Conforming Amendments to Section 446.

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-125161-01] RIN 1545-BA05

TITLE: Conforming Amendments to Section 446

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: On July 18, 1995, the Treasury and the IRS published final
regulations governing the intercompany transaction system of the
consolidated return regulations. Those regulations state that the
timing rules of the intercompany transaction system are a method of
accounting. At the time of the publication of those regulations, no
amendment was made to the regulations promulgated under section 446
to coordinate with that statement. This document contains proposed
regulations confirming that the timing rules of the intercompany
transaction regulations are a method of accounting.

DATES: Written or electronic comments and requests for a public
hearing must be received by January 7, 2002.

ADDRESSES: Send submissions to: CC:ITA:RU, room 5226
(REG-125161-01), Internal Revenue Service, POB 7604, Ben Franklin
Station, Washington, DC 20044. Submissions may also be hand
delivered Monday through Friday between the hours of 8 a.m. and 5
p.m. to: CC:ITA:RU, room 5226 (REG-125161-01), Courier's Desk,
Internal Revenue Service, 1111 Constitution Avenue, NW, Washington,
DC. Alternatively, taxpayers may submit comments electronically via
the Internet directly to the IRS Internet site at
http://www.irs.gov/prod/tax_regs/regslist.html.

FOR FURTHER INFORMATION CONTACT: Concerning the regulation, Marie C.
Milnes-Vasquez or Frances Kelly, (202) 622-7770, or Jeffery G.
Mitchell (202) 622- 4930; concerning submissions and/or requests for
a public hearing, Guy Traynor, (202) 622-7180 (not toll-free
numbers).

SUPPLEMENTARY INFORMATION:

Background and Explanation

On July 18, 1995, the Treasury and the IRS published in the Federal
Register (60 FR 36671 [1995-2 C.B. 147]) final regulations under
§1.1502-13 governing the intercompany transaction system of the
consolidated return regulations. Included in such regulations was an
express statement that "[t]he timing rules of [the intercompany
transaction regulations] are a method of accounting for intercompany
transactions, to be applied by each member in addition to the
member's other methods of accounting." §1.1502-13(a)(3)(i). At
the time of the publication of those final regulations, no amendment
was made to the regulations promulgated under section 446 to
coordinate with the statement in §1.1502-13(a)(3)(i) that the
timing rules of §1.1502-13 are a method of accounting.

In General Motors v. Commissioner, 112 T.C. 270 (1999), the Tax
Court determined that the timing rule of former §1.1502-13(b)
(2) was not a method of accounting for purposes of section 446(e).
The proposed regulations included in this. document amend
§1.446-1 to confirm the IRS's position that the timing rules of
current §1.1502-13 are a method of accounting.

Proposed Effective Date

The regulations in this section are proposed to apply to
consolidated return years beginning on or after November 7, 2001.

Special Analyses

It has been determined that this notice of proposed rule making is
not a significant regulatory action as defined in Executive Order
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) and the Regulatory Flexibility
Act (5 U.S.C. chapter 6) do not apply to these regulations, and,
because the proposed rule does not impose a collection of
information on small entities, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue
Code, these regulations will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on their
impact on small business.

Comments and 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) or electronic comments that are
timely submitted to the IRS. All comments will be made available for
public inspection and copying. A public hearing may 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 hearing will be published in the Federal
Register.

Drafting Information

The principal author of these proposed regulations is Marie C.
Milnes-Vasquez, Office of the Associate Chief Counsel (Corporate).
However, other personnel from the IRS and Treasury Department
participated in their development.

List of Subjects in 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 continues to read in
part as follows:

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

Par. 2. Section 1.446-1 is amended by adding paragraph (c)(2)(iii)
to read as follows:

§1.446-1 General rule for methods of accounting.

* * * * *

(c) * * *

(2) * * *

(iii) The timing rules of §1.1502-13 are a method of accounting
for intercompany transactions (as defined in §1.1502-13(b)(1)
(i)), to be applied by each member of a consolidated group in
addition to the member's other methods of accounting. See
§1.1502-13(a)(3)(i). This paragraph is applicable to
consolidated return years beginning on or after November 7, 2001.

* * * * *

Par. 3. In §1.1502-13, the second sentence of paragraph (a)(3)
(i) is revised to read as follows:

§1.1502-13 Intercompany transactions.

(a) * * *

(3) * * *

(i) * * * See §1.1502-17 and, with regard to consolidated
return years beginning on or after November 7, 2001,
§1.446-1(c)(2)(iii). * * *

* * * * *

Commissioner of Internal Revenue

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