Td 9059

Federal Register / Vol. 68, No. 110 / Monday, June 9, 2003 / Rules and Regulations
otc/index.htm or on request for a
nominal charge by submitting a
Freedom of Information (FOI) request in
writing to FDA’s FOI Staff (HFI–35),
5600 Fishers Lane, rm. 12A–16,
Rockville, MD 20857.
PART 369—INTERPRETATIVE
STATEMENTS RE WARNINGS ON
DRUGS AND DEVICES FOR OVERTHE-COUNTER SALE
4. The authority citation for 21 CFR
part 369 continues to read as follows:

■

Authority: 21 U.S.C. 321, 331, 351, 352,
353, 355, 371.
§ 369.20

[Amended]

5. Section 369.20 Drugs; recommended
warning and caution statements is
amended by removing the entry for
‘‘ANTIPERSPIRANTS.’’
■

Dated: May 16, 2003.
Jeffrey Shuren,
Assistant Commissioner for Policy.
[FR Doc. 03–14140 Filed 6–6–03; 8:45 am]

List of Subjects in 21 CFR Part 510
Administrative practice and
procedure, Animal drugs, Labeling,
Reporting and recordkeeping
requirements.

BILLING CODE 4160–01–S

DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Food and Drug Administration
21 CFR Part 510
New Animal Drugs; Change of
Sponsor’s Name; Technical
Amendment
AGENCY:

Animal Health, Division of Wyeth
Holdings Corp. Accordingly, the agency
is amending the regulations in 21 CFR
510.600(c) to reflect the change.
In addition, when the name of Fort
Dodge Animal Health, Division of
American Home Products Corp. was
changed to Fort Dodge Animal Health,
Division of Wyeth (67 FR 67520,
November 6, 2002), an inaccurate
correction to the address was made. At
this time, it is being changed to the
original and correct address.
This rule does not meet the definition
of ‘‘rule’’ in 5 U.S.C. 804(3)(A) because
it is a rule of ‘‘particular applicability.’’
Therefore, it is not subject to the
congressional review requirements in 5
U.S.C. 801–808.

Food and Drug Administration,

ACTION: Final rule, technical
amendment.

VerDate Jan<31>2003

15:48 Jun 06, 2003

Jkt 200001

26 CFR Parts 1 and 602
[TD 9059]
RIN 1545–AX18

Coordination of Sections 755 and
1060; Allocation of Basis Adjustments
Among Partnership Assets and
Application of the Residual Method to
Certain Partnership Transactions
AGENCY: Internal Revenue Service (IRS),
Treasury.
ACTION: Final regulations and removal of
temporary regulations.
SUMMARY: This document finalizes
regulations relating to the allocation of
basis adjustments among partnership
assets under section 755. The
regulations are necessary to implement
section 1060, which applies the residual
method to certain partnership
transactions.
DATES: These regulations are effective
June 9, 2003.
FOR FURTHER INFORMATION CONTACT:
Craig Gerson, (202) 622–3050 (not a tollfree number).
SUPPLEMENTARY INFORMATION:

PART 510—NEW ANIMAL DRUGS

Background

1. The authority citation for 21 CFR
part 510 continues to read as follows:

This document contains amendments
to 26 CFR part 1 under section 755 of
the Internal Revenue Code (Code). On
April 5, 2000, a notice of proposed
rulemaking (REG–107872–99, 2000–1
C.B. 911) under section 755 was
published in the Federal Register (65
FR 17829). Only one commentator
submitted written comments in
response to the notice of proposed
rulemaking, and no public hearing was
requested or held. After consideration of
the comment, the proposed regulations
are adopted as revised by this Treasury
decision.

Authority: 21 U.S.C. 321, 331, 351, 352,
353, 360b, 371, 379e.
[Amended]

2. Section 510.600 Names, addresses,
and drug labeler codes of sponsors of
approved applications is amended.
a. In the table in paragraph (c)(1), in
the entry for ‘‘Fort Dodge Animal
Health, Division of Wyeth’’ and in the
table in paragraph (c)(2), in the entry for
‘‘000856’’ by removing ‘‘500’’ and by
adding in its place ‘‘800’’.
b. In the table in paragraph (c)(1), in
the entry for ‘‘Fort Dodge Animal
Health, Division of American Cyanamid
Co.’’ and in the table in paragraph (c)(2),
in the entry for ‘‘053501’’ by removing
‘‘American Cyanamid Co.’’ and by
adding in its place ‘‘Wyeth Holdings
Corp.’’.

■

The Food and Drug
Administration (FDA) is amending the
animal drug regulations to reflect a
change of sponsor’s name from Fort
Dodge Animal Health, Division of
American Cyanamid Co., to Fort Dodge
Animal Health, Division of Wyeth
Holdings Corp. The regulations are also
being revised to correct the address for
Fort Dodge Animal Health, Division of
Wyeth.
DATES: This rule is effective June 9,
2003.
FOR FURTHER INFORMATION CONTACT:
David R. Newkirk, Center for Veterinary
Medicine (HFV–100), Food and Drug
Administration, 7500 Standish Pl.,
Rockville, MD 20855; 301–827–6967; email: [email protected].
SUPPLEMENTARY INFORMATION: Fort
Dodge Animal Health, Division of
American Cyanamid Co., P.O. Box 1339,
Fort Dodge, IA 50501, has informed
FDA of a change of name to Fort Dodge

Internal Revenue Service

Therefore, under the Federal Food,
Drug and Cosmetic Act and under
authority delegated to the Commissioner
of Food and Drugs and redelegated to the
Center for Veterinary Medicine, 21 CFR
part 510 is amended as follows:

§ 510.600

SUMMARY:

DEPARTMENT OF THE TREASURY

■

■

HHS.

34293

Dated: May 19, 2003.
Steven D. Vaughn,
Director, Office of New Animal Drug
Evaluation, Center for Veterinary Medicine.
[FR Doc. 03–14303 Filed 6–6–03; 8:45 am]
BILLING CODE 4160–01–S

PO 00000

Frm 00033

Fmt 4700

Sfmt 4700

Explanation of Revisions and Summary
of Contents
1. Summary
Section 743(b) provides for an
optional adjustment to the basis of
partnership property following certain
transfers of partnership interests. The
amount of the basis adjustment is the
difference between the transferee’s basis
in the partnership interest and the
transferee’s share of the partnership’s
basis in the partnership’s assets. Once
the amount of the basis adjustment is
determined, it is allocated among the
partnership’s individual assets pursuant
to section 755.

E:\FR\FM\09JNR1.SGM

09JNR1

34294

Federal Register / Vol. 68, No. 110 / Monday, June 9, 2003 / Rules and Regulations

On December 14, 1999, final
regulations (TD 8847; 1999–2 C.B. 701)
were published in the Federal Register
under section 755 (64 FR 69903). Under
these regulations, basis adjustments
under section 743(b) are allocated
among a partnership’s assets as follows.
First, the adjustment is allocated
between the two classes of property
described in section 755(b). These
classes of property consist of capital
assets and section 1231(b) property
(capital gain property), and any other
property of the partnership (ordinary
income property). The amount of a basis
adjustment under section 743(b) that is
allocated to the class of ordinary income
property is equal to the total amount of
income, gain, or loss that would be
allocated to the transferee from the sale
of all ordinary income property. The
amount of the basis adjustment under
section 743(b) that is allocated to capital
gain property is the total amount of the
basis adjustment under section 743(b)
less the amount of the basis adjustment
allocated to ordinary income property.
The basis adjustment is then allocated
to individual assets within each class.
The final regulations issued on
December 14, 1999, worked in
conjunction with § 1.755–2T. In the case
of a basis adjustment under section
743(b) or section 732(d), the fair market
values of all assets other than goodwill
or going concern value were determined
on the basis of all the facts and
circumstances, and the fair market value
of goodwill and going concern value
was determined using the residual
method. As described more fully in the
notice of proposed rulemaking, § 1.755–
2T was published prior to the enactment
of section 1060(d), which (as amended
in 1993) requires the residual method to
be applied for purposes of determining
the values of section 197 intangibles for
purposes of applying section 755. These
final regulations implement section
1060(d) and replace § 1.755–2T.
These final regulations differ from
§ 1.755–2T by using the residual method
to value all section 197 intangibles (not
just goodwill and going concern value).
In addition, these final regulations also
apply to basis adjustments under
section 734(b) and contain special rules
for certain substituted basis
transactions. Finally, for convenience,
the provisions of the regulations have
been relocated to the beginning of
§ 1.755–1.
Under these final regulations, a
partnership is required to assign values
to its assets as follows. First, the
partnership must determine the values
of each of its assets other than section
197 intangibles under all the facts and
circumstances, taking into account

VerDate Jan<31>2003

15:48 Jun 06, 2003

Jkt 200001

section 7701(g) (treating the fair market
value of a property as not less than the
amount of any nonrecourse
indebtedness to which the property is
subject). The partnership then must
determine the gross value of all
partnership assets (partnership gross
value). Last, the partnership is required
to use the residual method to assign
values to the partnership’s section 197
intangibles. For purposes of these
regulations, the term section 197
intangibles includes all section 197
intangibles (as defined in section 197),
as well as any goodwill or going concern
value that would not qualify as a section
197 intangible under section 197.
If the aggregate value of partnership
property other than section 197
intangibles is equal to or greater than
partnership gross value, then all section
197 intangibles are deemed to have a
value of zero. In all other cases, the
aggregate value of the partnership’s
section 197 intangibles (the residual
section 197 intangibles value) is deemed
to equal the excess of partnership gross
value over the aggregate value of
partnership property other than section
197 intangibles. The residual section
197 intangibles value must be allocated,
first, among section 197 intangibles
other than goodwill and going concern
value. Any remaining value is assigned
to goodwill and going concern value.
The proposed regulations used the
residual method to assign values to all
partnership assets, rather than limiting
the scope of the residual method to
section 197 intangibles. Treasury and
the IRS have concluded that these rules
were unduly complex, especially when
they applied to partnerships whose
partnership agreements contained
special allocations of partnership
income or loss. Accordingly, the final
regulations utilize the residual method
only to value section 197 intangibles.
2. Transactions Subject to the
Regulations
Because the proposed regulations
used the residual method to value all
partnership assets (and not just section
197 intangibles), it was desirable for all
partnerships to value their assets using
the same method. Accordingly, under
the authority of sections 1060(d) and
755, the proposed regulations applied to
all partnerships, whether or not their
assets constituted a trade or business. In
contrast, the final regulations apply the
residual method only for the purpose of
valuing section 197 intangibles, which
are usually held by partnerships whose
assets constitute a trade or business.
Thus, the final regulations apply the
residual method only to partnerships
whose assets constitute a trade or

PO 00000

Frm 00034

Fmt 4700

Sfmt 4700

business (as described in § 1.1060–
1(b)(2)).
The proposed regulations specifically
applied to basis adjustments under
section 732(d). Some references to
section 732(d) have been removed in the
final regulations to enhance readability.
Nevertheless, the final regulations
continue to apply to basis adjustments
under section 732(d).
3. Methods for Determining Partnership
Gross Value
If a partnership interest is transferred
in a taxable transaction, the transferee’s
basis in its partnership interest provides
a frame of reference for determining
partnership gross value. In these
transactions, both the proposed and the
final regulations generally provide that
partnership gross value is the amount
that, if assigned to all partnership
property, would result in a liquidating
distribution to the transferee partner
equal to that partner’s basis (reduced by
the amount, if any, of such basis that is
attributable to partnership liabilities) in
the transferred partnership interest
immediately following the relevant
transfer.
In certain circumstances involving
basis adjustments under section 743(b),
such as where income or loss with
respect to particular section 197
intangibles is allocated differently
among partners, partnership gross value
may vary depending on the fair market
values of particular section 197
intangibles held by the partnership. In
these situations, the final regulations
require the partnership to use a
reasonable method, consistent with the
purposes of the final regulations, to
determine partnership gross value.
In the preamble to the proposed
regulations, the IRS and the Treasury
Department requested comments
regarding how the residual method
applies in the context of a basis
adjustment that results from an
exchange of a partnership interest in
which the transferee’s basis in the
interest is determined in whole or in
part by reference to the transferor’s basis
in the interest (a transferred basis
exchange). Determining partnership
gross value in such an exchange is
problematic, because the transferee’s
basis in the partnership interest does
not necessarily have any connection to
the fair market values of partnership
assets. No comments were received
regarding the specific method to be
adopted by the final regulations.
The IRS and the Treasury Department
also requested comments regarding how
the residual method applies in the
context of basis adjustments under
section 734(b). One commentator

E:\FR\FM\09JNR1.SGM

09JNR1

Federal Register / Vol. 68, No. 110 / Monday, June 9, 2003 / Rules and Regulations
suggested that the final regulations
should require one method for valuing
partnership assets in the case of a pro
rata distribution, and another method
for valuing partnership assets in the
case of a non-pro rata distribution. The
IRS and the Treasury Department
believe that this approach would be
unnecessarily complex.
The final regulations adopt a single
method for determining partnership
gross value that applies to all section
734(b) basis adjustments and to section
743(b) basis adjustments resulting from
transferred basis exchanges. In these
circumstances, partnership gross value
is the value of the entire partnership as
a going concern, increased by the
amount of partnership liabilities. In the
case of a basis adjustment under section
734(b), the value of the entire
partnership as a going concern is
determined immediately after the
distribution causing the adjustment.
A commentator has suggested that the
same method for determining
partnership gross value should apply to
exchanged basis transactions, such as
the distribution of a partnership interest
by a partnership. The final regulations
adopt this comment by replacing all
references to transferred basis exchanges
with references to substituted basis
transactions. Conforming adjustments
are also made to the special rules
contained in § 1.755–1(b)(5) for
allocating basis adjustments under
section 743(b) among a partnership’s
assets in these exchanges.
4. Transferors of Partnership Interests
In the preamble to the proposed
regulations, comments were requested
as to whether the residual method
should be used to determine the fair
market values of partnership assets for
purposes of applying section 1(h)(6)(B)
(collectibles gain or loss), section 1(h)(7)
(section 1250 capital gain), and section
751(a) (ordinary income) to the sale or
other disposition of a partnership
interest. No comments were received on
this issue. Treasury and the IRS have
determined that the potential benefits of
a rule allowing transferors to use the
residual method do not justify the
increased complexity that the rule
would have created.
5. Other Changes
The final regulations add two
clarifying rules for allocating basis
adjustments under section 743(b) among
a partnership’s assets in the case of a
transaction that is not a substituted
basis transaction. The first rule provides
that assets with respect to which the
transferee partner has no interest in
income, gain, losses, or deductions are

VerDate Jan<31>2003

16:46 Jun 06, 2003

Jkt 200001

not taken into account in allocating
basis adjustments to capital assets. The
second rule provides that in no event
may the amount of any decrease in basis
allocated to an item of capital gain
property exceed the partnership’s
adjusted basis in that item. If the
amount of a decrease in basis otherwise
allocable to a particular capital asset
exceeds the partnership’s adjusted basis
in that asset, the transferee’s negative
basis adjustment in that asset is limited
to the partnership’s adjusted basis in
that asset, and the excess must be
applied to reduce the remaining basis, if
any, of other capital gain assets pro rata
in proportion to the partnership’s
adjusted bases in such assets.
Effective Date
These regulations apply to transfers of
partnership interests and distributions
of property from partnerships that occur
on or after June 9, 2003.
Special Analyses
It has been determined that this
Treasury decision is not a significant
regulatory action as defined in
Executive Order 12866. Therefore, a
regulatory assessment is not required. 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, and because the
regulations do not impose a collection
of information on small entities, the
Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to
section 7805(f) of the Internal Revenue
Code, the notice of proposed rulemaking
preceding these regulations was
submitted to the Chief Counsel for
Advocacy of the Small Business
Administration for comment on its
impact on small businesses.
Drafting Information
The principal author of these
regulations is Craig Gerson of the Office
of the Associate Chief Counsel
(Passthroughs and Special Industries).
However, personnel from other offices
of the IRS and the Treasury Department
participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and
recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping
requirements.
Adoption of Amendments to the
Regulations
Accordingly, 26 CFR parts 1 and 602
are amended as follows:

■

PO 00000

Frm 00035

Fmt 4700

Sfmt 4700

34295

PART 1—INCOME TAXES
Paragraph 1. The authority citation for
part 1 is amended by adding an entry to
read in part as follows:

■

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

Section 1.755–2 also issued under 26
U.S.C. 755 and 26 U.S.C. 1060. * * *
■ Par. 2. Section 1.755–1 is amended as
follows:
■ 1. Paragraph (a) is revised.
■ 2.–3. A paragraph heading is added for
paragraph (b)(1)(i).
■ 4. The first two sentences of paragraph
(b)(1)(i) are revised.
■ 5. Paragraph (b)(3)(iii) is redesignated
as paragraph (b)(3)(iv).
■ 6. New paragraph (b)(3)(iii) is added.
■ 7. In paragraph (b)(4)(ii), the Example
is revised.
■ 8. The paragraph heading for
paragraph (b)(5) is revised.
■ 9. Paragraph (b)(5)(i) is revised.
■ 10. In paragraph (b)(5)(iv) Example 1,
the last sentence is amended by
removing the language ‘‘transferred basis
exchange’’ and adding ‘‘substituted basis
transaction’’ in its place.
■ 11. In paragraph (b)(5)(iv) Example 2,
paragraph (iii), the third sentence is
amended by adding the language ‘‘this’’
before the language ‘‘paragraph (b)(5)’’.
■ 12. In paragraph (c)(5) Example (i)
introductory text is revised.
■ 13. Paragraph (d) is revised.
■ 14. Paragraph (e) is added.
■ The revisions and additions read as
follows:
§ 1.755–1

Rules for allocation of basis.

(a) In general—(1) Scope. This section
provides rules for allocating basis
adjustments under sections 743(b) and
734(b) among partnership property. If
there is a basis adjustment to which this
section applies, the basis adjustment is
allocated among the partnership’s assets
as follows. First, the partnership must
determine the value of each of its assets
under paragraphs (a)(2) through (5) of
this section. Second, the basis
adjustment is allocated between the two
classes of property described in section
755(b). These classes of property consist
of capital assets and section 1231(b)
property (capital gain property), and any
other property of the partnership
(ordinary income property). For
purposes of this section, properties and
potential gain treated as unrealized
receivables under section 751(c) and the
regulations thereunder shall be treated
as separate assets that are ordinary
income property. Third, the portion of
the basis adjustment allocated to each
class is allocated among the items
within the class. Basis adjustments
under section 743(b) are allocated

E:\FR\FM\09JNR1.SGM

09JNR1

34296

Federal Register / Vol. 68, No. 110 / Monday, June 9, 2003 / Rules and Regulations

among partnership assets under
paragraph (b) of this section. Basis
adjustments under section 734(b) are
allocated among partnership assets
under paragraph (c) of this section.
(2) Coordination of sections 755 and
1060. If there is a basis adjustment to
which this section applies, and the
assets of the partnership constitute a
trade or business (as described in
§ 1.1060–1(b)(2)), then the partnership is
required to use the residual method to
assign values to the partnership’s
section 197 intangibles. To do so, the
partnership must, first, determine the
value of partnership assets other than
section 197 intangibles under paragraph
(a)(3) of this section. The partnership
then must determine partnership gross
value under paragraph (a)(4) of this
section. Last, the partnership must
assign values to the partnership’s
section 197 intangibles under paragraph
(a)(5) of this section. For purposes of
this section, the term section 197
intangibles includes all section 197
intangibles (as defined in section 197),
as well as any goodwill or going concern
value that would not qualify as a section
197 intangible under section 197.
(3) Values of properties other than
section 197 intangibles. For purposes of
this section, the fair market value of
each item of partnership property other
than section 197 intangibles shall be
determined on the basis of all the facts
and circumstances, taking into account
section 7701(g).
(4) Partnership gross value—(i) Basis
adjustments under section 743(b)—(A)
In general. Except as provided in
paragraph (a)(4)(ii) of this section, in the
case of a basis adjustment under section
743(b), partnership gross value generally
is equal to the amount that, if assigned
to all partnership property, would result
in a liquidating distribution to the
partner equal to the transferee’s basis in
the transferred partnership interest
immediately following the relevant
transfer (reduced by the amount, if any,
of such basis that is attributable to
partnership liabilities).
(B) Special situations. In certain
circumstances, such as where income or
loss with respect to particular section
197 intangibles are allocated differently
among partners, partnership gross value
may vary depending on the values of
particular section 197 intangibles held
by the partnership. In these special
situations, the partnership must assign
value, first, among section 197
intangibles (other than goodwill and
going concern value) in a reasonable
manner that is consistent with the
ordering rule in paragraph (a)(5) of this
section and would cause the appropriate
liquidating distribution under paragraph

VerDate Jan<31>2003

15:48 Jun 06, 2003

Jkt 200001

(a)(4)(i)(A) of this section. If the actual
fair market values, determined on the
basis of all the facts and circumstances,
of all section 197 intangibles (other than
goodwill and going concern value) is
not sufficient to cause the appropriate
liquidating distribution, then the fair
market value of goodwill and going
concern value shall be presumed to
equal an amount that if assigned to
goodwill and going concern value
would cause the appropriate liquidating
distribution.
(C) Income in respect of a decedent.
Solely for the purpose of determining
partnership gross value under this
paragraph (a)(4)(i), where a partnership
interest is transferred as a result of the
death of a partner, the transferee’s basis
in its partnership interest is determined
without regard to section 1014(c), and is
deemed to be adjusted for that portion
of the interest, if any, that is attributable
to items representing income in respect
of a decedent under section 691.
(ii) Basis adjustments under section
743(b) resulting from substituted basis
transactions. This paragraph (a)(4)(ii)
applies to basis adjustments under
section 743(b) that result from
exchanges in which the transferee’s
basis in the partnership interest is
determined in whole or in part by
reference to the transferor’s basis in the
interest or to the basis of other property
held at any time by the transferee
(substituted basis transactions). In the
case of a substituted basis transaction,
partnership gross value equals the value
of the entire partnership as a going
concern, increased by the amount of
partnership liabilities at the time of the
exchange giving rise to the basis
adjustment.
(iii) Basis adjustments under section
734(b). In the case of a basis adjustment
under section 734(b), partnership gross
value equals the value of the entire
partnership as a going concern
immediately following the distribution
causing the adjustment, increased by the
amount of partnership liabilities
immediately following the distribution.
(5) Determining the values of section
197 intangibles—(i) Two classes. If the
aggregate value of partnership property
other than section 197 intangibles (as
determined in paragraph (a)(3) of this
section) is equal to or greater than
partnership gross value (as determined
in paragraph (a)(4) of this section), then
all section 197 intangibles are deemed
to have a value of zero for purposes of
this section. In all other cases, the
aggregate value of the partnership’s
section 197 intangibles (the residual
section 197 intangibles value) is deemed
to equal the excess of partnership gross
value over the aggregate value of

PO 00000

Frm 00036

Fmt 4700

Sfmt 4700

partnership property other than section
197 intangibles. The residual section
197 intangibles value must be allocated
between two asset classes in the
following order—
(A) Among section 197 intangibles
other than goodwill and going concern
value; and
(B) To goodwill and going concern
value.
(ii) Values assigned to section 197
intangibles other than goodwill and
going concern value. The fair market
value assigned to a section 197
intangible (other than goodwill and
going concern value) shall not exceed
the actual fair market value (determined
on the basis of all the facts and
circumstances) of that asset on the date
of the relevant transfer. If the residual
section 197 intangibles value is less
than the sum of the actual fair market
values (determined on the basis of all
the facts and circumstances) of all
section 197 intangibles (other than
goodwill and going concern value) held
by the partnership, then the residual
section 197 intangibles value must be
allocated among the individual section
197 intangibles (other than goodwill and
going concern value) as follows. The
residual section 197 intangibles value is
assigned first to any section 197
intangibles (other than goodwill and
going concern value) having potential
gain that would be treated as unrealized
receivables under the flush language of
section 751(c) (flush language
receivables) to the extent of the basis of
those section 197 intangibles and the
amount of income arising from the flush
language receivables that the
partnership would recognize if the
section 197 intangibles were sold for
their actual fair market values
(determined based on all the facts and
circumstances) (collectively, the flush
language receivables value). If the value
assigned to section 197 intangibles
(other than goodwill and going concern
value) is less than the flush language
receivables value, then the assigned
value is allocated among the properties
giving rise to the flush language
receivables in proportion to the flush
language receivables value in those
properties. Any remaining residual
section 197 intangibles value is
allocated among the remaining portions
of the section 197 intangibles (other
than goodwill and going concern value)
in proportion to the actual fair market
values of such portions (determined
based on all the facts and
circumstances).
(iii) Value assigned to goodwill and
going concern value. The fair market
value of goodwill and going concern
value is the amount, if any, by which

E:\FR\FM\09JNR1.SGM

09JNR1

Federal Register / Vol. 68, No. 110 / Monday, June 9, 2003 / Rules and Regulations
the residual section 197 intangibles
value exceeds the aggregate value of the
partnership’s section 197 intangibles
(other than goodwill and going concern
value).
(6) Examples. The provisions of
paragraphs (a)(2) through (5) are
illustrated by the following examples,
which assume that the partnerships
have an election in effect under section
754 at the time of the transfer and that
the assets of each partnership constitute
a trade or business (as described in
§ 1.1060–1(b)(2)). Except as provided,
no partnership asset (other than
inventory) is property described in
section 751(a), and partnership
liabilities are secured by all partnership
assets. The examples are as follows:
Example 1. (i) A is the sole general partner
in PRS, a limited partnership having three
equal partners. PRS has goodwill and going
concern value, two section 197 intangibles
other than goodwill and going concern value
(Intangible 1 and Intangible 2), and two other
assets with fair market values (determined
using all the facts and circumstances) as
follows: inventory worth $1,000,000 and a
building (a capital asset) worth $2,000,000.
The fair market value of each of Intangible 1
and Intangible 2 is $50,000. PRS has one
liability of $1,000,000, for which A bears the
entire risk of loss under section 752 and the
regulations thereunder. D purchases A’s
partnership interest for $650,000, resulting in
a basis adjustment under section 743(b).
After the purchase, D bears the entire risk of
loss for PRS’s liability under section 752 and
the regulations thereunder. Therefore, D’s
basis in its interest in PRS is $1,650,000.
(ii) D’s basis in the transferred partnership
interest (reduced by the amount of such basis
that is attributable to partnership liabilities)
is $650,000 ($1,650,000—$1,000,000). Under
paragraph (a)(4)(i) of this section, partnership
gross value is $2,950,000 (the amount that, if
assigned to all partnership property, would
result in a liquidating distribution to D equal
to $650,000).
(iii) Under paragraph (a)(3) of this section,
the inventory has a fair market value of
$1,000,000, and the building has a fair
market value of $2,000,000. Thus, the
aggregate value of partnership property other
than section 197 intangibles, $3,000,000, is
equal to or greater than partnership gross
value, $2,950,000. Accordingly, under
paragraphs (a)(3) and (5) of this section, the
value assigned to each of the partnership’s
assets is as follows: inventory, $1,000,000;
building, $2,000,000; Intangibles 1 and 2, $0;
and goodwill and going concern value, $0.
D’s section 743(b) adjustment must be
allocated under paragraph (b) of this section
using these assigned fair market values.
Example 2. (i) Assume the same facts as in
Example 1, except that the fair market values
of Intangible 1 and Intangible 2 are each
$300,000, and that D purchases A’s interest
in PRS for $1,000,000. After the purchase, D’s
basis in its interest in PRS is $2,000,000.
(ii) D’s basis in the transferred partnership
interest (reduced by the amount of such basis
that is attributable to partnership liabilities)

VerDate Jan<31>2003

15:48 Jun 06, 2003

Jkt 200001

is $1,000,000 ($2,000,000—$1,000,000).
Under paragraph (a)(4)(i) of this section,
partnership gross value is $4,000,000 (the
amount that, if assigned to all partnership
property, would result in a liquidating
distribution to D equal to $1,000,000).
(iii) Under paragraph (a)(5) of this section,
the residual section 197 intangibles value is
$1,000,000 (the excess of partnership gross
value, $4,000,000, over the aggregate value of
assets other than section 197 intangibles,
$3,000,000 (the sum of the value of the
inventory, $1,000,000, and the value of the
building, $2,000,000)). The partnership must
determine the values of section 197 assets by
allocating the residual section 197
intangibles value among the partnership’s
assets. The residual section 197 intangibles
value is assigned first to section 197
intangibles other than goodwill and going
concern value, and then to goodwill and
going concern value. Thus, $300,000 is
assigned to each of Intangible 1 and
Intangible 2, and $400,000 is assigned to
goodwill and going concern value (the
amount by which the residual section 197
intangibles value, $1,000,000, exceeds the
fair market value of section 197 intangibles
other than goodwill and going concern value,
$600,000). D’s section 743(b) adjustment
must be allocated under paragraph (b) of this
section using these assigned fair market
values.
Example 3. (i) Assume the same facts as in
Example 1, except that the fair market values
of Intangible 1 and Intangible 2 are each
$300,000, and that D purchases A’s interest
in PRS for $750,000. After the purchase, D’s
basis in its interest in PRS is $1,750,000. Also
assume that Intangible 1 was originally
purchased for $300,000, and that its adjusted
basis has been decreased to $50,000 as a
result of amortization. Assume that, if PRS
were to sell Intangible 1 for $300,000, it
would recognize $250,000 of gain that would
be treated as an unrealized receivable under
the flush language in section 751(c).
(ii) D’s basis in the transferred partnership
interest (reduced by the amount of such basis
that is attributable to partnership liabilities)
is $750,000 ($1,750,000—$1,000,000). Under
paragraph (a)(4)(i) of this section, partnership
gross value is $3,250,000 (the amount that, if
assigned to all partnership property, would
result in a liquidating distribution to D equal
to $750,000).
(iii) Under paragraph (a)(5) of this section,
the residual section 197 intangibles value is
$250,000 (the amount by which partnership
gross value, $3,250,000, exceeds the
aggregate value of partnership property other
than section 197 intangibles, $3,000,000).
Intangible 1 has potential gain that would be
treated as unrealized receivables under the
flush language of section 751(c). The flush
language receivables value in Intangible 1 is
$300,000 (the sum of PRS’s basis in
Intangible 1, $50,000, and the amount of
ordinary income, $250,000, that the
partnership would recognize if Intangible 1
were sold for its actual fair market value).
Because the residual section 197 intangibles
value, $250,000, is less than the flush
language receivables value of Intangible 1,
Intangible 1 is assigned a value of $250,000,
and Intangible 2 and goodwill and going

PO 00000

Frm 00037

Fmt 4700

Sfmt 4700

34297

concern value are assigned a value of zero.
D’s section 743(b) adjustment must be
allocated under paragraph (b) of this section
using these assigned fair market values.
Example 4. Assume the same facts as in
Example 1, except that the fair market values
of Intangible 1 and Intangible 2 are each
$300,000, and that A does not sell its interest
in PRS. Instead, A contributes its interest in
PRS to E, a newly formed corporation
wholly-owned by A, in a transaction
described in section 351. Assume that the
contribution results in a basis adjustment
under section 743(b) (other than zero). PRS
determines that its value as a going concern
immediately following the contribution is
$3,000,000. Under paragraph (a)(4)(ii) of this
section, partnership gross value is $4,000,000
(the value of PRS as a going concern,
$3,000,000, increased by the partnership’s
liability, $1,000,000, immediately after the
contribution). Under paragraph (a)(5) of this
section, the residual section 197 intangibles
value is $1,000,000 (the amount by which
partnership gross value, $4,000,000, exceeds
the aggregate value of partnership property
other than section 197 intangibles,
$3,000,000). Of the residual section 197
intangibles value, $300,000 is assigned to
each of Intangible 1 and Intangible 2, and
$400,000 is assigned to goodwill and going
concern value (the amount by which the
residual section 197 intangibles value,
$1,000,000, exceeds the fair market value of
section 197 intangibles other than goodwill
and going concern value, $600,000). E’s
section 743(b) adjustment must be allocated
under paragraph (b)(5) of this section using
these assigned fair market values.
Example 5. G is the sole general partner in
PRS, a limited partnership having three equal
partners (G, H, and I). PRS has goodwill and
going concern value, two section 197
intangibles other than goodwill and going
concern value (Intangible 1 and Intangible 2),
and two capital assets with fair market values
(determined using all the facts and
circumstances) as follows: Vacant land worth
$1,000,000, and a building worth $2,000,000.
The fair market value of each of Intangible 1
and Intangible 2 is $300,000. PRS has one
liability of $1,000,000, for which G bears the
entire risk of loss under section 752 and the
regulations thereunder. PRS distributes the
land to H in liquidation of H’s interest in
PRS. Immediately prior to the distribution,
PRS’s basis in the land is $800,000, and H’s
basis in its interest in PRS is $750,000. The
distribution causes the partnership to
increase the basis of its remaining property
by $50,000 under section 734(b)(1)(B). PRS
determines that its value as a going concern
immediately following the distribution is
$2,000,000. Under paragraph (a)(4)(iii) of this
section, partnership gross value is $3,000,000
(the value of PRS as a going concern,
$2,000,000, increased by the partnership’s
liability, $1,000,000, immediately after the
distribution). Under paragraph (a)(5) of this
section, the residual section 197 intangibles
value of PRS’s section 197 intangibles is
$1,000,000 (the amount by which partnership
gross value, $3,000,000, exceeds the
aggregate value of partnership property other
than section 197 intangibles, $2,000,000). Of
the residual section 197 intangibles value,

E:\FR\FM\09JNR1.SGM

09JNR1

34298

Federal Register / Vol. 68, No. 110 / Monday, June 9, 2003 / Rules and Regulations

$300,000 is assigned to each of Intangible 1
and Intangible 2, and $400,000 is assigned to
goodwill and going concern value (the
amount by which the residual section 197
intangibles value, $1,000,000, exceeds the
fair market value of section 197 intangibles
other than goodwill and going concern value,
$600,000). PRS’s section 734(b) adjustment
must be allocated under paragraph (c) of this
section using these assigned fair market
values.

(b) Adjustments under section
743(b)—(1) Generally—(i) Application.
For basis adjustments under section
743(b) resulting from substituted basis
transactions, paragraph (b)(5) of this
section shall apply. For basis
adjustments under section 743(b)
resulting from all other transfers,

paragraphs (b)(2) through (4) of this
section shall apply. * * *
*
*
*
*
*
(3) * * *
(iii) Special rules—(A) Assets in
which partner has no interest. An asset
with respect to which the transferee
partner has no interest in income, gain,
losses, or deductions shall not be taken
into account in applying paragraph
(b)(3)(ii)(B) of this section.
(B) Limitation in decrease of basis. In
no event may the amount of any
decrease in basis allocated to an item of
capital gain property under paragraph
(b)(3)(ii)(B) of this section exceed the
partnership’s adjusted basis in that item
(or in the case of property subject to the
remedial allocation method, the
transferee’s share of any remedial loss
under § 1.704–3(d) from the

hypothetical transaction). In the event
that a decrease in basis allocated under
paragraph (b)(3)(ii)(B) of this section to
an item of capital gain property would
otherwise exceed the partnership’s
adjusted basis in that item, the excess
must be applied to reduce the remaining
basis, if any, of other capital gain assets
pro rata in proportion to the bases of
such assets (as adjusted under this
paragraph (b)(3)).
*
*
*
*
*
(4) * * *
(ii) * * *
Example. (i) A and B are equal partners in
personal service partnership PRS. In 2004, as
a result of B’s death, B’s partnership interest
is transferred to T when PRS’s balance sheet
(reflecting a cash receipts and disbursements
method of accounting) is as follows (based on
all the facts and circumstances):

ASSETS
Adjusted
basis

Fair
market
value

Section 197 Intangible .............................................................................................................................................................
Unrealized Receivables ...........................................................................................................................................................

$2,000
0

$5,000
15,000

Total ...........................................................................................................................................................................

$2,000

$20,000

Liabilities and Capital
Adjusted
per books

Fair
market
value

Capital:
A .......................................................................................................................................................................................
B .......................................................................................................................................................................................

1,000
1,000

10,000
10,000

Total ...........................................................................................................................................................................

$2,000

$20,000

(ii) None of the assets owned by PRS is
section 704(c) property, and the section 197
intangible is not amortizable. The fair market
value of T’s partnership interest on the
applicable date of valuation set forth in
section 1014 is $10,000. Of this amount,
$2,500 is attributable to T’s 50% share of the
partnership’s section 197 intangible, and
$7,500 is attributable to T’s 50% share of the
partnership’s unrealized receivables. The
partnership’s unrealized receivables
represent income in respect of a decedent.
Accordingly, under section 1014(c), T’s basis
in its partnership interest is not adjusted for
that portion of the interest which is
attributable to the unrealized receivables.
Therefore, T’s basis in its partnership interest
is $2,500.
(iii) Under paragraph (a)(4)(i)(C) of this
section, solely for purposes of determining
partnership gross value, T’s basis in its
partnership interest is deemed to be $10,000.
Under paragraph (a)(4)(i) of this section,
partnership gross value is $20,000 (the
amount that, if assigned to all partnership
property, would result in a liquidating
distribution to T equal to $10,000).

VerDate Jan<31>2003

15:48 Jun 06, 2003

Jkt 200001

(iv) Under paragraph (a)(5) of this section,
the residual section 197 intangibles value is
$5,000 (the excess of partnership gross value,
$20,000, over the aggregate value of assets
other than section 197 intangibles, $15,000).
The residual section 197 intangibles value is
assigned first to section 197 intangibles other
than goodwill and going concern value, and
then to goodwill and going concern value.
Thus, $5,000 is assigned to the section 197
intangible, and $0 is assigned to goodwill
and going concern value. T’s section 743(b)
adjustment must be allocated using these
assigned fair market values.
(v) At the time of the transfer, B’s share of
the partnership’s basis in partnership assets
is $1,000. Accordingly, T receives a $1,500
basis adjustment under section 743(b). Under
this paragraph (b)(4), the entire basis
adjustment is allocated to the partnership’s
section 197 intangible.

(5) Substituted basis transactions—(i)
In general. This paragraph (b)(5) applies
to basis adjustments under section
743(b) that result from exchanges in
which the transferee’s basis in the

PO 00000

Frm 00038

Fmt 4700

Sfmt 4700

partnership interest is determined in
whole or in part by reference to the
transferor’s basis in that interest. For
exchanges on or after June 9, 2003, this
paragraph (b)(5) also applies to basis
adjustments under section 743(b) that
result from exchanges in which the
transferee’s basis in the partnership
interest is determined by reference to
other property held at any time by the
transferee. For example, this paragraph
(b)(5) applies if a partnership interest is
contributed to a corporation in a
transaction to which section 351
applies, if a partnership interest is
contributed to a partnership in a
transaction to which section 721(a)
applies, or if a partnership interest is
distributed by a partnership in a
transaction to which section 731(a)
applies.
*
*
*
*
*
(c) * * *
(5) * * *

E:\FR\FM\09JNR1.SGM

09JNR1

Federal Register / Vol. 68, No. 110 / Monday, June 9, 2003 / Rules and Regulations
Example. (i) A, B, and C form equal
partnership PRS. A contributes $50,000 and
Asset 1, nondepreciable capital gain property
with a fair market value of $50,000 and an
adjusted tax basis of $25,000. B and C each
contributes $100,000. PRS uses the cash to
purchase Assets 2, 3, 4, 5, and 6. Assets 2 and
3 are nondepreciable capital assets, and
Assets 4, 5, and 6 are inventory that has not
appreciated substantially in value within the
meaning of section 751(b)(3). Assets 4, 5, and
6 are the only assets held by the partnership
that are subject to section 751. The
partnership has an election in effect under
section 754. After seven years, the adjusted
basis and fair market value of PRS’s assets are
as follows:

*

*
*
*
*
(d) Required statements. See § 1.743–
1(k)(2) for provisions requiring the
transferee of a partnership interest to
provide information to the partnership
relating to the transfer of an interest in
the partnership. See § 1.743–1(k)(1) for
a provision requiring the partnership to
attach a statement to the partnership
return showing the computation of a
basis adjustment under section 743(b)
and the partnership properties to which
the adjustment is allocated under
section 755. See § 1.732–1(d)(3) for a
provision requiring a transferee partner
to attach a statement to its return
showing the computation of a basis
adjustment under section 732(d) and the
partnership properties to which the
adjustment is allocated under section
755. See § 1.732–1(d)(5) for a provision
requiring the partnership to provide
information to a transferee partner
reporting a basis adjustment under
section 732(d).
(e) Effective Date—(1) Generally.
Except as provided in paragraphs (b)(5)
and (e)(2) of this section, this section
applies to transfers of partnership
interests and distributions of property
from a partnership that occur on or after
December 15, 1999.
(2) Special rules. Paragraphs (a) and
(b)(3)(iii) of this section apply to
transfers of partnership interests and
distributions of property from a
partnership that occur on or after June
9, 2003.
§ 1.755–2T
■

[Removed]

Par. 3. Section 1.755–2T is removed.

Par. 4. In § 1.1060–1, paragraph (e)(2)
is revised to read as follows:

■

§ 1.1060–1 Special allocation rules for
certain asset acquisitions.

*

*
*
*
*
(e) * * *
(2) Transfers of interests in
partnerships. For reporting
requirements relating to the transfer of
a partnership interest, see § 1.755–1(d).

VerDate Jan<31>2003

15:48 Jun 06, 2003

Jkt 200001

PART 602—OMB CONTROL NUMBERS
UNDER THE PAPERWORK
REDUCTION ACT
Par. 5. The authority citation for part
602 continues to read as follows:

■

Authority: 26 U.S.C. 7805.
§ 602.101

[Amended]

Par. 6. In § 602.101, paragraph (b), the
entry for ‘‘1.755–2T’’ is removed.
■

David A. Mader,
Assistant Deputy Commissioner of Internal
Revenue.
Approved: May 22, 2003.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 03–14204 Filed 6–6–03; 8:45 am]
BILLING CODE 4830–01–P

DEPARTMENT OF JUSTICE
Bureau of Prisons
28 CFR Part 571
[BOP–1097–F]
RIN 1120–AA93

Release Gratuities, Transportation, and
Clothing: Aliens
Bureau of Prisons, Justice.
Final rule.

AGENCY:
ACTION:

SUMMARY: This final rule amends the
Bureau of Prisons (Bureau) regulations
on release gratuities, transportation, and
clothing to limit the release gratuity
available to aliens. Only aliens released
to immigration authorities for release or
transfer to a community corrections
center are eligible for a gratuity of up to
$10. Aliens released for deportation,
exclusion, or removal, or aliens
detained or serving 60 days or less in a
contract facility will not receive any
release gratuity. We intend this rule to
reduce costs by providing the gratuity
only to those aliens whom the Bureau
determines to be in need.
DATES: This rule is effective on July 9,
2003.
ADDRESSES: Rules Unit, Office of
General Counsel, Bureau of Prisons, 320
First Street, NW., Washington, DC
20534.
FOR FURTHER INFORMATION CONTACT:
Sarah Qureshi, Office of General
Counsel, Bureau of Prisons, phone
(202)307–2105.
SUPPLEMENTARY INFORMATION: The
Bureau published a proposed rule
amending its regulations on release
gratuities, transportation, and clothing
(28 CFR 571, subpart C) on October 4,

PO 00000

Frm 00039

Fmt 4700

Sfmt 4700

34299

1999 (64 FR 53872). The previous
regulations on this subject were
published in the Federal Register on
May 21, 1991 (56 FR 23480) and were
amended on September 10, 1996 (61 FR
47795).
Change to the Previous Rule
Previous provisions on release
gratuities in section 571.21(e) specified
that with the exception of aliens serving
60 days or less in contract facilities,
each alien released to immigration
authorities is to have $10 cash.
Under this final rule, aliens released
for the purpose of deportation,
exclusion, or removal will not receive a
$10 gratuity. Because these inmates are
to become the responsibility of the
Bureau of Citizenship and Immigration
Services (BCIS), it is not appropriate for
the Bureau to provide a $10 gratuity.
We estimate that approximately 8.5%
of the total inmate population of the
Federal Bureau of Prisons will be
affected by this rule.
Public Comment and Bureau Response
We received five comments on the
proposed rule. One commenter
supported the rule, indicating that it
would reduce cost to the Bureau.
Two commenters expressed concern
that when aliens are released to the
Immigration and Naturalization Service
(INS, now the Bureau of Citizenship and
Immigration Services [BCIS]), they may
not necessarily be released for the
purposes of exclusion, deportation or
removal, and therefore still need a $10
gratuity. One commenter was concerned
that aliens may be ‘‘wrongly classified’’
by the Bureau as being excludable,
deportable, or removable, a decision
which, the commenter said, cannot be
made without ‘‘a hearing before an
Immigration judge.’’
The Bureau’s policies regarding
release of aliens to the INS (BCIS) for
exclusion, deportation, or removal can
be found in the Bureau’s Program
Statement on the Institution Hearing
Program (PS 5111.01), accessible on the
internet at www.bop.gov or through the
Freedom of Information Act process.
This describes the process for
identifying aliens for release to the INS
(BCIS) for purposes of exclusion,
deportation or removal. The Bureau,
INS (BCIS) and the Executive Office for
Immigration Review (EOIR) jointly
developed the Institution Hearing
Program (IHP) to ensure that deportation
proceedings begin as quickly as possible
after an alien inmate’s conviction and
finish before the alien inmate’s release
date.
IHP hearing sites are specific
institutions where alien inmates

E:\FR\FM\09JNR1.SGM

09JNR1