Regs That Provide Transaction Rule for Banks Receiving Federal Assistance

 [4830-01]

 ACTION: Final regulations.

 SUMMARY: This document contains final regulations that provide a transitional rule under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 for the tax treatment of Federal financial assistance received by certain banks and domestic building and loan associations. The final regulations affect payments under certain assistance agreements executed before May 10, 1989.

 EFFECTIVE DATE: These regulations are effective April 23, 1992.

 FOR FURTHER INFORMATION CONTACT: Bernita L. Thigpen, 202-622-3920 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

 On April 23, 1992, the Internal Revenue Service published a notice of proposed rulemaking, that by cross reference to temporary regulations, provided transitional rules under section 597 of the Internal Revenue Code of 1986 in the Federal Register (57 FR 14794). Only one written comment on those proposed regulations was received from the public and similar statements were made concerning those regulations at the public hearing that was held on July 17, 1992. After consideration of the written comment and statements made at the public hearing, the notice of proposed rulemaking by cross reference to temporary regulations is adopted as modified by this Treasury decision.

Explanation of Provisions

 Section 1.597-8T(b)(1) of the temporary regulations generally provides that the tax consequences of assistance payments received or accrued on or after May 10, 1989, pursuant to an acquisition of a domestic building and loan association or a bank before May 10, 1989, are governed by the applicable provisions of section 597 before that section was amended by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). In order for this rule to apply, the payments must be made pursuant to an assistance agreement that was executed before May 10, 1989, and must be paid to a party to the agreement or such other party as the Commissioner may designate by letter ruling or other written guidance. Section 1.597-8T(b)(2) provides a similar rule for prepayments of (or payments in lieu of) assistance.

 The only comment received on the regulations was that a taxpayer should not have to obtain a private letter ruling or other written determination to ensure that the transitional rules apply to assistance provided to a person other than a party to the assistance agreement. Each transaction in which assistance is provided to a person that is not a party to the assistance agreement is complex and involves a unique set of facts. The determination of whether such a person is an appropriate recipient turns on all relevant facts and circumstances, such as whether the assistance agreement contemplated a transaction in which the assistance would be paid to a different party. Accordingly, the final regulations retain the rule as proposed in the temporary regulations.

Special Analyses

 It has been determined that these rules are not major rules as defined in Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to these regulations, and, therefore, a final Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking for the regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on their impact on small business.

Drafting Information

 The principal author of these regulations is Bernita L. Thigpen, Office of the Assistant Chief Counsel (Financial Institutions & Products), Internal Revenue Service. However, other personnel from the Service and Treasury Department participated in their development.

List of Subjects in 26 CFR 1.591-1 through 1.601-1

 Banks, Banking, Income taxes, Reporting and recordkeeping requirements.

Treasury Decision 8471

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAX; TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1953

Paragraph 1. The authority citation for part 1 is amended by removing the entry for "Section 1.597-8T" and adding the following entry:

Authority: 26 U.S.C. 7805 * * * Section 1.597-8 also issued under 26 U.S.C. 597.

Par. 2. Section 1.597-8T is redesignated as section 1.597-8 and the language "(temporary)" is removed.