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May 2004 Plain Language Regulations

Capitalization of Interest on Safe Harbor Leasing Transactions
Taxpayers producing certain real and tangible personal property are sometimes required to capitalize some or all of their interest expense into the basis of the property they produce. These proposed and temporary regulations except from this requirement interest expense incurred by a lessor in certain safe harbor leasing transactions. 
TD 9129.  Published May 20, 2004.
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Capitalization of Interest on Safe Harbor Leasing Transactions
Taxpayers producing certain real and tangible personal property are sometimes required to capitalize some or all of their interest expense into the basis of the property they produce.  These proposed and temporary regulations except from this requirement interest expense incurred by a lessor in certain safe harbor leasing transactions. REG-148399-02.  Published May 20, 2004.
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Multi-Party Financing Arrangements
The advance notice of proposed rulemaking relates to the scope and details of regulations to be proposed under section 7701(f) of the Internal Revenue Code that will address the application of sections 265(a) and 246A in transactions involving related parties, pass-through entities, or other intermediaries. 
REG-128572-03.  Published May 7, 2004.
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Reduction of Tax Attributes Due to Discharge of Indebtedness
These final regulations clarify that the tax attributes that carry over to the acquiring corporation and are the type of tax attributes subject to attribute reduction will be reduced prior to being carried over to the acquiring corporation.  For example, these attributes include net operating losses, the general business tax credit, capital loss carryovers as well as the basis of property.  As a result, the acquiring corporation succeeds to certain tax attributes that have been reduced.  This result will occur without regard to whether the tax-free reorganization or liquidation occurs either during or after the year in which the of stock received by an acquired corporation in exchange for its assets is not available for reduction.  TD 9127.  Published May 11, 2004.
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Real Estate Mortgage Investment Conduits; Application of
Section 446 with Respect to Inducement Fees
These final regulations provide rules relating to the proper timing and source of income from fees received to induce taxpayers to become the holders of noneconomic residual interests in Real Estate Mortgage Investment Conduits.  The final regulations also provide two safe harbor methods of accounting for these inducement fees.  Additionally, the final regulations clarify that these inducement fees are income from sources within the United States.  TD 9128.  Published May 11, 2004.
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Deduction for Interest on Qualified Education Loan
These final regulations provide rules for individuals who may deduct up to $2,500 per year for interest they pay on qualified educations loans, effective beginning in 2004.  The amount of the deduction phases out depending on the individual's modified adjusted gross income and is completely phase out when that income exceeds $65,000 ($130,000 for joint returns).  These amounts may be adjusted for inflation.  A qualified education loan is any debt that an individual incurs solely to pay for qualified higher education expenses.  Qualified higher education expenses are costs of attendance at an eligible education institution, such as a university. 
TD 9125.  Published May 7, 2004.
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Special Consolidated Return Rules for Interest Expense Disallowed
under Section 265(a)(2)
These proposed regulations provide guidance regarding the consolidated return treatment of intercompany obligations the interest on which is exempt from tax.  These regulations provide that, if a member of a consolidated group incurs or continues debt to nonmember that is directly traceable to an intercompany obligation extended to a member of the group (the borrowing member) by another member of the group (the lending member), and section 265(a)(2) applies to disallow a deduction for the borrowing member's interest expense incurred with respect to the intercompany obligation, then the lending member's corresponding interest income will not be excluded under the intercompany transaction regulations. 
REG-128590-03.  Published May 7, 2004.
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Section 704(b) and Capital Account Revaluations
These proposed regulations expand the circumstances under which a partnership is specifically permitted to increase or decrease the capital accounts of the partners to reflect a revaluation of partnership property on the partnership's books.  The regulation rules allow for the revaluation of partnership property, reflected in the partner's capital accounts, to reflect unrealized appreciation or depreciation in the partnership property. TD 9126.  Published May 6, 2004.
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At-Risk Limitations; Interest Other Than That of a Creditor
These final regulations, for purposes of the at-risk limitations under section 465, relates to the treatment of amounts borrowed from a person who has an interest in an activity other than that of a creditor or from a person related to a person (other than the borrower) with such an interest.  The regulations provide that all activities are subject to the rule that these borrowed amounts do not increase the amount at risk in the activity.  These final regulations affect taxpayers subject to the at-risk limitations and provide them with guidance necessary to comply with the law. 
TD 9124.  Published May 3, 2004.
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Electing Mark to Market for Marketable Stock
This document contains final regulations that provide procedures for certain United States persons holding marketable stock in a passive foreign investment company (PFIC) to elect mark to market treatment for that stock under section 1296 of the Internal Revenue Code and related provisions of sections 1291 and 1295. 
TD 9123.  Published May 3, 2004.
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Allocation of Basis
These proposed regulations clarify that the basis of each share of stock received in certain tax-free transactions shall be the same as the basis of the share or shares of stock exchanged therefore.  This proposed regulation provides that a taxpayer may designate which share of stock is received in exchange for or with respect to a particular share of stock held prior to the tax-free transaction. 
REG-116564-03.  Published May 3, 2004.
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