[Federal Register Volume 78, Number 172 (Thursday, September 5, 2013)]
[Rules and Regulations]
[Pages 54568-54569]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-21540]
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DEPARTMENT OF TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9635]
RIN 1545-BK89
Debt That Is a Position in Personal Property That Is Part of a
Straddle
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
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SUMMARY: This document contains final and temporary regulations
relating to the application of the straddle rules to a debt instrument.
The temporary regulations clarify that a taxpayer's obligation under a
debt instrument can be a position in personal property that is part of
a straddle. The temporary regulations primarily affect taxpayers that
issue debt instruments that provide for one or more payments that
reference the value of personal property or a position in personal
property. The text of these temporary regulations also serves as the
text of the proposed regulations (REG-111753-12) set forth in the
Proposed Rules section in this issue of the Federal Register.
DATES: Effective Date: These regulations are effective on September 5,
2013.
Applicability Dates: For date of applicability, see Sec.
1.1092(d)-1T(e).
FOR FURTHER INFORMATION CONTACT: Mary Brewer, (202) 622-4695 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Background and Explanation of Provisions
1. Summary of Prior Notice of Proposed Rule Making
This document contains amendments to 26 CFR part 1. On January 18,
2001, a notice of proposed rulemaking (REG-105801-00; RIN 1545-AX92)
(the 2001 NPRM) was published in the Federal Register (66 FR 4746). The
2001 NPRM addresses the definition of personal property for purposes of
section 263(g) of the Internal Revenue Code (Code), the types of
expenses subject to capitalization, and the operation of the
capitalization rules. Another portion of the 2001 NPRM (proposed
regulation Sec. 1.1092(d)-1(d)) would clarify the circumstances under
which an issuer's position under a debt instrument is treated as a
position in personal property that is part of a straddle.
No public hearing was requested or held. Written and electronic
comments responding to the 2001 NPRM were received, and the only
commenter that substantively addressed proposed Sec. 1.1092(d)-1(d)
urged its adoption. This Treasury Decision adopts proposed Sec.
1.1092(d)-1(d) (REG-105801-00) in the form proposed. As so adopted,
this provision is designated as Sec. 1.1092(d)-1T(d). This Treasury
Decision also adopts the 2001 NPRM's proposed amendment to the
effective/applicability dates (proposed Sec. 1.1092(d)-1(e)). As so
adopted, this effective/applicability date is designated as Sec.
1.1092(d)-1T(e)(2). The amendments are discussed in section 2 of this
preamble. The remainder of the 2001 NPRM remains proposed.
2. Overview of the Temporary Regulations
The temporary regulations provide guidance under section 1092
regarding when an issuer's obligation under a debt instrument may be a
position in actively traded personal property and, therefore, may be
part of a straddle.
Definition of Personal Property for Purposes of Section 1092
Section 1092(d)(1) defines ``personal property'' to mean ``personal
property of a type that is actively traded.'' A debt or obligation
generally is not property of the debtor or obligor. Nevertheless, if a
debt instrument provides for payments that are (or are reasonably
expected to be) linked to the value of personal property as so defined,
then the obligor on the instrument has a position in the personal
property referenced by the debt instrument.
Section 1092(d)(7) provides that if a debt instrument is
denominated in a nonfunctional currency, the obligor's position under
the debt obligation is a position in the nonfunctional currency. Some
maintain that section 1092(d)(7) evidences an intent by Congress to
limit the circumstances in which an obligor's interest in a debt
instrument may be a position in a straddle, and that such treatment is
proper only with respect to debt obligations denominated in
nonfunctional currency. The IRS and the Treasury Department do not
believe that section 1092(d)(7) describes the only circumstance in
which an obligor's interest in a debt instrument may be treated as part
of a straddle. The statute and the legislative history do not contain
any indication that Congress intended to limit section 1092 in this
manner; rather, the legislative history characterizes section
1092(d)(7) as a clarification of prior law:
The Senate amendment clarifies that an obligor's interest in a
foreign currency denominated obligation is a ``position'' for
purposes of the loss deferral rule. The rationale for this treatment
is that a foreign currency borrowing is economically similar to a
short position in the foreign currency.
H.R. Rep. No. 99-841, pt. 2, at 670 (1986) (Conf. Rep.); 1986-3 (Vol.
4) CB 670. Moreover, it is clear that an economic exposure associated
with an obligation that is not a debt instrument (such as a written
option or the obligation created by a short sale) may be a straddle
position. Similarly, a debt instrument may be a position in personal
property, and accordingly subject to the straddle rules, if the
obligation is linked to personal property. Therefore, Sec. 1.1092(d)-
1T(d) of the temporary regulations expressly provides that an
obligation under a debt instrument may be a position in personal
property that is part of a straddle.
Dates of Applicability of the Regulations
The temporary regulations adopt the effective/applicability date
set forth in the 2001 NPRM by providing that
[[Page 54569]]
Sec. 1.1092(d)-1T(d) applies to straddles established on or after
January 17, 2001 (the date on which the 2001 NPRM was filed with the
Federal Register). No inference is intended with respect to straddles
established prior to January 17, 2001. In appropriate cases, the IRS
may take the position under section 1092(d)(2) that, even in the
absence of a regulation, an obligation under a debt instrument was part
of a straddle prior to the effective date of Sec. 1.1092(d)-1T(d) if
the debt instrument functioned economically as an interest in actively
traded personal property.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866, as
supplemented by Executive Order 13563. 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. For the applicability of the Regulatory
Flexibility Act (5 U.S.C. chapter 6) refer to the Special Analyses
section of the preamble to the cross-reference notice of proposed
rulemaking published in the Proposed Rules section in this issue of the
Federal Register. Pursuant to section 7805(f) of the Code, this
regulation has been 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 Mary Brewer, Office of
Associate Chief Counsel (Financial Institutions and Products). However,
other personnel from the IRS and the Treasury Department participated
in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by adding an
entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1092(d)-1T also issued under 26 U.S.C. 1092(b)(1). * *
*
0
Par. 2. Section 1.1092(d)-1 is amended by redesignating paragraph (d)
as newly-designated paragraph (e) and revising newly-designated
paragraph (e), and adding new paragraph (d) to read as follows:
Sec. 1.1092(d)-1 Definitions and special rules.
* * * * *
(d) [Reserved]. For further guidance, see Sec. 1.1092(d)-1T(d).
(e) Effective/applicability dates. (1) Paragraph (b)(1)(vii) of
this section applies to positions entered into on or after October 14,
1993. Paragraph (c) of this section applies to positions entered into
on or after July 8, 1991.
(2) [Reserved]. For further guidance, see Sec. 1.1092(d)-1T(e)(2).
0
Par. 3. Section 1.1092(d)-1T is added to read as follows:
Sec. 1.1092(d)-1T Definitions and special rules (temporary).
(a) through (c) [Reserved]. For further guidance, see Sec.
1.1092(d)-1(a) through (c).
(d) Debt instrument linked to the value of personal property. If a
taxpayer is the obligor under a debt instrument one or more payments on
which are linked to the value of personal property or a position with
respect to personal property, then the taxpayer's obligation under the
debt instrument is a position with respect to personal property and may
be part of a straddle.
(e) Effective/applicability dates--(1) [Reserved]. For further
guidance, see Sec. 1.1092(d)-1(e)(1).
(2) Notwithstanding paragraph (e)(1) of this section, paragraph (d)
of this section applies to straddles established on or after January
17, 2001.
(f) Expiration date. The applicability of this section expires on
September 2, 2016.
Approved: August 26, 2013.
Beth Tucker,
Deputy Commissioner for Operations Support.
Mark J. Mazur,
Assistant Secretary (Tax Policy).
[FR Doc. 2013-21540 Filed 9-4-13; 8:45 am]
BILLING CODE 4830-01-P