For Tax Professionals  
T.D. 8882 May 16, 2000

Reorganizations; Nonqualified Preferred Stock

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [TD 8882] RIN 1545-AV86

TITLE: Reorganizations; Nonqualified Preferred Stock

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final regulations relating to
nonqualified preferred stock and rights to acquire nonqualified
preferred stock. The regulations are necessary to reflect changes to
the law concerning these instruments that were made by the Taxpayer
Relief Act of 1997. The regulations affect shareholders who receive
nonqualified preferred stock, or rights to acquire such stock, in
certain corporate reorganizations and divisions.

EFFECTIVE DATE: These regulations are effective May 16, 2000.

FOR FURTHER INFORMATION CONTACT: Michael J. Danbury, (202) 622-7750
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

On January 6, 1998, a temporary regulation (TD 8753) was published
in the Federal Register (63 FR 411).A notice of proposed rulemaking
(REG-121755-97).2 cross-referencing the temporary regulation was
published in the Federal Register (63 FR 453) on the same day.

The temporary regulation provided that, notwithstanding
contemporaneously issued final regulations treating certain rights
to acquire stock as securities that can be received tax-free in
corporate reorganizations and divisions, nonqualified preferred
stock (as defined in section 351(g)(2) of the Internal Revenue Code)
(NQPS), or a right to acquire NQPS, will in some circumstances not
be treated as stock or securities for purposes of sections 354, 355,
and 356. The temporary regulation added 1.356-6T, and applied to
NQPS received in connection with a transaction occurring on or after
March 9, 1998 (other than certain recapitalizations of family-owned
corporations and transactions described in section 1014(f)(2) of the
Taxpayer Relief Act of 1997, Public Law 105-34, 111 Stat. 788, 921).
No written comments responding to the notice of proposed rulemaking
were received, and no public hearing was requested or held.

The regulation proposed by REG-121755-97 is adopted by this Treasury
decision, and the corresponding temporary regulation is removed.
Cross-references to the temporary regulation in 1.354-1(e),
1.355-1(c), and 1.356-3(b) have been removed and replaced with
cross-references to the final regulation at 1.356-6.

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 has also been
determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations. 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 business.

Drafting Information

The principal author of these regulations is Michael J. Danbury of
the Office of Assistant Chief Counsel (Corporate). However, other
personnel from the IRS and Treasury participated in their
development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements. Adoption of
Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding
an entry in numerical order to read in part as follows:

Authority: 26 U.S.C. 7805 * * * Section 1.356-6 also issued under 26
U.S.C. 351(g)(4). * * *

1.354-1 [Amended ] Par. 2. In 1.354-1, paragraph (e), first
sentence, the language "1.356-6T" is removed and "1.356-6" is
added in its place.

1.355-1 [Amended ] Par. 3. In 1.355-1, paragraph (c), first
sentence, the language "1.356-6T" is removed and "1.356-6" is
added in its place.

1.356-3 [Amended ] Par. 4. In 1.356-3, paragraph (b), first
sentence, the language "1.356-6T" is removed and "1.356-6" is
added in its place.

Par. 5. Section 1.356-6T is redesignated as 1.356-6 and the section
heading is revised to read as follows:

1.356-6 Rules for treatment of nonqualified preferred stock as
other property.

* * * * *

Deputy Commissioner of Internal Revenue
Robert E. Wenzel
Approved: 5/5/00
Deputy Assistant Secretary of the Treasury
Jonathan Talisman


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