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August 2004 Plain Language Regulations

Guidance Regarding the Treatment of Certain Contingent Payment Debt Instruments
Guidance regarding the treatment of certain contingent payment debt instruments with one or more payments that are denominated in, or determined by reference to, a nonfunctional currency were previously issued that determine the calculation of interest income or expense for a holder and issuer of (U.S. dollar denominated) contingent payment debt instruments, e.g., debt instruments in which the amount of one or more payments are determined base on fluctuations in the price of a commodity. This regulation determines the treatment of debt instruments in which one or more payments are denominated in a currency other than the taxpayer's functional currency, i.e., generally, currencies other than the U.S. dollar, and which contain a contingency (other than the fact that the debt instrument is denominated in foreign currency).  In addition, this regulation applies to debt instruments in which payments are denominated in, or determined by reference to more than one currency.
TD 9157.  Published August 30, 2004.
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Extension of Time to Elect Method for Determining Allowable Loss
These proposed regulations extend the time for consolidated groups to make elections, and permit them to amend or revoke prior elections, concerning methods for determining allowable loss on a disposition of subsidiary stock.  The proposed regulations affect corporations filing consolidated returns, both during and after the period of affiliation, and also affect purchasers of the stock of members of a consolidated group.  These proposed regulations extend the time for making the election, and provide the ability to amend or revoke a prior election.
REG-135898-04.  Published August 26, 2004.
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Extension of Time to Elect Method for Determining Allowable Loss
These temporary regulations extend the time for consolidated groups to make elections, and permit them to amend or revoke prior elections, concerning methods for determining allowable loss on a disposition of subsidiary stock.  The temporary regulations affect corporations filing consolidated returns, both during and after the period of affiliation, and also affect purchasers of the stock of members of a consolidated group.  TD 9154.  Published August 26, 2004.
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Interest-only REMIC Regular Interests
This advance notice of proposed rulemaking describes and explains rules that the IRS and Treasury are considering and may propose.  The advance notice of proposed rulemaking regarding the proper timing of income or deduction attributable to an interest-only regular interest in a Real Estate Mortgage Investment Conduit (REMIC).  The IRS and Treasury are considering whether to prescribe regulations with respect to the tax treatment of REMIC IOs for both issuers and initial-and secondary-market purchasers.  The advance notice of proposed rulemaking contains possible solutions to the difficult and novel questions, including (1) altering the existing rules for the accrual of original issue discount, (2) formulating special guidelines for the application of section 166 to REMIC IOs and similar instruments, and (3) adopting a new alternative method applicable to REMIC IOs and similar instruments.
REG-106679-04.  Published August 25, 2004.
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Accrual for Certain REMIC Regular Interests
These proposed regulations relating to the accrual of original issue discount (OID) on certain real estate mortgage investment conduit (REMIC) regular interests. The proposed regulations are necessary to provide guidance to REMICs, REMIC regular interest holders and information reporters regarding the accrual of OID. 
REG-108637-03. Published August 25, 2004.
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Qualified Severance of a Trust for Generation-Skipping Transfer (GST)
Tax Purposes
The law provides that if a trust is divided into two or more trusts in a "qualified severance," the resulting trusts will be recognized as separate trusts for GST tax purposes. These proposed regulations provide guidance for making a qualified severance. REG-145987-03. Published August 24, 2004.
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Treatment of Loss Carryovers from Separate Return Limitation Years
Some consolidated groups that purchased loss subsidiaries from other consolidated groups may have been unfairly disadvantaged by a deemed waiver rule with respect to loss carryovers, which triggered upon the selling consolidated group's election to recalculate its loss according to an alternative method provided for in the consolidated return regulations. These regulations amend the earlier regulations by making the deemed waiver rule elective. TD 9155.  Published August 18, 2004.
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Treatment of Loss Carryovers from Separate Return Limitation Years
Some consolidated groups that purchased loss subsidiaries from other consolidated groups may have been unfairly disadvantaged by a deemed waiver rule with respect to loss carryovers, which is triggered upon the selling consolidated group's election to recalculate its loss according to an alternative method provided for in the consolidated return regulations.  These regulations amend the earlier regulations by making the deemed waiver rule elective. REG-129274-04. Published August 18, 2004.
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Corporate Reorganizations; Transfers of Assets or Stock Following a Reorganization
These proposed regulations address the effect of transfers of the assets or the stock of parties to a reorganization pursuant to transactions intended to qualify as reorganizations within the meaning of section 368(a) of the Internal Revenue Code.
REG-130863-04.   Published August 17, 2004.
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Reorganizations Under Section 368(a)(1)(E) or (F)
These proposed regulations provide guidance regarding the requirements necessary for a transaction to qualify as a mere change in identity, form or place of organization of one corporation under section 368(a)(1)(F).
REG-106889-04.  Published August 12, 2004.
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Reduced Maximum Exclusion of Gain from Sale or Exchange of a Principal Residence
These regulations explain the exclusion of gain from the sale or exchange of a principal residence for taxpayers who have not owned and lived in the residence for two of the last five years or have excluded gain from another residence in the last two years.  These taxpayers may be entitled to exclude a reduced maximum amount of gain if the primary reason for the sale is a change in place or employment, health, or unforeseen circumstances.  TD 9152. Published August 16, 2004.
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Real Estate Mortgage Investment Conduits TEFRA Applicability
These proposed regulations relating to the application of the unified partnership audit procedures to disputes regarding the ownership of residual interests in a Real Estate Mortgage Investment Conduit (REMIC).  These regulations will affect taxpayers that invest in REMIC residual interests. REG-154077-03.  Published August 10, 2004.
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Additional Rules for Exchanges of Personal Property
Under some circumstances, taxpayers can exchange property for like-kind property without recognizing gain.  Depreciable tangible personal property is considered "like-kind" to other property that has the same code assigned to it by the Department of Commerce.  Because the Department of Commerce has replaced the Standard Industrial Classification (SIC) system of codes with the North American Industry Classification System (NAICS), this regulation also replaces SIC codes with NAICS codes for purposes of determining what depreciable tangible personal property is like-kind to other property. REG-116265-04.  Published August 13, 2004.
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Entities Created or Organized in More Than One Jurisdiction
Some business entities may be recognized under state or foreign law as created or organized in more than one jurisdiction at the same time ("dually chartered entities").  These regulations provide clarification regarding how to determine the federal tax classification (e.g. corporation, partnership, or an entity disregarded as separate from its owner) of a dually chartered entity and how to determine whether a dually chartered entity is domestic or foreign. TD 9153.  Published August 12, 2004.
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Entities Created or Organized in More Than One Jurisdiction
Some business entities may be recognized under state or foreign law as created or organized in more than one jurisdiction at the same time ("dually chartered entities").  These proposed regulations would provide clarification regarding how to determine the federal tax classification (e.g. corporation, partnership, or an entity disregarded as separate from its owner) of a dually chartered entity and how to determine whether a dually chartered entity is domestic or foreign.
REG-124872-04. Published August 12, 2004.
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Source of Compensation for Labor or Personal Services
These proposed regulations describe the proper basis for determining the source of compensation from labor or personal services performed partly within and partly without the United States and will affect individuals that earn compensation from labor or personal services performed partly within and partly without the United States. REG-136481-04. Published August 6, 2004.
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Additional Rules for Exchanges of Personal Property Under Section 1031(a)
These are final and temporary regulations replacing the use of the Standard Industrial Classification (SIC) system with the North American Industry Classification System (NAICS) for determining what properties are of a like class for purposes of section 1031 of the Internal Revenue Code. TD 9151.  Published August 13, 2004.
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Remedial Action Regulations
The final regulations finalize a portion of the proposed regulations published on July 21, 2003 that modify remedial action regulations under sections 141 and 142.  The final regulations make one substantive change to the proposed regulations.  This change provides an additional method for determining which bonds must be remediated for certain issuers with outstanding bonds. The final regulations will generally apply to failures to properly use proceeds that occur on or after August 13, 2004.
TD 9150.  Published August 13, 2004.
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LIFO Recapture Under Section 1363(d)
These proposed regulations describe the tax consequences of LIFO recapture by corporations converting from C corporations to S corporations.  The purpose of the proposed regulations is to provide guidance on the LIFO recapture requirement when the corporation holds inventory accounted for under the last-in, first-out (LIFO) method (LIFO inventory) indirectly through a partnership.  The proposed regulations provide that a C Corporation that holds an interest in a partnership owning LIFO inventory must include the lookthrough LIFO recapture amount in its gross income where the corporation either elects to be an S corporation or transfers its interest in the partnership to an S corporation in a nonrecognition transaction.
REG-149524-03.  Published August 13, 2004.
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Manufacturer Incentive Payments in an Intercompany Transaction
The consolidated return intercompany transaction regulations provide rules for taking into account items of income, gain, deduction, and loss of members from transactions between members of a consolidated group.  The proposed regulations are necessary to provide additional guidance for a variety of transactions involving manufacturer incentive payment transactions under the intercompany transaction regulations.
REG-131264-04. Published August 13, 2004.
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Treatment of Disregarded Entities Under Section 752

The proposed regulations recognize that only the assets of a disregarded entity are available to satisfy payment obligations undertaken by a disregarded entity.  The proposed regulations provide rules under section 752 for taking into account the net value of a disregarded entity owned by a partner or related person for purposes of allocating partnership liabilities.  The proposed regulations provide that in determining the extent to which a partner bears the economic risk of loss for a partnership liability, payment obligations of a disregarded entity are taken into account only to the extent of the net value of the disregarded entity. REG-128767-04.  Published August 12. 2004.
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Transfers of Compensatory Options
These final regulations provide that the transfer of a compensatory stock option to a related person will not be treated as an arm's length transaction for purposes of section 1.83-7.  The regulations also provide a definition of a related person.  In accordance with the regulations, a transfer of a compensatory stock option to a related person will be treated as a non-arm's length transaction, meaning that section 83 will continue to apply and the original holder of the option may realize further compensation income at the time of exercise of the option.  The final regulations are unchanged from the regulations proposed on July 2, 2003 (68 FR 39498), and the temporary regulations which apply to transfers of compensatory stock options on or after July 2, 2003 (68 FR 39453).  TD 9148.  Published August 10, 2004.
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Collected Excise Taxes
These regulations provide guidance for collectors of communications excise taxes under section 4251 and excise taxes on amounts paid for taxable transportation under sections 4261 and 4271.  These regulations state the time by which collectors must report refusals to pay or other failures to collect these excise taxes. TD 9149.  Published August 10, 2004.
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Collected Excise Taxes
These proposed regulations relate to the obligations of persons that receive payments for air transportation or communications services subject to excise tax when persons liable for the tax refuse to pay the tax.  These proposed regulations affect persons liable for those taxes and persons that receive payments subject to tax.  These proposed regulations cross reference temporary regulations relating to collectors of communications excise taxes under section 4251 and excise taxes on amounts paid for taxable transportation under section 4261 and 4271.  REG-163909-02. 
Published August 10, 2004.
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Measuring Continuity of Interest
In order to qualify as a tax-free reorganization a transaction must meet certain requirements.  One such requirements is that the owners of the corporation being acquired exchange their interests in the acquired corporation for a substantial interest in the acquiring corporation.  These proposed regulations explain the circumstances in which the determination of whether the owners of the acquired corporation have exchanged their interests for a substantial interest in the acquiring corporation will be made by reference to the signing date value of the acquiring corporation stock to be issued in the transaction.  REG-129706-04.  Published August 10, 2004.
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Guidance Under Section 951 for Determining Pro Rata Share

The notice of proposed rulemaking would amend section 1.951-1(e) to provide updated guidance necessary to determine a United States shareholder's pro rata share of a controlled foreign corporation's (CFC) subpart F income, previously excluded subpart F income withdrawn from investment in less developed countries, previously excluded subpart F income withdrawn from foreign base company shipping operations, and amounts determined under section 956 (section 951 amounts). 
REG-129771-04.  Published August 6, 2004.
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Rules for Making an Election Under Section 163(d)(4)(B) to Treat Qualified Dividend Income as Investment Income
For taxpayers other than corporations, section 163(d) provides that the deduction for investment interest expense may not exceed the taxpayer's net investment income.  As amended in 2003, section 163(d)(4)(B) allows taxpayers to elect to take qualified dividend income into account as investment income for purposes of calculating the deduction for investment interest expense.  These regulations provide the rules relating to how and when taxpayers may make the election.
TD 9147.  Published August 5, 2004.
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Rules for Making an Election Under Section 163(d)(4)(B) to Treat Qualified Dividend Income as Investment Income
For taxpayers other than corporations, section 163(d) provides that the deduction for investment interest expense may not exceed the taxpayer's net investment income.  As amended in 2003, section 163(d)(4)(B) allows taxpayers to elect to take qualified dividend income into account as investment income for purposes of calculating the deduction for investment interest expense.  These regulations provide the rules relating to how and when taxpayers may make the election.
REG-171386-03.  Published August 5, 2004.
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Section 179 Elections
These final and temporary regulations provide guidance to taxpayers for making and revoking elections to expense the cost of property under section 179.  These regulations reflect changes to section 179 made by the Jobs and Growth Relief Reconciliation Act of 2003.  The changes made to section 179 permit small business taxpayers to make or revoke section 179 elections on amended returns without the Commissioner's consent.  This provides flexibility to small business taxpayers in determining whether the section 179 election is to their advantage or disadvantage.
TD 9146.  Published August 4, 2004.
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Section 179 Elections
These regulations provide guidance to taxpayers for making and revoking elections to expense the cost of property under section 179.  The regulations reflect changes to section 179 made by the Jobs and Growth Relief Reconciliation Act of 2003.  The changes made to section 179 permit small business taxpayers to make or revoke section 179 elections on amended returns without the Commissioner's consent.  This provides flexibility to small business taxpayers in determining whether the section 179 election is to their advantage or disadvantage.
REG-152549-03. Published August 4, 2004.
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Statutory Options

The Service is issuing final regulations concerning statutory options.  Statutory options include incentive stock options (ISO's) and options granted under an employee stock purchase plan (ESPP).  These regulations provide guidance about the grant, exercise, transfer, and disposition of a statutory option to an employee as well as rules for the creation and operation of a statutory stock option plan.  These regulations are effective on the date the regulations are published in the Federal Register.  However, special transitional and reliance rules are included in the regulations.
TD 9144.  Published August 3, 2004.
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