Internal Revenue Bulletin: 2006-21
May 22, 2006
Withdrawal of Proposed Regulations Regarding Intercompany Transactions; Manufacturer Incentive Payments
Table of Contents
This document withdraws a notice of proposed rulemaking (REG-131264-04, 2004-38 I.R.B. 506) regarding the treatment of manufacturer incentive payments. The proposed regulations were published in the Federal Register on August 13, 2004 (69 FR 50112). After consideration of additional issues, the IRS and Treasury Department have decided to withdraw the proposed regulations.
On August 13, 2004, the IRS and Treasury Department published a notice of proposed rulemaking (REG-131264-04) in the Federal Register (69 FR 50112) proposing regulations to address additional transactions involving manufacturer incentive payments and to clarify the proper treatment of such incentive payments under the intercompany transaction regulations.
On April 25, 2005, the IRS and Treasury Department published Rev. Rul. 2005-28, 2005-19 I.R.B. 997, which suspends, in part, Rev. Rul. 76-96, 1976-1 C.B. 23. Rev. Rul. 2005-28 states that the IRS will not apply, and taxpayers may not rely upon, the conclusion reached in Rev. Rul. 76-96 that certain rebates made by a manufacturer to retail customers are ordinary and necessary business expenses deductible under section 162, pending the IRS’s reconsideration of the issue and publication of subsequent guidance.
The example in paragraph (c) of the proposed regulations relies, in part, upon the premise that the manufacturer incentive payment is an ordinary and necessary business expense deductible under section 162. To the extent that this premise is correct, paragraph (d) of the proposed regulations illustrates the proper application of the intercompany transaction regulations. However, because Rev. Rul. 2005-28 suspends Rev. Rul. 76-96, in pertinent part, these paragraphs of the proposed regulations are withdrawn pending further guidance on the section 162 issue considered in Rev. Rul. 76-96.
The example in paragraph (e) of the proposed regulations illustrates the application of the original issue discount rules to the facts described in paragraph (e) and, based on these facts, concludes that the transaction is not an intercompany transaction. This conclusion is not dependent upon the issue being reconsidered in Rev. Rul. 76-96. Nevertheless, because the example in paragraph (e), standing alone, does not provide guidance with respect to the application of the intercompany transaction regulations to an intercompany transaction, paragraph (e) of the proposed regulations is also withdrawn.
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Accordingly, under the authority of 26 U.S.C. 7805, the notice of proposed rulemaking (REG-131264-04) that was published in the Federal Register on August 13, 2004 (69 FR 50112) is withdrawn.
Mark E. Matthews,
Deputy Commissioner for
Services and Enforcement.
(Filed by the Office of the Federal Register on May 5, 2006, 8:45 a.m., and published in the issue of the Federal Register for May 8, 2006, 71 F.R. 26721)
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