For purposes of § 4980H, as under Code provisions generally, “employer” would mean the entity that is the employer of an employee under the common-law test. In addition, § 4980H provides that all entities treated as a single employer under § 414(b), (c), (m), or (o) are treated as a single employer for purposes of § 4980H. Section 4980H(c)(2)(C)(i). Thus, all employees of a controlled group under § 414(b) or (c), or an affiliated service group under § 414(m), are to be taken into account in determining whether any member of the controlled group or affiliated service group is an applicable large employer. Section 4980H also provides that an employer includes a predecessor employer (§ 4980H(c)(2)(C)(iii)) and that an employer not in existence during an entire preceding calendar year will be an applicable large employer for the current calendar year if it is reasonably expected to employ an average of at least 50 full-time employees (taking into account FTEs) on business days during the current calendar year. Section 4980H(c)(2)(C)(ii). (Section IV.C describes how FTEs are calculated for purposes of determining whether an employer is an applicable large employer.)

For purposes of § 4980H, as under Code provisions generally, “employee” would mean a worker who is an employee under the common-law test. (See Section IV.D for a special rule regarding seasonal employees described in § 4980H(c)(2)(B).) Section 414(n), which treats “leased employees”, as defined in § 414(n)(2), as employees of the service recipient for various purposes, does not cross-reference § 4980H and accordingly would not apply to § 4980H.

In general, § 4980H treats, with respect to a month, an employee who has an average of at least 30 hours of service per week as a full-time employee. It is contemplated that, for this purpose, proposed regulations would provide that 130 hours of service in a calendar month would be treated as the monthly equivalent of at least 30 hours of service per week.^[4] As under existing Labor Regulations, an employee’s hours of service would include the following: (1) each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and (2) each hour for which an employee is paid, or entitled to payment by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence (29 C.F.R. § 2530.200b-2(a)) (except that it is contemplated that no more than 160 hours of service would be counted for an employee on account of any single continuous period during which the employee was paid or entitled to payment but performed no duties). The potential rules for determining hours of service in this Section III.C and section III.D, which are based on prior guidance under other provisions of the Affordable Care Act, would apply in determining an employee’s status as full-time or not full-time and in calculating an employer’s FTEs.

For employees paid on an hourly basis (hourly employees), the employer would be required to calculate actual hours of service from records of hours worked and hours for which payment is made or due (payment is made or due for vacation, holiday, illness, incapacity, etc., as described above).

For employees not paid on an hourly basis (non-hourly employees), the employer would be permitted to calculate the number of hours of service under any of the following three methods: (1) counting actual hours of service from records of hours worked and hours for which payment is made or due for vacation, holiday, illness, incapacity, etc., as described above; (2) using a days-worked equivalency method whereby the employee is credited with eight hours of service for each day for which the employee would be required to be credited with at least one hour of service under the rule in Section III.C above; or (3) using a weeks-worked equivalency of 40 hours of service per week for each week for which the employee would be required to be credited with at least one hour of service under the rule in Section III.C above. These equivalents are based on Labor regulations at 29 C.F.R. § 2530.200b-2(a), modified as under prior guidance under other provisions of the Affordable Care Act.

Although an employer would be required to use one of these three methods for counting hours of service for all non-hourly employees, an employer need not use the same method for all non-hourly employees, but may apply different methods for different classifications of non-hourly employees, if the classifications are reasonable and consistently applied. In addition, an employer may change the method of calculating non-hourly employees’ hours of service for each calendar year. For example, for all non-hourly employees, an employer may use the actual hours worked method for the calendar year 2014, but may use the days-worked equivalency method for counting hours of service for the calendar year 2015.

The number of hours of service calculated using the days-worked or weeks-worked equivalency method would be required to reflect generally the hours actually worked and the hours for which payment is made or due. An employer would not be permitted to use the days-worked or weeks-worked equivalency method if the result would be to substantially understate an employee’s hours of service in a manner that would cause that employee not to be treated as full-time.

Under § 4980H, an employer would not be subject to an assessable payment unless the employer is an applicable large employer. As noted above, § 4980H defines an applicable large employer, with respect to a calendar year, as an employer that employed an average of at least 50 FT employees on business days during the preceding calendar year. For purposes of this Section IV, the term “FT employees” means the sum of the employer’s full-time employees and FTEs.

Section 4980H provides that full-time employee status is determined on a monthly basis. Under § 4980H, a full-time employee with respect to any month is an employee (including a seasonal employee) who is employed, on average, at least 30 hours of service per week (or, under the rules contemplated to be included in proposed regulations, at least 130 hours of service in the calendar month). An employee who is not a full-time employee under this standard (including a seasonal employee) for a given month is taken into account in the FTE calculation. Section 4980H(c)(2)(E).

In determining whether an employer is an applicable large employer for the current calendar year, § 4980H provides that the employer is required to calculate the number of FTEs it employed during the preceding calendar year and count each such FTE as one FT employee for that year. All employees (including seasonal employees) who were not full-time employees for any month in the preceding calendar year are included in calculating the employer’s FTEs for that month. The number of FTEs for each calendar month in the preceding calendar year would be determined using the following steps:

(1) Calculate the aggregate number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not full-time employees for that month.

(2) Divide the total hours of service in step (1) by 120. This is the number of FTEs for the calendar month.

In determining the number of FTEs for each calendar month, fractions would be taken into account. For example, if in a calendar month employees who are not full-time employees work 1,260 hours, there would be 10.5 FTEs for that month. However, after adding the 12 monthly full-time employee and FTE totals, and dividing by 12 (the amount in Section IV.E, step (4) below), all fractions would be disregarded. For example, 49.9 FT employees for the preceding calendar year would be rounded down to 49 FT employees (and thus the employer would not be an applicable large employer in the current calendar year).

Section 4980H provides that seasonal employees are employees who perform labor or services on a seasonal basis as defined by the Secretary of Labor, including seasonal workers covered by 29 C.F.R. § 500.20(s)(1) and retail workers employed exclusively during holiday seasons. Section 4980H(c)(2)(B)(ii). If an employer’s workforce exceeds 50 FT employees for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal employees, the employer would not be an applicable large employer. It is contemplated that, for this purpose only, four calendar months would be treated as the equivalent of 120 days.

The steps in calculating the number of FT employees in the preceding calendar year, and thus whether the employer is an applicable large employer for the current calendar year, would be as follows:

(1) Calculate the number of full-time employees (including seasonal employees) for each calendar month in the preceding calendar year.

(2) Calculate the number of FTEs (including seasonal employees) for each calendar month in the preceding calendar year (as described in Section IV.C above).

(3) Add the number of full-time employees and FTEs calculated in steps (1) and (2) for each of the 12 months in the preceding calendar year.

(4) Add up the 12 monthly numbers in step (3) and divide the sum by 12. This is the average number of the employer’s FT employees for the preceding calendar year. See Section IV.C above for rule regarding fractions and rounding.

(5) If the number of FT employees in step (4) is less than 50, the employer is not an applicable large employer for the current calendar year.

(6) If the number of FT employees in step (4) is 50 or more, determine whether the seasonal employee exception, as described in Section IV.D above, applies. If the seasonal employee exception applies, the employer is not an applicable large employer for the current calendar year. If the seasonal exception does not apply, the employer is an applicable large employer for the current calendar year.

Examples. In all of the examples in this notice, employees are common law employees of the employer, and hours of service are computed following the rules in Section III.D above.

Example 1 — Hourly-paid employees. (i) Employer K’s taxable year is the calendar year. Employer K’s payroll records indicate that Employee A was an hourly employee who worked 173 hours per month for January through November of 2014, worked 93 hours in December of 2014 and was paid for 80 hours of annual leave in December of 2014 (for a total of 173 hours for December of 2014).

(ii) Employee A had more than 130 hours of service in each month in calendar year 2014.

(iii) Employee A was a full-time employee of Employer K for each month during calendar year 2014.

Example 2 — Non-hourly employee: days-worked equivalency. (i) Same facts as Example 1, except that in calendar year 2014, Employee B is a non-hourly employee who worked for Employer K five days per week for 50 weeks, and was paid 80 hours of vacation leave for two weeks (40 hours per week). Employer K applies the days-worked equivalency for Employee B.

(ii) Employee B is credited with 40 hours of service for each week in the 2014 calendar year (50 weeks worked and 2 weeks for which payment was made).

(iii) Employee B averaged at least 30 hours of service per week during each month in calendar year 2014.

(iv) Employee B is a full-time employee of Employer K in each month in calendar year 2014.

Example 3 — Applicable large employer. (i) In each month in calendar year 2014, Employer L has 20 full-time employees, 30 FTEs, and no seasonal employees.

(ii) Because Employer L has 50 FT employees (20 full-time employees + 30 FTEs) during each month of 2014 and the seasonal employee exception is not applicable, Employer L is an applicable large employer for calendar year 2015.

Example 4 — Seasonal employees. (i) In calendar year 2014, Employer N has 40 full-time employees for January through December none of whom are seasonal employees. In addition, Employer N also has 80 seasonal full-time employees that work for Employer N from September through December. Employer N has no FTEs.

(ii) Before applying the seasonal employee exemption, Employer N has 40 full-time employees during each of eight calendar months of 2014, and 120 full-time employees during each of four calendar months of 2014, resulting in an average of 66.5 employees for the year (rounded down to 66 full-time employees), an average greater than the average of at least 50 full-time employees required for applicable large employer status. However, in this example, Employer N’s workforce exceeded 50 full-time employees (counting seasonal employees) for no more than four calendar months (treated as the equivalent of 120 days) in calendar year 2014, and the employees in excess of 50 during those months were seasonal workers.

(iii) Accordingly, because of the seasonal employee exemption, Employer N is not an applicable large employer for calendar year 2015.

Example 5 — Seasonal and other FTEs. (i) Same facts as in Example 4, except that Employer N has 20 FTEs in August, some of whom are seasonal employees.

(ii) The seasonal employee exemption is not available if the number of an employer’s FT employees (including seasonal employees) exceeds 50 employees for more than 120 days during the calendar year. Employer N has at least 50 FT employees for a period greater than four calendar months (treated as the equivalent of 120 days) in calendar year 2014. Therefore, Employer N is not eligible for the seasonal employee exception. As a result, Employer N averages 68 FT employees in 2014: [(40 x 7) + (60 x 1) + (120 x 4)] ÷ 12 = 68.33, rounded down to 68.

(iii) Accordingly, Employer N is an applicable large employer for calendar year 2015.

An applicable large employer’s potential § 4980H(a) liability is determined by reference to the number of full-time employees employed for a given month, and an applicable large employer’s potential § 4980H(b) liability is determined by reference to the number of full-time employees with respect to whom an applicable premium tax credit or cost-sharing reduction is allowed or paid for a given month. Under a month-to-month method for determining an applicable large employer’s potential § 4980H liability, each employee’s full-time status would be determined on a monthly basis (i.e., an employee would be considered full-time for a month if the employee averaged at least 30 hours of service per week for the month (or, under the rules contemplated to be included in proposed regulations, had at least 130 hours of service for the month)).

A determination of full-time employee status on a monthly basis for purposes of calculating an employer’s potential § 4980H liability may cause practical difficulties for employers, employees, and the State Exchanges. These difficulties include uncertainty and inability to predictably identify which employees are considered full-time and, consequently, inability to forecast or avoid potential § 4980H liability. This issue is particularly acute in circumstances in which employees have varying hours or employment schedules (e.g., employees whose hours vary from month to month or who are employed for a limited period). If employer-sponsored coverage were limited to employees who satisfied the definition of full-time employee during a month, employees might move in and out of employer coverage as frequently as monthly, which would be undesirable from both the employee’s and the employer’s perspective, and could also create administrative challenges for the State Exchanges.

In order to address these concerns for employees and employers, and to give plan sponsors flexible and workable options as well as greater predictability, Treasury and the IRS are considering proposing possible alternatives to a month-by-month determination of full-time employee status for purposes of calculating an applicable large employer’s potential assessable payment. One possible alternative would permit applicable large employers, at their option, to use a look-back/stability period safe harbor that would provide certainty as to which employees would be considered full-time for a particular coverage period. Such an approach also would be designed to give effect to the statutory provisions while accommodating a wide variety of current eligibility and enrollment practices in group health plans. Accordingly, this notice requests comments on the look-back/stability period safe harbor method described below, which Treasury and the IRS believe represents a reasonable interpretation of the statute.

Under the possible look-back/stability period safe harbor method, an employer would determine each employee’s full-time status by looking back at a defined period of not less than three but not more than twelve consecutive calendar months, as chosen by the employer (the measurement period), to determine whether the employee averaged at least 30 hours of service per week (or, under the rules contemplated to be included in proposed regulations, at least 130 hours of service per calendar month) during the measurement period. If the employee were determined to be a full-time employee during the measurement period, then the employee would be treated as a full-time employee during a subsequent “stability period”, regardless of the number of the employee’s hours of service during the stability period, so long as he or she remained an employee. For an employee who was determined to be a full-time employee during the measurement period, the stability period would be a period of at least six consecutive calendar months that follows the measurement period and is no shorter in duration than the measurement period. If the employee was determined not to be a full-time employee during the measurement period, the employer would be permitted to treat the employee as not a full-time employee during a stability period that followed the measurement period, but the stability period could not exceed the measurement period.

Example 6 — Measurement period/stability period. (i) Employer M, an applicable large employer, did not hire any new employees in calendar year 2014. Employer M elects to use a 6-month measurement period and a 6-month stability period for purposes of determining its full-time employees. The first measurement period runs from January 1, 2014 through June 30, 2014 and the associated stability period runs from July 1, 2014 through December 31, 2014.

(ii) Employer M determines each employee’s full-time status by looking back to determine whether the employee averaged at least 30 hours of service per week from January 1, 2014 through June 30, 2014 by totaling each employee’s hours of service during that measurement period and dividing that total by the number of weeks in that measurement period.

(iii) The employees determined to be full-time based on their hours of service during the first measurement period are considered to be full-time for each month in the stability period from July 1, 2014 through December 31, 2014 for purposes of calculating Employer M’s potential assessable payment under § 4980H for those months.

Treasury and IRS also request comments on other possible alternative methods of determining full-time employee status for purposes of calculating an applicable large employer’s potential assessable payment.

For new employees who might not have been employed by the employer during the entire measurement period, or employees who move into full-time status during the year, it is currently anticipated that this safe harbor may apply only in a limited form. Comments are requested on potential rules for determining the full-time status of such employees. See also Section VI, below, which requests comments regarding the 90-day waiting period and its application to newly eligible employees.

In addition, comments are invited on the following possible provisions:

If employers could use different measurement and stability periods for different portions of their work force, the potential for manipulation could be greater, and the resources required for the IRS to review and confirm employer compliance would be materially increased. The use of a single measurement period and a single stability period for all of an employer’s employees would minimize these concerns. Accordingly, commenters are requested to take these issues into account in commenting on whether applicable large employers should generally be required to use the same measurement and stability periods for all employees. Comments are requested on whether there are circumstances (such as corporate transactions bringing new entities into the applicable large employer’s controlled group or the use of different payroll systems for different groups of employees) in which it may be appropriate for the employer to apply different measurement and stability periods for different classifications of employees or for different entities within its controlled group.

As noted, the IRS and Treasury intend to issue proposed regulations on the employer shared responsibility provisions under § 4980H. To help inform those proposed regulations, comments are invited on the issues addressed in this notice. In addition, employers and other stakeholders have requested clarification of how the § 4980H(a) assessable payment provisions will be interpreted and applied, and how they should work together with the § 4980H(b) assessable payment provisions. As noted earlier, § 4980H(a) provides that the assessable payment under § 4980H(a) may apply to an employer that “fails to offer its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an employer-sponsored plan.” It is contemplated that the proposed regulations would make clear that an employer offering coverage to all, or substantially all, of its full-time employees would not be subject to the § 4980H(a) assessable payment provisions. Comments are requested on the challenges employers may face in being able to offer coverage to certain categories of employees even after implementation of the changes made by the Affordable Care Act to the group insurance market, and on other situations where application of the § 4980H(a) assessable payment may not be appropriate. Comments are requested on whether there are appropriate exceptions that should be provided for under the employer responsibility provisions (for example, an exception to permit employers not to offer coverage to nonresident alien employees, who not are required to have coverage under the Affordable Care Act, or not to offer coverage to certain seasonal employees) and how any proposed exceptions would be consistent with the structure and purpose of the § 4980H(a) assessable payment provisions.

Section 1201 of the Affordable Care Act added a new § 2708 of the PHS Act, which provides that a group health plan and health insurance issuer offering group health insurance coverage shall not apply any waiting period that exceeds 90 days.^[5] PHS Act § 2708 (42 U.S.C. § 300gg-7) is incorporated by reference into the Employee Retirement Income Security Act of 1974 (ERISA) under § 715 and into the Code under § 9815, enacted by § 1563 of the Affordable Care Act. Accordingly, the interpretation and application of § 2708 of the PHS Act is subject to the shared jurisdiction of the three Departments. Violations by group health plans are subject to the excise tax under § 4980D of the Code, as well as other civil enforcement remedies under ERISA and the PHS Act.

For purposes of § 2708 of the PHS Act, “waiting period” is defined under § 2704(b)(4) of the PHS Act to mean “with respect to a group health plan and an individual who is a potential participant or beneficiary in the plan, the period that must pass with respect to the individual before the individual is eligible to be covered for benefits under the terms of the plan.” Identical definitions of “waiting period” appear in the Code and ERISA. See Code § 9801(b)(4); ERISA § 701(b)(4).^[6] Joint final regulations under these three identical statutory provisions (which were added by HIPAA) define the term “waiting period” as “the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective [emphasis added].” See Treas. Reg. § 54.9801-3(a)(3)(iii); DOL Reg. 29 CFR 701-3(a)(3)(iii); HHS Reg. 45 CFR 146.111(a)(3)(iii).

The Departments request comments on the 90-day limitation on any waiting period under PHS Act § 2708, including comments on which employees are subject to the limitation, when a waiting period may apply consistent with the limitation, and how the 90-day limitation should be calculated. Comments are also requested on the application of the 90-day waiting period under PHS Act § 2708 to common employer eligibility and enrollment practices and the interaction between the interpretation of the Code § 4980H employer responsibility provisions and the calculation of the maximum permissible waiting period under PHS Act § 2708, including the following:

Comments must be submitted by June 17, 2011. Comments should include a reference to Notice 2011-36. Send submissions to CC:PA:LPD:PR (Notice 2011-36), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (Notice 2011-36), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20044, or sent electronically, via the following e-mail address: Notice.comments@irscounsel.treas.gov. Please include “Notice 2011-36” in the subject line of any electronic communication. All material submitted will be available for public inspection and copying.

This document provides guidance concerning the Federal income tax treatment of deferred losses on the sale or exchange of property between members of a controlled group, including transactions in which the member acquiring the property subsequently recognizes a corresponding gain with respect to the property.

Section 267(a)(1) provides that no deduction shall be allowed for any loss on the sale or exchange of property between certain related persons. Section 267(f)(2) contains an exception for a loss on the sale or exchange of property between members of a controlled group. For this purpose, “controlled group” has the meaning defined in section 1563(a) except that “more than 50 percent” is substituted for “at least 80 percent” each place it appears. In the case of a sale or exchange of loss property between members of a controlled group, the loss is deferred rather than disallowed. Under section 267(f)(2)(B), the loss is deferred until the property is transferred outside of the controlled group and there would be recognition of loss under consolidated return principles or until such other time as may be prescribed in regulations.

The regulations under section 267(f) provide that the timing principles for intercompany sales or exchanges between members of a consolidated group (see generally §1.1502-13(c)(2)) apply to sales or exchanges of property at a loss between members of controlled group. See §1.267(f)-1(a)(2). The attribute redetermination rules applicable to transactions between members of a consolidated group (see §1.1502-13(c)(1)), however, do not apply to sales or exchanges between members of a controlled group. See §1.267(f)-1(a)(2)(i)(B)). For example, if a member of a consolidated group (S) holds land for investment and sells the land at a loss to another member of its consolidated group (B), and B develops the land and sells developed lots to unrelated customers, S’s intercompany loss will be taken into account when B sells the property to the unrelated person. Furthermore, S’s loss will be recharacterized as an ordinary loss, even though S’s loss would otherwise be a capital loss given its separate-entity status as holding the property for investment. See §1.1502-13(c)(4)(i), (c)(7)(ii), Example 2. If B and S were members of a controlled group but not a consolidated group, S’s loss would also be taken into account when B sells the parcel to an unrelated person, but S’s loss would retain its character as a capital loss.

The attribute redetermination rule applicable to intercompany transactions between consolidated group members may have the effect of eliminating an intercompany loss with respect to a corporation’s stock. For example, assume that S, a subsidiary in a consolidated group, owns 100 percent of the stock of T, a solvent corporation. S sells 30 percent of T’s stock at a loss to B, the common parent of the consolidated group that includes S. In a subsequent, unrelated transaction (and before any change in the value of the T stock), T liquidates. The attribute redetermination rule of §1.1502-13(c)(1) recharacterizes S’s intercompany loss to produce the same results to the consolidated group as a whole as if S and B were divisions of a single corporation. Under these facts, the subsequent liquidation of T, tax-free under section 332, would cause S’s intercompany loss to be treated as a noncapital nondeductible amount. See §1.1502-13(f)(7), Example 5(c).

Although the attribute redetermination rule generally does not apply to sales or exchanges between members of a controlled group, §1.267(f)-1(c)(1)(iv) contains a special rule with respect to losses that would have been redetermined to be a noncapital, nondeductible amount if the consolidated return attribute redetermination rule did apply. Under §1.267(f)-1(c)(1)(iv), if an intercompany loss between members of a consolidated group would have been redetermined to be a noncapital, nondeductible amount as a result of the attribute redetermination rule applicable to consolidated groups, but is not redetermined because the sale or exchange occurred between members of a controlled group (to which the attribute redetermination rule does not apply), then the loss will be deferred until S and B are no longer in a controlled group relationship. Thus, if the facts in the example in the preceding paragraph were the same, except that B was the parent of a controlled group that included S, rather than a consolidated group, under the principles of section 267(f), the IRS and Treasury Department believe that S’s loss on the sale or exchange of T stock should be deferred until S and B (and their successors) are no longer in a controlled group relationship.

Furthermore, assume S1 and S2, both members of a consolidated group, each own 50 percent of the stock of T. If the basis of the T stock is greater than its value, a liquidation of T would generally result in non-recognition of the loss through the application of §1.1502-34 and section 332. In an attempt to avoid the non-recognition of the loss, either S1 or S2 may sell more than 20 percent of T’s stock to a nonconsolidated, controlled group member in a transaction that is treated as a sale or exchange for federal income tax purposes. Thereafter, T is liquidated in an attempt to recognize a loss on 100 percent of the subsidiary’s stock. The IRS and Treasury Department believe that in these situations, the loss should similarly be deferred until the buying and selling members are no longer in a controlled group relationship.

In a controlled group setting, taxpayers have noted that the current regulations do not allow S to take into account any amount of the intercompany loss when B recognizes a corresponding gain. For example, if S sells 30 percent of T’s stock to B at a loss (in a transaction that is treated as a sale or exchange for federal income tax purposes) and T’s stock appreciates between the time of the intercompany sale and a subsequent event that results in B’s recognition of gain (that is T’s liquidation), B would recognize a gain under section 331 at that time, but S’s loss would remain deferred in its entirety. Accordingly, the IRS and the Treasury Department propose to modify the current regulations and allow S’s intercompany loss to be taken into account to the extent that B recognizes a corresponding gain, in addition to the other events that result in acceleration.

These proposed regulations provide that, for purposes of determining whether a loss would be determined to be a noncapital, nondeductible amount under the principles of §1.1502-13, stock held by the selling member, stock held by the buying member, and stock held by all members of the seller’s consolidated group as well as stock held by any member of a controlled group of which the seller is a member that was acquired from a member of the seller’s consolidated group must be taken into account. In addition, certain losses on the sale or exchange of property between members of a controlled group, which have been deferred, are taken into account upon the occurrence of either of two events. The deferred loss is taken into account to the extent of any corresponding gain that the member acquiring the property recognizes with respect to the property. Alternatively, the deferred loss is taken into account when the parties to the transaction cease to be in a controlled group relationship. In the example, under the proposed regulations, S’s loss will be recognized to the extent of the amount of corresponding gain recognized by B upon the event that results in recognition of that gain (that is T’s liquidation).

These proposed regulations will apply to loss redetermination events that occur after the date the regulations are published as final regulations in the Federal Register.

It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It is hereby certified that these proposed regulations will not have a significant economic impact on a substantial number of small entities. This certification is based on the fact that these regulations primarily affect controlled groups of corporations which tend to be larger businesses. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal Revenue Code, this regulation has been submitted to the Small Business Administration for comment on its impact on small governmental jurisdictions.

Before these proposed regulations are adopted as final regulations, consideration will be given to any written (a signed original and eight (8) copies) or electronic comments that are submitted timely to the IRS. The IRS and the Treasury Department request comments on the clarity of the proposed rules and how they can be made easier to understand. All comments are available at www.regulations.gov or upon request. A public hearing will be scheduled if requested in writing by any person that timely submits written comments. If a public hearing is scheduled, notice of the date, time, and place for the public hearing will be published in the Federal Register.

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.267(f)-1 is amended as follows:

1. Paragraph (c)(1)(iv) is revised.

2. Paragraph (l)(3) is redesignated as paragraph (l)(4) and paragraph (l)(3) is added.

The addition and revision read as follows: