[4830-01-u]                                                                
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-254394-96] 
RIN 1545-AU92
Section 42(d)(5) Federal Grants
AGENCY:  Internal Revenue Service (IRS), Treasury.
ACTION:  Notice of proposed rulemaking by cross-reference to
temporary regulations.
SUMMARY:  In the Rules and Regulations section of this issue of
the Federal Register, the IRS is issuing temporary regulations
with respect to the low-income housing tax credit relating to the
application of section 42(d)(5) to certain rental assistance
programs under section 42(g)(2)(B)(i).  The text of those
temporary regulations also serves as the text of these proposed
regulations.  
DATES:  Written comments and requests for a public hearing must
be received by April 28, 1997. 
ADDRESSES:  Send submissions to:  CC:DOM:CORP:R (REG-254394-96),
room 5226, Internal Revenue Service, POB 7604, Ben Franklin
Station, Washington, DC 20044.  Submissions may be hand deliveredbetween the hours of 8 a.m. and 5 p.m. to:  CC:DOM:CORP:R (REG-
254394-96), Courier's Desk, Internal Revenue Service, 1111
Constitution Avenue, NW., Washington, DC.  Alternatively,
taxpayers may submit comments electronically via the Internet by
selecting the "Tax Regs" option on the IRS Home Page, or by
submitting comments directly to the IRS Internet site at
http://www.irs.ustreas.gov/prod/tax_regs/comments/html.
FOR FURTHER INFORMATION CONTACT:  Christopher J. Wilson (202)
622-3040 (not a toll-free call). 
SUPPLEMENTARY INFORMATION:
Background  
     Temporary regulations published in the Rules and Regulations
section of this issue of the Federal Register provide rules with
respect to the low-income housing tax credit relating to the
application of section 42(d)(5) to certain rental assistance
programs under section 42(g)(2)(B)(i).  The text of those
temporary regulations also serves as the text of these proposed
regulations.  The preamble to the temporary regulations explains
the temporary regulations. 
Special Analyses 
      It has been determined that this notice of proposed
rulemaking is not a significant regulatory action as defined in
EO 12866.  Therefore, a regulatory assessment is not required. 
It also has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply
to these regulations and, because these regulations do not impose
on small entities a collection of information requirement, the
Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. 
Therefore, a Regulatory Flexibility Analysis is not required. 
Pursuant to section 7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be submitted to the Chief
Counsel for Advocacy of the Small Business Administration for
comment on its impact on small business. 
Comments and Requests for a Public Hearing
     Before these proposed regulations are adopted as final
regulations, consideration will be given to any written comments
(a signed original and eight (8) copies) that are submitted
timely to the IRS.  All comments will be available for public
inspection and copying.  A public hearing may be scheduled if
requested in writing by a person that timely submits written
comments.  If a public hearing is scheduled, a notice of the
date, time, and place for the hearing will be published in the
Federal Register. 
Drafting Information
     The principal author of these regulations is Christopher J. 
Wilson, Office of Assistant Chief Counsel (Passthroughs and
Special Industries).  However, other personnel from the IRS and
Treasury Department participated in their development.
List of Subjects 26 CFR Part 1
     Income taxes, Reporting and recordkeeping requirements. 
Proposed Amendments to the Regulations
     Accordingly, 26 CFR part 1 is proposed to be 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 1.42-16 also issued under 26 U.S.C. 42(n); * * *
     Par. 2.  Section 1.42-16 is added to read as follows:
1.42-16 Eligible basis reduced by federal grants. 
     [The text of this proposed section is the same as the text
of 1.42-16T published elsewhere in this issue of the Federal
Register]. 


                                   Margaret Milner Richardson
                                 Commissioner of Internal Revenue