Td 8653

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 446.—General Rule for
Methods of Accounting
26 CFR 1.446–4: Hedging transactions

T.D. 8653
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
Hedging Transactions by Members of
a Consolidated Group
AGENCY: Internal Revenue Service,
Treasury.
ACTION: Final regulations.
SUMMARY: This document contains
final regulations relating to the character and timing of gain or loss from
certain hedging transactions entered
into by members of a consolidated
group. These regulations apply when
one member of the group hedges its
own risk, hedges the risk of another
member, or enters into a risk-shifting
transaction with another member. The
regulations are needed to provide appropriate rules for these transactions.
The regulations provide guidance for
corporations that are members of consolidated groups.
DATES: These regulations are effective
February 7, 1996.
For dates of applicability of these
regulations, see §1.446–4(e)(9)(iv) and
§1.1221–2(g)(4), (5), and (6).
FOR FURTHER INFORMATION
CONTACT: Jo Lynn Ricks of the
Office of the Assistant Chief Counsel
(Financial Institutions and Products),
telephone (202) 622-3920 (not a tollfree number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collections of information contained in these final regulations have
been reviewed and approved by the
Office of Management and Budget in
accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
control number 1545–1480. Some re-

sponses to these collections of information are mandatory, and others are
required to obtain the benefit of the
separate-entity election or of applying
single-entity treatment in taxable years
prior to the general effective date of
the regulations.
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.
The estimated annual burden per
respondent or recordkeeper varies from
1.0 to 40.0 hours, depending on individual circumstances, with an estimated
average of 5 hours.
Comments concerning the accuracy
of this burden estimate and suggestions
for reducing this burden should be sent
to the Internal Revenue Service, Attn:
IRS Reports Clearance Officer, T:FP,
Washington, DC 20224, and 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.
Books or records relating to this
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
On July 18, 1994, the IRS published
in the Federal Register (59 FR 36394)
a notice of proposed rulemaking (FI–
34–94 [1994–2 C.B. 863]) relating to
the character and timing of gain or loss
from certain risk-shifting transactions
entered into by members of a consolidated group. Comments were received
on the proposed regulations, and a
public hearing was held on October 18,
1994. Most commentators believe that
the proposed regulations provide a
sensible and flexible set of rules to deal
with hedging operations by the members of a consolidated group of
corporations.
The most significant comment on the
regulations relates to their effective
date. Almost all of the commentators
requested a transition rule permitting
consolidated groups to elect to apply

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the proposed character rules retroactively. The final regulations adopt this
suggestion, generally allowing consolidated groups to elect to apply the
single-entity approach of the proposed
regulations to all open years. Section
1.1221–2, concerning the character of
hedging transactions, was made retroactive for all open years to permit the
IRS to resolve fairly and consistently
controversies involving transactions
that were entered into prior to the
publication date of those regulations. It
is appropriate that these regulations, as
an integral part of §1.1221–2, also
apply retroactively. To prevent any
adverse consequences, however, retroactivity is elective.
The proposed regulations, with new
effective date provisions, are adopted
as final regulations. The new provisions, and several comments that were
not adopted, are discussed below.
Explanation of provisions
Character regulations
The final regulations retain the
single-entity approach of the proposed
regulations. That is, they treat the risk
of one member of the group as the risk
of the other members, as if all the
members were divisions of a single
corporation. Thus, a member of a consolidated group that hedges the risk of
another member by entering into a
transaction with a third party may
receive ordinary gain or loss treatment
on that transaction if the transaction
otherwise qualifies as a hedging
transaction.
Under this single-entity approach,
intercompany transactions are neither
hedging transactions nor hedged items.
Because they are treated as transactions
between divisions of a single corporation, intercompany transactions do not
reduce the risk of that single corporation and, therefore, fail to qualify as
hedging transactions.
Some commentators requested that
the IRS extend the single-entity approach to apply the hedging rules to a
taxpayer’s transactions that hedge the
risk of a related party that is not a
member of the taxpayer’s consolidated
group. The IRS and Treasury, however,
do not believe that this approach is
appropriate where the parties file dif-

ferent tax returns. Accordingly, the
final regulations do not adopt this
suggestion.
The final regulations also retain the
separate-entity election of the proposed
regulations, permitting a consolidated
group to treat its members as separate
entities when applying the hedging
rules. The election is made by attaching
a statement to the group’s federal
income tax return.
For a group that elects separateentity treatment, an intercompany transaction is treated as a hedging transaction if and only if: (1) it would qualify
as a hedging transaction if entered into
with an unrelated party; and (2) it is
entered into with a member that, under
its method of accounting, marks its
position in the intercompany transaction to market. If these requirements
are satisfied, the member with respect
to which it is an intercompany hedging
transaction must account for its position in the transaction under §1.446–4,
and, if that member properly identifies
the transaction as a hedging transaction, each member treats the gain or
loss from its position in the transaction
as ordinary.
In response to comments, the final
regulations clarify that, even when
these two requirements are met, these
regulations supplant only the character
and timing rules of §1.1502–13. Other
aspects of the transaction, such as the
source of the gain or loss, are unaffected by these regulations and thus
may be governed by §1.1502–13.
As noted above, commentators
pointed out that taxpayers frequently
enter into transactions to transfer their
business risk to related parties that do
not qualify as members of a consolidated group. Some commentators argued that, even if risk reduction in
these circumstances is not analyzed
using a single-entity perspective, the
relationship between the parties to the
risk transfer justifies a rule under
which the party receiving the risk has
ordinary gain or loss on its position in
the transaction. That is, they wanted to
apply one part of the separate-entity
rules to taxpayers that are not part of
the same consolidated group.
The IRS and Treasury, however, do
not believe that additional, special
character rules are appropriate for riskshifting transactions outside the context
of a consolidated group. Accordingly,
the final regulations do not adopt these
comments.

The final regulations expand upon
the effective date provision of the
proposed regulations. The final regulations generally apply to transactions
entered into on or after March 8, 1996.
In response to comments, the final
regulations permit a consolidated group
to apply the single-entity approach of
the regulations retroactively. The group
may elect to begin to apply the singleentity approach for all transactions
entered into in any taxable year (the
election year) beginning prior to March
8, 1996. The election may be made,
however, only if the election year and
each subsequent taxable year are still
open for assessment under section 6501
on July 1, 1996, or such earlier date as
the Commissioner may allow. Once
made, the single-entity election applies
to all transactions entered into in the
election year and in all subsequent
consolidated return years until the date
as of which the group makes a
separate-entity election. The Service
will publish guidance on the manner,
and the time, for making the singleentity election.
Further, the regulations also permit a
consolidated group to apply the
separate-entity approach to all transactions entered into in taxable years
subject to the election. The taxpayer
may choose, as the first year under the
election, any taxable year beginning on
or after July 12, 1995. This ability to
apply the election to taxable years
beginning before March 8, 1996, allows a consolidated group to apply the
separate-entity approach to all intercompany transactions that are subject
to new §1.1502–13 (which is effective
for taxable years beginning on or after
July 12, 1995). Thus, by electing
separate-entity treatment for all transactions entered into in a taxable year
beginning on or after July 12, 1995, a
consolidated group can determine the
character and timing of its intercompany hedging transactions under
§1.446–4 and §1.1221–2, rather than
under §1.1502–13.
If the group makes the single-entity
election or elects to apply the separateentity approach retroactively, special
identification rules apply.
First, the members of the group are
required to identify transactions that
were entered into prior to March 8,
1996, that are still in existence on that
date, and that become hedging transactions as a result of one of these
elections. The members are also re-

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quired to identify the hedged item for
these transactions.
Second, the final regulations extend
the time period for making the additional identifications that are referred to
in the preceding paragraph.
Third, if the taxpayer’s consolidated
group has elected the single-entity
approach, the regulations nullify all
hedge identifications under §1.1221–2(e)(i) that had been made for intercompany transactions. In this situation, the
regulations determine the character of
each intercompany transaction as if it
had never been identified as a hedging
transaction. Thus, the character and
timing of the intercompany transaction
are determined under the otherwise
applicable regulations, and the transaction is not subject to the ordinary-gain,
capital-loss rule that generally applies
to transactions that are incorrectly
identified as hedging transactions. The
identification may, however, serve to
identify the hedged item.
In order to ensure that consolidated
groups do not improperly use hindsight
in making these identifications, the
regulations provide a consistency requirement. Under this requirement, the
group members must treat similar or
identical transactions consistently
within the same year and from year to
year. If a member of the consolidated
group fails to identify a hedging
transaction as a hedging transaction,
but has identified similar or identical
hedging transactions in the same or a
subsequent year, then, for purposes of
§1.1221–2(f)(2)(iii), the member entering into the transaction is treated as
having no reasonable grounds for treating the transaction as other than a
hedging transaction. Thus, the member
is generally subject to the ordinarygain, capital-loss rules for taxpayers
who fail to identify transactions as
hedging transactions.
Timing regulations
The final regulations clarify the
general rule that was provided in the
proposed regulations for the timing of
the gain or loss from hedging transactions that are entered into by members
of a consolidated group. Under the
final regulations, a member of a consolidated group must account for its
hedging transactions as if all the
members were separate divisions of a
single corporation (the single-entity
approach). Thus, the timing of the

income, deduction, gain, or loss on the
hedging transaction must match the
timing of the income, deduction, gain,
or loss from the item, items, or
aggregate risk being hedged. These
regulations make clear that a member
must account for all of its hedging
transactions, not just those that hedge
the risk of another member, under the
single-entity approach.
Since all of the members are treated
as divisions of a single corporation,
intercompany transactions are neither
hedging transactions nor hedged items.
Thus, under the single-entity approach,
the timing of the gain or loss from
intercompany transactions is not determined under the rules of §1.446–4.
The final regulations also clarify the
rule in the proposed regulations on
accounting for the gain or loss on
hedging transactions by members of a
group that has made a separate-entity
election. If a group makes the separateentity election, the members do not
account for their hedging transactions
(including their intercompany hedging
transactions) as if they were divisions
of a single corporation. Rather, each
member accounts for its hedging transactions on a member-by-member basis.
For example, if an intercompany transaction is treated as a hedging transaction, the gain or loss on the transaction
is accounted for under the rules of
§1.446–4 rather than under the timing
rules of the intercompany transaction
regulations, §1.1503–13. As was stated
above, even when a separate-entity
election is in place, §§1.1221–2 and
1.446–4 affect only the timing and
character of intercompany hedging
transactions. Other aspects of the intercompany hedging transaction remain
subject to the rules of §1.1502–13.
These final timing regulations are
effective for transactions entered into
on or after March 8, 1996.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in EO
12866. Therefore, a regulatory assessment is not required. It is hereby
certified that these regulations do not
have a significant economic impact on
a substantial number of small entities.
This certification is based on the fact
that these regulations will primarily
affect affiliated groups of corporations
that have elected to file consolidated

returns, which tend to be larger businesses. The regulations do not significantly alter the reporting or recordkeeping duties of small entities. Therefore,
a Regulatory Flexibility Analysis under
the Regulatory Flexibility Act (5
U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the
Internal Revenue Code, the notice of
proposed rulemaking preceding these
regulations was submitted to the Small
Business Administration for comment
on its impact on small business.
Drafting Information
The principal author of these regulations is Jo Lynn Ricks, Office of
Assistant Chief Counsel (Financial Institutions and Products), IRS. However,
other personnel from the IRS and
Treasury Department participated in
their development.
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Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and
602 are amended as follows:
PART 1—INCOME TAXES
Paragraph 1. The authority citation
for part 1 is amended by removing the
entry for §1.1221–2 and by adding
entries in numerical order to read as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.446–4 also issued under 26
U.S.C. 1502. * * *
Section 1.1221–2 also issued under
26 U.S.C. 1502 and 6001. * * *
Par. 2. Section 1.446–4 is amended
by adding the text of paragraph (e)(9)
to read as follows:
§1.446–4 Hedging Transactions.
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(e) * * *
(9) Hedging by members of a consolidated group—(i) General rule:
single-entity approach. In general, a
member of a consolidated group must
account for its hedging transactions as
if all of the members were separate
divisions of a single corporation. Thus,
the timing of the income, deduction,
gain, or loss on a hedging transaction
must match the timing of income,
deduction, gain, or loss from the item

6

or items being hedged. Because all of
the members are treated as if they were
divisions of a single corporation, intercompany transactions are neither hedging transactions nor hedged items for
these purposes.
(ii) Separate-entity election. If a
consolidated group makes an election
under §1.1221–2(d)(2), then paragraph
(e)(9)(i) of this section does not apply.
Thus, in that case, each member of the
consolidated group must account for its
hedging transactions in a manner that
meets the requirements of paragraph
(b) of this section. For example, the
income, deduction, gain, or loss from
intercompany hedging transactions (as
defined in §1.1221–2(d)(2)(ii)) is taken
into account under the timing rules of
§1.446–4 rather than under the timing
rules of §1.1502–13.
(iii) Definitions. For definitions of
consolidated group, divisions of a
single corporation, intercompany transaction, and member, see section 1502
and the regulations thereunder.
(iv) Effective date. This paragraph
(e)(9) applies to transactions entered
into on or after March 8, 1996.
Par. 3. Section 1.1221–2 is amended
by adding the text of paragraphs (d),
(e)(5), (f)(3), and (g)(4), and by adding
the text and headings of paragraphs
(g)(5) and (6) to read as follows:

§1.1221–2 Hedging Transactions.
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(d) Hedging by members of a consolidated group—(1) General rule:
single-entity approach. For purposes of
this section, the risk of one member of
a consolidated group is treated as the
risk of the other members as if all of
the members of the group were divisions of a single corporation. For
example, if any member of a consolidated group hedges the risk of another
member of the group by entering into a
transaction with a third party, that
transaction may potentially qualify as a
hedging transaction. Conversely, intercompany transactions are not hedging
transactions because, when considered
as transactions between divisions of a
single corporation, they do not reduce
the risk of that single corporation.
(2) Separate-entity election. In lieu
of the single-entity approach specified

in paragraph (d)(1) of this section, a
consolidated group may elect separateentity treatment of its hedging transactions. If a group makes this separateentity election, the following rules
apply.
(i) Risk of one member not risk of
other members. Notwithstanding paragraph (d)(1) of this section, the risk of
one member is not treated as the risk of
other members.
(ii) Intercompany transactions. An
intercompany transaction is a hedging
transaction (an intercompany hedging
transaction) with respect to a member
of a consolidated group if and only if it
meets the following requirements—
(A) The position of the member in
the intercompany transaction would
qualify as a hedging transaction with
respect to the member (taking into
account paragraph (d)(2)(i) of this
section) if the member had entered into
the transaction with an unrelated party;
and
(B) The position of the other member (the marking member) in the
transaction is marked to market under

OPERATING
MEMBER
O

risk
A

position
B

Example 1. Single-entity treatment—(i) General rule. Under paragraph (d)(1) of this section,
O’s risk A is treated as H’s risk, and therefore D
is a hedging transaction with respect to risk A.
Thus, the character of D is determined under the
rules of this section, and the income, deduction,
gain, or loss from D must be accounted for under
a method of accounting that satisfies §1.446–4.
The intercompany transaction B–C is not a
hedging transaction and is taken into account
under §1.1502–13.
(ii) Identification. D must be identified as a
hedging transaction under paragraph (e)(1) of
this section, and A must be identified as the
hedged item under paragraph (e)(2) of this
section. Under paragraph (e)(5) of this section,
the identification of A as the hedged item can be
accomplished by identifying the positions in the
intercompany transaction as hedges or hedged
items, as appropriate. Thus, substantially contemporaneous with entering into D, H may identify
C as the hedged item and O may identify B as a
hedge and A as the hedged item.
Example 2. Separate-entity election; counterparty that does not mark to market. In addition

the marking member’s method of
accounting.
(iii) Treatment of intercompany
hedging transactions. An intercompany
hedging transaction (that is, a transaction that meets the requirements of
paragraphs (d)(2)(ii)(A) and (B) of this
section) is subject to the following
rules—
(A) The character and timing rules
of §1.1502–13 do not apply to the
income, deduction, gain, or loss from
the intercompany hedging transaction;
and
(B) Except as provided in paragraph
(f)(3) of this section, the character of
the marking member’s gain or loss
from the transaction is ordinary.
(iv) Making and revoking the election. Unless the Commissioner otherwise prescribes, the election described
in this paragraph (d)(2) must be made
in a separate statement saying ‘‘[Insert
Name and Employer Identification
Number of Common Parent] HEREBY
ELECTS THE APPLICATION OF
SECTION 1.1221–2(d)(2) (THE
SEPARATE-ENTITY APPROACH).’’

HEDGING
MEMBER
H

intercompany
transaction

position
C

The statement must also indicate the
date as of which the election is to be
effective. The election must be signed
by the common parent and filed with
the group’s federal income tax return
for the taxable year that includes the
first date for which the election is to
apply. The election applies to all
transactions entered into on or after the
date so indicated.
(3) Definitions. For definitions of
consolidated group, divisions of a
single corporation, group, intercompany
transactions, and member, see section
1502 and the regulations thereunder.
(4) Examples. The following examples illustrate this paragraph (d):
General Facts. In these examples, O and H are
members of the same consolidated group. O’s
business operations give rise to interest rate risk
‘‘A,’’ which O wishes to hedge. O enters into an
intercompany transaction with H that transfers
the risk to H. O’s position in the intercompany
transaction is ‘‘B,’’ and H’s position in the
transaction is ‘‘C.’’ H enters into position ‘‘D’’
with a third party to reduce the interest rate risk
it has with respect to its position C. D would be
a hedging transaction with respect to risk A if
O’s risk A were H’s risk.

riskshifting
transaction

THIRD
PARTY

position
D

to the General Facts stated above, assume that
the group makes a separate-entity election under
paragraph (d)(2) of this section. If H does not
mark C to market under its method of accounting, then B is not a hedging transaction, and the
B–C intercompany transaction is taken into account under the rules of section 1502. D is not a
hedging transaction with respect to A, but D may
be a hedging transaction with respect to C if C is
ordinary property or an ordinary obligation and if
the other requirements of paragraph (b) of this
section are met. If D is not part of a hedging
transaction, then D may be part of a straddle for
purposes of section 1092.
Example 3. Separate-entity election; counterparty that marks to market. The facts are the
same as in Example 2 above, except that H
marks C to market under its method of accounting. Also assume that B would be a
hedging transaction with respect to risk A if O
had entered into that transaction with an unrelated party. Thus, for O, the B–C transaction is
an intercompany hedging transaction with respect
to O’s risk A, the character and timing rules of
§1.1502–13 do not apply to the B–C transaction,
and H’s income, deduction, gain, or loss

7

from C is ordinary. However, other attributes of
the items from the B–C transaction are determined under §1.1502–13. D is a hedging transaction with respect to C if it meets the
requirements of paragraph (b) of this section.

(e) * * *
(5) Identification of hedges involving
members of a consolidated group—(i)
General rule: single-entity approach. A
member of a consolidated group must
satisfy the requirements of this paragraph (e) as if all of the members of
the group were divisions of a single
corporation. Thus, the member entering
into the hedging transaction with a
third party must identify the hedging
transaction under paragraph (e)(1) of
this section. Under paragraph (e)(2) of
this section, that member must also
identify the item, items, or aggregate
risk that is being hedged, even if the

item, items, or aggregate risk relates
primarily or entirely to other members
of the group. If the members of a
group use intercompany transactions to
transfer risk within the group, the
requirements of paragraph (e)(2) of this
section may be met by identifying the
intercompany transactions, and the
risks hedged by the intercompany
transactions, as hedges or hedged
items, as appropriate. Because identification of the intercompany transaction
as a hedge serves solely to identify the
hedged item, the identification is timely
if made within the period required by
paragraph (e)(2) of this section. For
example, if a member transfers risk in
an intercompany transaction, it may
identify under the rules of this paragraph (e) both its position in that
transaction and the item, items, or
aggregate risk being hedged. The member that hedges the risk outside the
group may identify under the rules of
this paragraph (e) both its position with
the third party and its position in the
intercompany transaction. Paragraph
(d)(4) Example 1 of this section illustrates this identification.
(ii) Rule for consolidated groups
making the separate-entity election. If a
consolidated group makes the separateentity election under paragraph (d)(2)
of this section, each member of the
group must satisfy the requirements of
this paragraph (e) as though it were not
a member of a consolidated group.
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(f) * * *
(3) Transactions by members of a
consolidated group—(i) Single-entity
approach. If a consolidated group is
under the general rule of paragraph
(d)(1) of this section (the single-entity
approach), the rules of this paragraph
(f) apply only to transactions that are
not intercompany transactions.
(ii) Separate-entity election. If a
consolidated group has made the election under paragraph (d)(2) of this
section, then, in addition to the rules of
paragraphs (f)(1) and (2) of this section, the following rules apply.
(A) If an intercompany transaction is
identified as a hedging transaction but
does not meet the requirements of
paragraphs (d)(2)(ii)(A) and (B) of this
section, then, notwithstanding any contrary provision in §1.1502–13, each
party to the transaction is subject to the

rules of paragraph (f)(1) of this section
with respect to the transaction as
though it had incorrectly identified its
position in the transaction as a hedging
transaction.
(B) If a transaction meets the requirements of paragraphs (d)(2)(ii)(A)
and (B) of this section but the transaction is not identified as a hedging
transaction, each party to the transaction is subject to the rules of paragraph
(f)(2) of this section. (Because the
transaction is an intercompany hedging
transaction, the character and timing
rules of §1.1502–13 do not apply. See
paragraph (d)(2)(iii)(A) of this section.)
(g) * * *
(4) Effective date and transition
rules for hedges by members of a consolidated group. Paragraphs (d), (e)(5),
and (f)(3) of this section apply to
transactions entered into on or after
March 8, 1996.
(5) Elections to accelerate the effective date of the regulations—(i) Election to apply the single-entity approach
retroactively. A consolidated group
may elect to begin to apply paragraphs
(d)(1) and (3), (e)(5)(i), and (f)(3)(i) of
this section to all transactions entered
into in any taxable year (the election
year) beginning prior to March 8, 1996.
This election must be made in the
manner, and at the time, prescribed by
the Commissioner. A group may make
the election only if the election year,
and each subsequent taxable year, are
still open for assessment under section
6501 on July 1, 1996 (or such earlier
date as the Commissioner may allow).
The election applies to all transactions
entered into in the election year and in
all subsequent consolidated return years
until the date, if any, as of which the
group makes a separate-entity election
under paragraph (d)(2) of this section.
The rules of paragraph (g)(6) of this
section apply to all transactions that
were entered into before March 8,
1996, in taxable years subject to an
election under this paragraph (g)(5)(i).
The election may be revoked only with
the consent of the Commissioner.
(ii) Ability to apply the separateentity approach retroactively. Notwithstanding paragraph (g)(4) of this section, the separate-entity election
described in paragraph (d)(2) of this
section may be made for any taxable
year beginning on or after July 12,
1995. If that election is made for a
taxable year beginning before March 8,

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1996, then paragraphs (d)(2) and (3),
(e)(5)(ii), and (f)(3)(ii) of this section
apply to all transactions entered into on
or after the beginning of that taxable
year and while the election is in effect,
and the rules of paragraph (g)(6) of this
section (other than paragraph (g)(6)(i))
apply to all transactions that were
entered into on or after the first day of
the first year for which the election is
made and before March 8, 1996.
(6) Transitional identification rules.
To allow a consolidated group to conform to paragraphs (g)(5)(i) and (ii) of
this section, this paragraph (g)(6) nullifies certain hedge identifications and
permits a member of a consolidated
group to add certain hedge identifications. This paragraph (g)(6) applies
only to the extent provided in paragraph (g)(5) of this section.
(i) Intercompany transactions previously identified. Notwithstanding
paragraph (f)(1)(i) of this section, if,
for purposes of paragraph (e)(1) of this
section, a member identified as a
hedging transaction an intercompany
transaction (or a transaction that would
qualify as an intercompany transaction
under §1.1502–13(b)(1) if the taxable
year in which the transaction was
entered into were described in
§1.1502–13(l)), the character of the
gain on the intercompany transaction is
determined as if it had not been
identified as a hedging transaction. The
identification may, however, serve to
identify the hedged item under paragraph (e)(5)(i) of this section.
(ii) Additional identifications of
hedging transactions. A member of a
consolidated group must identify under
paragraph (e)(5) of this section a
transaction that—
(A) Was entered into before March
8, 1996,
(B) When entered into was not a
hedging transaction (as defined in
paragraph (b) of this section),
(C) Solely as a result of the group’s
election under paragraph (g)(5)(i) or
(ii) of this section, is a hedging
transaction (as defined in paragraph (b)
of this section), and
(D) Remains in existence on March
8, 1996.
(iii) Additional identification of
hedged items. In the case of transactions described in paragraph (g)(6)(ii)
of this section, the hedging member
must identify under paragraph (e)(5) of

this section the item, items, or aggregate risk being hedged.
(iv) Consistency requirement for
hedge identifications. In identifying
transactions as hedging transactions
under paragraph (g)(6)(ii) of this section, all of the members of the group
must treat similar or identical transactions consistently within the same year
and from year to year. If paragraph
(g)(6)(ii) of this section requires a
member to identify a transaction, and
the member fails to identify a transaction as a hedging transaction, but it or
another member of the group identifies
similar or identical hedging transactions
in the same or a subsequent year, then
for purposes of paragraphs (f)(2)(iii)
and (3) of this section, the member
entering into the transaction is treated
as having no reasonable grounds for
treating the transaction as other than a
hedging transaction.
(v) Extension of time for making
additional identifications. If an identification of a hedging transaction would
not be required but for the rules of
paragraph (g)(6)(ii) of this section, the
identification is timely for purposes of
paragraph (e)(1) of this section if made
before the close of business on May 8,
1996. If an identification of a hedged
item would not be required but for the
rules of paragraph (g)(6)(iii) of this
section, it is timely for purposes of
paragraph (e)(2) of this section if made
before the close of business on the later
of May 8, 1996, or the last day of the
period specified in paragraph (e)(2)(ii)
of this section.

CFR part or section
where identified
and described
*

*

*

Current OMB
control number

*

*

1.1221–2(d)(2)(iv) . . . . . . . .
1.1221–2(e)(5) . . . . . . . . . . .
1.1221–2(g)(5)(ii) . . . . . . . .
1.1221–2(g)(6)(ii) . . . . . . . .
1.1221–2(g)(6)(iii) . . . . . . . .
*

*

*

*

*

*
1545–1480
1545–1480
1545–1480
1545–1480
1545–1480
*

Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved December 20, 1995.
Cynthia G. Beerbower,
Assistant Secretary of the Treasury.
(Filed by the Office of the Federal Register on
January 5, 1996, 8:45 a.m., and published in
the issue of the Federal Register for January 8,
1996, 61 F.R. 517)

Section 7121.—Closing agreements

Par. 4. The authority citation for part
602 continues to read as follows:
Authority: 26 U.S.C. 7805.
Par. 5. In §602.101, paragraph (c) is
amended by adding entries in numerical order to the table to read as
follows:
§602.101 OMB Control numbers.
*
(c) * * *

*

*

*

*

*

EFFECTIVE DATE: January 8, 1996.
FOR FURTHER INFORMATION
CONTACT: Philip Bennet, (202) 622–
3926.
SUPPLEMENTARY INFORMATION:
Background
As part of the President’s Regulatory
Reinvention Initiative, the Treasury
Department and the IRS identified
obsolete regulations that relate to prior
law, provide elections for prior years,
or are otherwise outdated due to
changes in the underlying statutory
provisions.
*

*

*

*

*

*

Amendments to the Regulations
Accordingly, under the authority of
26 U.S.C. 7805, 26 CFR parts 1, 20,
23, 24, 25, 27, 33, 38, 301, and 602 are
amended as follows:
PART 1—INCOME TAXES

26 CFR 301.7121–1: Closing agreements.
What is the method by which a taxpayer
requests early referral of one or more unagreed
employment tax issues from the District to
Appeals? See Announcement 96–13, page 33.

Section 7805.—Rules and
Regulations
26 CFR 301.7805–1: Rules and regulations.

PART 602—OMB CONTROL
NUMBERS UNDER THE
PAPERWORK REDUCTION ACT

of the President’s Regulatory Reinvention Initiative.

T.D. 8655
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 20, 23, 24, 25,
27, 33, 38, 301, and 602
Removal of Final and Temporary
Regulations
AGENCY: Internal Revenue Service
(IRS), Treasury.
ACTION: Removal of final and temporary regulations.
SUMMARY: This document removes
final and temporary regulations as part

9

Paragraph 1. Part 1 is amended as
follows:
1. The authority citation for part 1 is
amended by removing the entry for
§1.1303–1.
2. Section 1.32–1 is removed.
3. Section 1.103–12 is removed.
4. Section 1.110–1 is removed.
5. Section 1.114–1 is removed.
6. Section 1.115–1 is removed.
7. Section 1.116–1 is removed.
8. Section 1.116–2 is removed.
9–10. Section 1.367(a)–7T is
removed.
11. The undesignated center heading
preceding §1.383–1A is removed.
12. Section 1.383–1A is removed.
13. Section 1.383–2A is removed.
14–15. Section 1.383–3A is
removed.
16. Section 1.804–1 is removed.
17–18. Section 1.804–2 is removed.
19. Section 1.805–1 is removed.
20. Section 1.805–2 is removed.
21. Section 1.805–3 is removed.
22. Section 1.805–4 is removed.
23. Section 1.805–5 is removed.