by going
to http://www.regulations.gov. Once
there, insert ‘‘USCG–2009–0765’’ in the
‘‘Keyword’’ box and click ‘‘Search.’’ If
you do not have access to the internet,
you may view the docket online by
visiting the Docket Management Facility
in Room W12–140 on the ground floor
of the Department of Transportation
West Building, 1200 New Jersey
Avenue, SE., Washington, DC 20590,
between 9 a.m. and 5 p.m., Monday
through Friday, except Federal holidays.
We have an agreement with the
Department of Transportation to use the
Docket Management Facility.
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We encourage you to participate in
this study by submitting comments at
the meeting either orally or in writing.
If you bring written comments to the
meeting, you may submit them to Coast
Guard personnel specified at the
meeting to receive written comments.
These comments will be posted to our
online public docket. All comments
received will be posted without change
to http://www.regulations.gov and will
include any personal information you
have provided.
Anyone can search the electronic
form of comments received into any of
our dockets by the name of the
individual submitting the comment (or
signing the comment, if submitted on
behalf of an association, business, labor
union, etc.). You may review a Privacy
Act notice regarding our public dockets
in the January 17, 2008, issue of the
Federal Register (73 FR 3316).
Information on Service for Individuals
With Disabilities
For information on facilities or
services for individuals with disabilities
or to request special assistance at the
public meeting, contact LTJG Lucas
Mancini at the telephone number or email address indicated under the FOR
FURTHER INFORMATION CONTACT section of
this notice.
Public Meeting
The Coast Guard will hold public
meetings regarding its Port Access Route
Study In the Approaches to Los
Angeles-Long Beach and In the Santa
Barbara Channel proposed rule on
Wednesday, October 13, 2010 from 7
p.m. to 9 p.m. at the Oxnard Harbor
District Offices and Thursday, October
14, 2010 from 7 p.m. to 9 p.m. in the
2nd floor board room at the Port of Los
Angeles Administration Building,
telephone (310) SEA–PORT (732–7668).
Government-issued photo identification
(for example, a driver’s license or TWIC)
will be required for entrance into both
buildings. We will provide a written
summary of the meeting and additional
comments received at the meeting in the
docket.
Dated: September 2, 2010.
S.P. Metruck,
Captain, U.S. Coast Guard, Acting
Commander, Eleventh Coast Guard District.
[FR Doc. 2010–22799 Filed 9–13–10; 8:45 am]
BILLING CODE 9110–04–P
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| File Type | application/pdf |
| File Title | Document |
| Subject | Extracted Pages |
| Author | U.S. Government Printing Office |
| File Modified | 2010-09-13 |
| File Created | 2010-09-13 |