Internal Revenue Bulletin: 2013-27
July 1, 2013
Table of Contents
This document contains corrections to final regulations (TD 9612) that were published in the Federal Register on Tuesday, February 5, 2013 (78 FR 7997) relating to the tax treatment of noncompensatory options and convertible instruments issued by a partnership. The final regulations generally provide that the exercise of a noncompensatory option does not cause the recognition of immediate income or loss by either the issuing partnership or the option holder. The final regulations also modify the regulations under section 704(b) regarding the maintenance of the partners’ capital accounts and the determination of the partners’ distributive shares of partnership items. The final regulations also contain a characterization rule providing that the holder of a noncompensatory option is treated as a partner under certain circumstances.
This correction is effective on June 13, 2013 and is applicable on or after February 5, 2013.
The final regulations that are the subject of this document are under sections 171, 704, 721, 761, 1272, 1273, and 1275 of the Internal Revenue Code.
Accordingly, 26 CFR part 1 is corrected by making the following correcting amendments:
Paragraph 1. The authority citation for part 1 continues to read in part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.704-1 is amended by revising the third sentence of paragraph (b)(5) Example 32(v) to read as follows:
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(b) * * *
(5) * * *
Example 32. * * *
(v) * * * Under paragraph (b)(4)(x)(c) of this section, LLC must allocate the book gross income of $3,000 equally among A, B, and C, but for tax purposes, however, LLC must allocate all of its gross income ($3,000) to C. * * *
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Publications and Regulations Branch
Legal Processing Division
Associate Chief Counsel
(Procedure and Administration)
(Filed by the Office of the Federal Register on June 12, 2013, 8:45 a.m., and published in the issue of the Federal Register for June 13, 2013, 78 FR 35559)
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